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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

**FOR      THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006**

**_____________________**

**TXU      Energy Company LLC**

| 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) |

**_____________________**

**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**                                                                                                                                                                              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                |  **Page** |
|  **Glossary**                                                                                                                                                                                                             |  ii |
|  **Part                  I.** **Financial                  Information**                                                                                                                                                  |   |
|  **Item                  1.** **Financial                  Statements** Condensed                  Statements of Consolidated Income -Three                  and Nine Months Ended September 30, 2006 and 2005  |  1 |
|  Condensed                  Statements of Consolidated Comprehensive Income -Three                  and Nine Months Ended September 30, 2006 and 2005                                                                     |  2 |
|  Condensed                  Statements of Consolidated Cash Flows -Nine                  Months Ended September 30, 2006 and 2005                                                                                         |  3 |
|  Condensed                  Consolidated Balance Sheets -September                  30, 2006 and December 31, 2005                                                                                                        |  4 |
|  Notes                  to Condensed Consolidated Financial Statements                                                                                                                                                    |  5 |
|  Report                  of Independent Registered Public Accounting Firm                                                                                                                                                 |  23 |
|  **Item                  2.** **Management’s                  Discussion and Analysis of Financial                  Condition****and                  Results of Operations**                                  |  24 |
|  **Item                  3.** **Quantitative                  and Qualitative Disclosures About Market Risk**                                                                                                        |  46 |
|  **Item                  4.** **Controls                  and Procedures**                                                                                                                                           |  51 |
|  **Part                  II.** **Other                  Information**                                                                                                                                                     |   |
|  **Item                  1.** **Legal                  Proceedings**                                                                                                                                                 |  52 |
|  **Item                  1A.** **Risk                  Factors**                                                                                                                                                     |  52 |
|  **Item                  6.** **Exhibits**                                                                                                                                                                                |  53 |
|  **Signature**                                                                                                                                                                                                            |  54 |
|                                                                                                                                                                                                                                |   |

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

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**GLOSSARY**

| **1999                  Restructuring Legislation** | legislation                  that restructured the electric utility industry in Texas to provide                  for                  retail competition                                                                                                                                                                                                            |
|-----------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **2005                  Form 10-K**                 | TXU                  Energy Company’s Annual Report on Form 10-K for the year ended December                  31, 2005                                                                                                                                                                                                                                         |
| **Capgemini**                                       | Capgemini                  Energy LP, a subsidiary of Cap Gemini North America Inc. that provides                  business support services to TXU Energy Company and TXU Electric                  Delivery                                                                                                                                                        |
| **Commission**                                      | Public                  Utility Commission of Texas                                                                                                                                                                                                                                                                                                                  |
| **EITF**                                            | Emerging                  Issues Task Force                                                                                                                                                                                                                                                                                                                          |
| **EITF                  02-3**                      | EITF                  Issue 02-3, “Issues Involved in Accounting for Derivative Contracts Held                  for Trading Purposes and Contracts Involved in Energy Trading and                  Risk                  Management Activities”                                                                                                          |
| **EPA**                                             | US                  Environmental Protection Agency                                                                                                                                                                                                                                                                                                                  |
| **ERCOT**                                           | Electric                  Reliability Council of Texas, the Independent System Operator and                  the                  regional reliability coordinator of the various electricity systems                  within                  Texas                                                                                                                 |
| **FASB**                                            | Financial                  Accounting Standards Board, the designated organization in the                  private                  sector for establishing standards for financial accounting and                  reporting                                                                                                                                        |
| **FERC**                                            | US                  Federal Energy Regulatory Commission                                                                                                                                                                                                                                                                                                             |
| **FIN**                                             | Financial                  Accounting Standards Board Interpretation                                                                                                                                                                                                                                                                                                 |
| **FIN                  45**                         | FIN                  No. 45, “Guarantor’s Accounting and Disclosure Requirements for                  Guarantees, Including Indirect Guarantees of Indebtedness of Others                  - An                  Interpretation FASB Statements No. 5, 57, and 107 and Rescission                  of FASB                  Interpretation No. 34” |
| **FIN                  48**                         | FIN                  48, “Accounting for Uncertainty in Income Taxes”                                                                                                                                                                                                                                                                                    |
| **Fitch**                                           | Fitch                  Ratings, Ltd. (a credit rating agency)                                                                                                                                                                                                                                                                                                        |
| **FSP                  AUG AIR-1**                  | FASB                  Staff Position No. AUG AIR-1, “Accounting for Planned Major Maintenance                  Activities”                                                                                                                                                                                                                               |
| **GW**                                              | gigawatts                                                                                                                                                                                                                                                                                                                                                            |
| **GWh**                                             | gigawatt-hours                                                                                                                                                                                                                                                                                                                                                       |
| **historical                  service territory**   | the                  territory, largely in north Texas, being served by TXU Corp.’s regulated                  electric utility subsidiary at the time of entering retail competition                  on                  January 1, 2002                                                                                                                     |
| **IRS**                                             | US                  Internal Revenue Service                                                                                                                                                                                                                                                                                                                         |
| **kWh**                                             | kilowatt-hours                                                                                                                                                                                                                                                                                                                                                       |

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| **market                  heat rate**   | Heat                  rate is a measure of the efficiency of converting a fuel source                  to                  electricity. The market heat rate is based on the price offer of                  the                  marginal supplier (generally gas plants) in generating electricity                  and is                  calculated by dividing the wholesale market price of power by the                  market                  price of natural gas.                                                                                                                                                                             |
|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **MMBtu**                               | million                  British thermal units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **Moody’s**                       | Moody’s                  Investors Services, Inc. (a credit rating agency)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **MW**                                  | megawatts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **MWh**                                 | megawatt-hours                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **NRC**                                 | US                  Nuclear Regulatory Commission                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **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 |
| **PURA**                                | Texas                  Public Utility Regulatory Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **reference                  plant**    | eight                  new power generation units to be built by subsidiaries of TXU Corp.                  with a                  proprietary standardized “reference” plant design and construction                  planning process                                                                                                                                                                                                                                                                                                                                                                                                       |
| **REP**                                 | retail                  electric provider                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **S&P**                             | Standard                  & Poor’s Ratings Services, a division of the McGraw Hill Inc.                  Companies (a credit rating agency)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **SEC**                                 | US                  Securities and Exchange Commission                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Settlement                  Plan**    | regulatory                  settlement plan that received final approval by the Commission                  in January                  2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **SFAS**                                | Statement                  of Financial Accounting Standards issued by the FASB                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **SFAS                  34**            | SFAS                  No. 34, “Capitalization of Interest Cost”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **SFAS                  87**            | SFAS                  No. 87, “Employers’ Accounting for Pensions”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **SFAS                  88**            | SFAS                  No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined                  Benefit Pension Plans and Termination Benefits”                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **SFAS                  106**           | SFAS                  No. 106, “Employers’ Accounting for Postretirement Benefits Other Than                  Pensions”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **SFAS                  109**           | SFAS                  No. 109, “Accounting for Income Taxes”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **SFAS                123R**            | SFAS                No. 123R (revised 2004), "Share-Based Payment"                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **SFAS                  132R**          | SFAS                  No. 132R (revised 2003), “Employers’ Disclosures about Pensions and Other                  Postretirement Benefits”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **SFAS                  133**           | SFAS                  No. 133, “Accounting for Derivative Instruments and Hedging Activities” as                  amended and interpreted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **SFAS                  140**           | SFAS                  No. 140, “Accounting for Transfers and Servicing of Financial Assets and                  Extinguishments of Liabilities, a replacement of FASB Statement                  125”                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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| **SFAS                  144**                 | SFAS                  No. 144, “Accounting for the Impairment or Disposal of Long-Lived                  Assets”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **SFAS                  157**                 | SFAS                  No. 157, “Fair Value Measurements”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **SFAS                  158**                 | SFAS                  No. 158, “Employer’s Accounting for Defined Benefit Pension and Other                  Postretirement Plans”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **SG&A**                                  | selling,                  general and administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **Short-cut                  method**         | refers                  to the short-cut method under SFAS 133 that allows entities to                  assume no                  hedge ineffectiveness in a hedging relationship of interest rate                  risk if                  certain conditions are met                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **TCEQ**                                      | Texas                  Commission on Environmental Quality                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **TXU                  Big Brown**            | TXU                  Big Brown Company LP, a Texas limited partnership and subsidiary                  of TXU                  Energy Company, which owns two lignite/coal-fired generation units                  in                  Texas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **TXU                  Corp.**                | refers                  to TXU Corp., a holding company, and/or its consolidated subsidiaries,                  depending on context                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **TXU                  DevCo**                | Refers                  to TXU Generation Development Company LLC, a Delaware limited liability                  company and holding company subsidiary of TXU Corp., which has                  been                  established for the purpose of developing and constructing new                  lignite/coal-fired generation facilities in Texas. While an affiliate                  of                  TXU Energy Company, TXU DevCo is not a subsidiary of, or a parent                  company                  to, TXU Energy Company.                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **TXU                  Electric Delivery**    | refers                  to TXU Electric Delivery Company, a subsidiary of TXU Corp., and/or                  its                  consolidated bankruptcy-remote financing subsidiary, TXU Electric                  Delivery                  Transition Bond Company LLC, depending on context                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **TXU                  Energy Company**       | Refers                  to TXU Energy Company LLC, a subsidiary of US Holdings, and/or                  its                  consolidated subsidiaries, depending on context, engaged in electricity                  generation and wholesale and retail energy markets activities.                  This Form                  10-Q and other SEC filings of TXU Energy Company occasionally make                  references to TXU Energy Company when describing actions, rights                  or                  obligations of its subsidiaries. These references reflect the fact                  that                  the subsidiaries are consolidated with TXU Energy Company for financial                  reporting purposes. However, these references should not be interpreted                  to                  imply that TXU Energy Company is actually undertaking the action                  or has                  the rights or obligations of its subsidiaries. |
| **TXU                  Energy Retail**        | Refers                  to TXU Energy Retail Company LP, a subsidiary of TXU Energy Company                  engaged                  in the retail sale of power to residential and business                  customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **TXU                  Portfolio Management** | TXU                  Portfolio Management Company LP, a subsidiary of TXU Energy                  Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **US**                                        | United                  States of America                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **US                  GAAP**                  | accounting                  principles generally accepted in the US                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **US                  Holdings**              | TXU                  US Holdings Company, a subsidiary of TXU Corp. and parent of TXU                  Energy                  Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

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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****September                  30,** |    | **Nine                  Months Ended****September                  30,** |   |
|---------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|---------|--------------------------------------------------------------------------|--------|
|                                                                                  |   | **2006**                                                                  |    | **2005**                                                                 |   | **2006** |   | **2005** |   |
|                                                                                  |   | **(millions                  of dollars)**                                |    |
|                                                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |
| **Operating                  revenues**                                          |   | $                                                                         | 3,091   |                                                                     | $      | 2,994 |   | $ | 7,569 |   | $ | 7,091 |   |
|                                                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Costs                  and expenses:                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Fuel,                  purchased power costs and delivery fees                        |   |                                                                      | 1,342   |                                                                     |   | 1,835 |   |   | 3,075 |   |   | 4,173 |   |
| Operating                  costs                                                      |   |                                                                      | 142     |                                                                     |   | 151 |   |   | 447 |   |   | 482 |   |
| Depreciation                  and amortization                                        |   |                                                                      | 82      |                                                                     |   | 78 |   |   | 251 |   |   | 234 |   |
| Selling,                  general and administrative expenses                         |   |                                                                      | 137     |                                                                     |   | 139 |   |   | 383 |   |   | 367 |   |
| Franchise                  and revenue-based taxes                                    |   |                                                                      | 31      |                                                                     |   | 27 |   |   | 84 |   |   | 77 |   |
| Other                  income (Note 11)                                               |   |                                                                      | (9      | )                                                                        |   | (19 | ) |   | (11 | ) |   | (28 | ) |
| Other                  deductions (Note 11)                                           |   |                                                                      | 4       |                                                                     |   | 6 |   |   | 198 |   |   | 19 |   |
| Interest                  income                                                      |   |                                                                      | (61     | )                                                                        |   | (21 | ) |   | (137 | ) |   | (42 | ) |
| Interest                  expense and related charges (Note 13)                       |   |                                                                      | 108     |                                                                     |   | 102 |   |   | 310 |   |   | 287 |   |
| Total                  costs and expenses                                             |   |                                                                      | 1,776   |                                                                     |   | 2,298 |   |   | 4,600 |   |   | 5,569 |   |
|                                                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Income                  from continuing operations before income taxes           |   |                                                                      | 1,315   |                                                                     |   | 696 |   |   | 2,969 |   |   | 1,522 |   |
|                                                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Income                  tax expense                                              |   |                                                                      | 431     |                                                                     |   | 237 |   |   | 1,022 |   |   | 515 |   |
|                                                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| **Income                  from continuing operations**                           |   |                                                                      | 884     |                                                                     |   | 459 |   |   | 1,947 |   |   | 1,007 |   |
|                                                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Loss                  from discontinued operations, net of tax benefit (Note 3)  |   |                                                                      | ─ |                                                                     |   | (2 | ) |   | ─ |   |   | (6 | ) |
|                                                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| **Net                  income**                                                  |   | $                                                                         | 884     |                                                                     | $      | 457 |   | $ | 1,947 |   | $ | 1,001 |   |

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**TXU        ENERGY COMPANY LLC**

**CONDENSED        STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME**

**(Unaudited)**

|                                                                                                                                                                                                           |   | **Three                  Months Ended****September                  30,** |    | **Nine                  Months Ended****September                  30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|---------|--------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                           |   | **2006**                                                                  |    | **2005**                                                                 |   | **2006** |   | **2005** |   |
|                                                                                                                                                                                                           |   | **(millions                  of dollars)**                                |    |
|                                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |
| Components                  related to continuing operations:                                                                                                                                                  |   |                                                                      |    |                                                                     |   |   |   |   |   |
|                                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |
| Income                  from continuing operations                                                                                                                                                        |   | $                                                                         | 884     |                                                                     | $      | 459 |   | $ | 1,947 |   | $ | 1,007 |   |
|                                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Other                  comprehensive income:                                                                                                                                                                   |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Minimum                  pension liability adjustment (net of tax expense of$-,                  $-, $- and $4)                                                                                           |   |                                                                      | ─ |                                                                     |   | ─ |   |   | ─ |   |   | 7 |   |
|                                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Cash                  flow hedges:                                                                                                                                                                             |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Net                  change in fair value of derivatives held at end of period (net                  oftax                  (expense) benefit of ($184), $38, ($205) and $31) (See Note                  10)   |   |                                                                      | 342     |                                                                     |   | (71 | ) |   | 381 |   |   | (58 | ) |
| Derivative                  value net losses reported in net income that relate to hedged transactions                  recognized in the period (net of tax benefit of $6, $10, $11 and                  $29) |   |                                                                      | 11      |                                                                     |   | 17 |   |   | 21 |   |   | 52 |   |
| Total                  effect of cash flow hedges                                                                                                                                                              |   |                                                                      | 353     |                                                                     |   | (54 | ) |   | 402 |   |   | (6 | ) |
|                                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income from continuing operations                                                                                                                                          |   |                                                                      | 1,237   |                                                                     |   | 405 |   |   | 2,349 |   |   | 1,008 |   |
|                                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Comprehensive                  loss from discontinued operations                                                                                                                                          |   |                                                                      | ─ |                                                                     |   | (2 | ) |   | ─ |   |   | (6 | ) |
|                                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income                                                                                                                                                                     |   | $                                                                         | 1,237   |                                                                     | $      | 403 |   | $ | 2,349 |   | $ | 1,002 |   |

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**TXU        ENERGY COMPANY LLC**

**CONDENSED        STATEMENTS OF CONSOLIDATED CASH FLOWS**

**(Unaudited)**

|                                                                                                                                                    |   | **Nine                  Months Ended**     |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                                                                                                                    |   | **September                  30,**         |    |
|                                                                                                                                                    |   | **2006**                                   |    | **2005** |   |
|                                                                                                                                                    |   | **(millions                  of dollars)** |    |
| Cash                  flows - operating activities:                                                                            |   |                                       |    |   |   |
| Income                  from continuing operations                                                                                                 |   | $                                          | 1,947   |   | $ | 1,007 |   |
| Adjustments                  to reconcile income from continuing operations to cash provided                  by                  operating activities: |   |                                       |    |   |   |   |   |
| Depreciation                  and amortization                                                                                                     |   |                                       | 302     |   |   | 279 |   |
| Deferred                  income taxes and investment tax credits - net                                                                            |   |                                       | (21     | ) |   | (56 | ) |
| Net                  effect of unrealized mark-to-market valuations                                                                                |   |                                       | (287    | ) |   | 87 |   |
| Impairment                  of natural gas-fired generation plants                                                                                 |   |                                       | 196     |   |   | ─ |   |
| Bad                  debt expense                                                                                                                  |   |                                       | 52      |   |   | 37 |   |
| Net                  gain on sale of assets                                                                                                        |   |                                       | (9      | ) |   | (13 | ) |
| Amortization                  of losses on dedesignated cash flow hedges                                                                           |   |                                       | 8       |   |   | 7 |   |
| Net                  equity loss from unconsolidated affiliate                                                                                     |   |                                       | 8       |   |   | 5 |   |
| Stock-based                  incentive compensation expense                                                                                        |   |                                       | 6       |   |   | 9 |   |
| Credit                  related to impaired leases                                                                                                 |   |                                       | (4      | ) |   | (12 | ) |
| Inventory                  write-off related to natural gas-fired generation plants                                                                |   |                                       | 3       |   |   | ─ |   |
| Change                  in retail clawback liability                                                                                               |   |                                       | ─ |   |   | (48 | ) |
| Charge                  related to coal contract counterparty claim                                                                                |   |                                       | ─ |   |   | 12 |   |
| Changes                  in operating assets and liabilities                                                                                       |   |                                       | 1,729   |   |   | 56 |   |
| Cash                  provided by operating activities from continuing                  operations                                                      |   |                                       | 3,930   |   |   | 1,370 |   |
|                                                                                                                                                    |   |                                       |    |   |   |   |   |
| Cash                  flows - financing activities:                                                                                                     |   |                                       |    |   |   |   |   |
| Issuances                  of long-term debt                                                                                                       |   |                                       | 100     |   |   | 71 |   |
| Retirements                  of debt                                                                                                               |   |                                       | (605    | ) |   | (71 | ) |
| Change                  in short-term borrowings:                                                                                                       |   |                                       |    |   |   |   |   |
| Commercial                  paper                                                                                                                  |   |                                       | 54      |   |   | ─ |   |
| Banks                                                                                                                                              |   |                                       | (145    | ) |   | 250 |   |
| Decrease                  in income tax-related note payable to TXU Electric Delivery                                                              |   |                                       | (31     | ) |   | (40 | ) |
| Distributions                  paid to parent                                                                                                      |   |                                       | (858    | ) |   | (525 | ) |
| Excess                  tax benefits on stock-based incentive compensation                                                                         |   |                                       | 13      |   |   | 7 |   |
| Debt                  premium, discount, financing and reacquisition expenses                                                                      |   |                                       | (13     | ) |   | (14 | ) |
| Cash                  used in financing activities from continuing operations                                                                           |   |                                       | (1,485  | ) |   | (322 | ) |
|                                                                                                                                                    |   |                                       |    |   |   |   |   |
| Cash                  flows - investing activities:                                                                                                     |   |                                       |    |   |   |   |   |
| Advances                  to affiliates                                                                                                            |   |                                       | (1,864  | ) |   | (661 | ) |
| Capital                  expenditures                                                                                                              |   |                                       | (411    | ) |   | (189 | ) |
| Nuclear                  fuel                                                                                                                      |   |                                       | (77     | ) |   | (57 | ) |
| Proceeds                  from sale of assets                                                                                                      |   |                                       | 11      |   |   | 36 |   |
| Proceeds                  from pollution control revenue bonds deposited with trustee                                                              |   |                                       | (99     | ) |   | ─ |   |
| Proceeds                  from sales of nuclear decommissioning trust fund securities                                                              |   |                                       | 165     |   |   | 127 |   |
| Investments                  in nuclear decommissioning trust fund securities                                                                      |   |                                       | (177    | ) |   | (138 | ) |
| Other                                                                                                                                              |   |                                       | 2       |   |   | 2 |   |
| Cash                  used in investing activities from continuing operations                                                                           |   |                                       | (2,450  | ) |   | (880 | ) |
|                                                                                                                                                    |   |                                       |    |   |   |   |   |
| Discontinued                  operations:                                                                                                               |   |                                       |    |   |   |   |   |
| Cash                  used in operating activities                                                                                                 |   |                                       | ─ |   |   | (3 | ) |
| Cash                  used in financing activities                                                                                                 |   |                                       | ─ |   |   | ─ |   |
| Cash                  used in investing activities                                                                                                 |   |                                       | ─ |   |   | ─ |   |
| Cash                  used in discontinued operations                                                                                                   |   |                                       | ─ |   |   | (3 | ) |
|                                                                                                                                                    |   |                                       |    |   |   |   |   |
| Net                  change in cash and cash equivalents                                                                                           |   |                                       | (5      | ) |   | 165 |   |
|                                                                                                                                                    |   |                                       |    |   |   |   |   |
| Cash                  and cash equivalents - beginning balance                                                                                     |   |                                       | 12      |   |   | 70 |   |
|                                                                                                                                                    |   |                                       |    |   |   |   |   |
| Cash                  and cash equivalents - ending balance                                                                                        |   | $                                          | 7       |   | $ | 235 |   |

----

**TXU        ENERGY COMPANY LLC**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

|                                                                                                    |   | **September                  30,**         |    | **December                  31,** |   |
|---------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|---------|-----------------------------------|--------|
|                                                                                                    |   | **2006**                                   |    | **2005**                          |   |
|                                                                                                    |   | **(millions                  of dollars)** |    |
| **ASSETS**                                                                                              |   |
| Current                  assets:                                                                   |   |                                       |    |                              |   |
| Cash                  and cash equivalents                                                         |   | $                                          | 7       |                              | $      | 12 |   |
| Restricted                  cash                                                                   |   |                                       | 3       |                              |   | 8 |   |
| Trade                  accounts receivable — net                                             |   |                                       | 947     |                              |   | 1,178 |   |
| Advances                  to parent                                                                |   |                                       | 1,858   |                              |   | 694 |   |
| Note                  receivable from parent                                                       |   |                                       | 1,500   |                              |   | 1,500 |   |
| Income                  taxes receivable from parent                                               |   |                                       | ─ |                              |   | 361 |   |
| Inventories                                                                                        |   |                                       | 314     |                              |   | 309 |   |
| Commodity                  contract assets                                                         |   |                                       | 428     |                              |   | 1,603 |   |
| Cash                  flow hedge and other derivative assets                                       |   |                                       | 677     |                              |   | 63 |   |
| Margin                  deposits related to commodity positions                                    |   |                                       | 30      |                              |   | 247 |   |
| Other                  current assets                                                              |   |                                       | 304     |                              |   | 244 |   |
| Total                  current assets                                                                   |   |                                       | 6,068   |                              |   | 6,219 |   |
|                                                                                                    |   |                                       |    |                              |   |   |   |
| Restricted                  cash                                                                   |   |                                       | 101     |                              |   | ─ |   |
| Investments                                                                                        |   |                                       | 519     |                              |   | 501 |   |
| Advances                  to parent                                                                |   |                                       | 700     |                              |   | ─ |   |
| Property,                  plant and equipment — net                                         |   |                                       | 9,959   |                              |   | 9,958 |   |
| Goodwill                                                                                           |   |                                       | 517     |                              |   | 517 |   |
| Commodity                  contract assets                                                         |   |                                       | 168     |                              |   | 338 |   |
| Cash                  flow hedge and other derivative assets                                       |   |                                       | 117     |                              |   | 68 |   |
| Other                  noncurrent assets                                                           |   |                                       | 190     |                              |   | 205 |   |
|                                                                                                    |   |                                       |    |                              |   |   |   |
| Total                  assets                                                                           |   | $                                          | 18,339  |                              | $      | 17,806 |   |
|                                                                                                    |   |                                       |    |                              |   |   |   |
| **LIABILITIES                  AND MEMBERSHIP INTERESTS**                                               |
| Current                  liabilities:                                                                   |   |                                       |    |                              |   |   |   |
| Short-term                  borrowings                                                             |   | $                                          | 655     |                              | $      | 746 |   |
| Long-term                  debt due currently                                                      |   |                                       | 11      |                              |   | 401 |   |
| Trade                  accounts payable - nonaffiliates                                            |   |                                       | 683     |                              |   | 879 |   |
| Trade                  accounts and other payables to affiliates                                   |   |                                       | 378     |                              |   | 355 |   |
| Commodity                  contract liabilities                                                    |   |                                       | 509     |                              |   | 1,481 |   |
| Cash                  flow hedge and other derivative liabilities                                  |   |                                       | 29      |                              |   | 260 |   |
| Margin                  deposits related to commodity positions                                    |   |                                       | 721     |                              |   | 357 |   |
| Accrued                  income taxes payable to parent                                            |   |                                       | 620     |                              |   | ─ |   |
| Accrued                  taxes other than income                                                   |   |                                       | 71      |                              |   | 51 |   |
| Other                  current liabilities                                                         |   |                                       | 311     |                              |   | 415 |   |
| Total                  current liabilities                                                              |   |                                       | 3,988   |                              |   | 4,945 |   |
|                                                                                                    |   |                                       |    |                              |   |   |   |
| Accumulated                  deferred income taxes                                                 |   |                                       | 3,050   |                              |   | 2,800 |   |
| Investment                  tax credits                                                            |   |                                       | 315     |                              |   | 326 |   |
| Commodity                  contract liabilities                                                    |   |                                       | 158     |                              |   | 516 |   |
| Cash                  flow hedge and other derivative liabilities                                  |   |                                       | 39      |                              |   | 44 |   |
| Notes                  or other liabilities due affiliates                                         |   |                                       | 370     |                              |   | 406 |   |
| Other                  noncurrent liabilities and deferred credits                                 |   |                                       | 1,093   |                              |   | 833 |   |
| Long-term                  debt, less amounts due currently                                        |   |                                       | 2,941   |                              |   | 3,055 |   |
| Exchangeable                  preferred membership interests, net of discount ($─ and $222)  |   |                                       | ─ |                              |   | 528 |   |
| Total                  liabilities                                                                      |   |                                       | 11,954  |                              |   | 13,453 |   |
|                                                                                                    |   |                                       |    |                              |   |   |   |
| Commitments                  and contingencies (Note 8)                                                 |   |                                       |    |                              |   |   |   |
|                                                                                                    |   |                                       |    |                              |   |   |   |
| Membership                  interests (Note 7):                                                         |   |                                       |    |                              |   |   |   |
| Capital                  account                                                                   |   |                                       | 6,104   |                              |   | 4,474 |   |
| Accumulated                  other comprehensive income (loss)                                     |   |                                       | 281     |                              |   | (121 | ) |
| Total                  membership interests                                                             |   |                                       | 6,385   |                              |   | 4,353 |   |
| Total                  liabilities and membership interests                                             |   | $                                          | 18,339  |                              | $      | 17,806 |   |

----

**TXU        ENERGY COMPANY LLC**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.**
**SIGNIFICANT        ACCOUNTING POLICIES AND BUSINESS**

***Description        of Business***

***Basis        of Presentation***

----

***Discontinued        Businesses***

***Use        of Estimates***

***Changes        in Accounting Standards***
*—*

|                                                    |   | **Increase                  to****September                  30, 2006****Balances** |   |
|---------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|
|                                                    |   |                                                                                |   |
| Noncurrent                  assets:                     |   |                                                                                |   |
| Prepaid                  defined benefit pension        |   | $                                                                                   | 91     |   |
| Noncurrent                  liabilities:                |   |                                                                                |   |   |
| Accumulated                  deferred income taxes      |   | $                                                                                   | 26     |   |
| OPEB                  obligation                        |   | $                                                                                   | 14     |   |
| Membership                  interests:                  |   |                                                                                |   |   |
| Accumulated                  other comprehensive income |   | $                                                                                   | 51     |   |

----

**2.**
**IMPAIRMENT        OF NATURAL GAS-FIRED GENERATION PLANTS**

**3.**
**DISCONTINUED        OPERATIONS**

|                                                 |   | **Three                  Months Ended** |    | **Nine                  Months Ended**  |   |
|------------------------------------------------------|--------|-----------------------------------------|---------|-----------------------------------------|--------|
|                                                 |   | **September                  30, 2005** |    | **September                  30, 2005** |   |
| Operating                  revenues                  |   | $                                       | ─ |                                    | $      | 12 |   |
| Operating                  costs and expenses        |   |                                    | ─ |                                    |   | 14 |   |
| Operating                  loss before income taxes  |   |                                    | ─ |                                    |   | (2 | ) |
| Income                  tax benefit                  |   |                                    | ─ |                                    |   | ─ |   |
| Charges                  related to exit (after-tax) |   |                                    | (2      | )                                       |   | (4 | ) |
| Loss                  from discontinued operations   |   | $                                       | (2      | )                                       | $      | (6 | ) |

**4.**
**TEXAS        MARGIN TAX**

----

**5.**
**TRADE        ACCOUNTS RECEIVABLE AND SALE OF RECEIVABLES PROGRAM**

***Sale        of Receivables***

----

|                                                                                         |   | **Nine                  Months Ended September 30,** |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                                                         |   | **2006**                                             |   | **2005** |   |
|                                                                                         |   |                                                 |   |   |   |
| Cash                  collections on accounts receivable                                |   | $                                                    | 5,259  |   | $ | 4,626 |   |
| Face                  amount of new receivables purchased                               |   |                                                 | (5,714 | ) |   | (4,894 | ) |
| Discount                  from face amount of purchased receivables                     |   |                                                 | 28     |   |   | 15 |   |
| Program                  fees paid                                                      |   |                                                 | (25    | ) |   | (12 | ) |
| Servicing                  fees paid                                                    |   |                                                 | (3     | ) |   | (3 | ) |
| Increase                  in subordinated notes payable                                 |   |                                                 | 411    |   |   | 55 |   |
| Operating                  cash flows provided to TXU Energy Company under the program  |   | $                                                    | (44    | ) | $ | (213 | ) |

***Contingencies        Related to Sale of Receivables Program***
* *

| 1) | all                    of the originators cease to maintain their required fixed charge                    coverage                    ratio and debt to capital (leverage) ratio; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2) | the                    delinquency ratio (delinquent for 31 days) for the sold receivables,                    the                    default ratio (delinquent for 91 days or deemed uncollectible),                    the                    dilution ratio (reductions for discounts, disputes and other                    allowances)                    or the days collection outstanding ratio exceed stated thresholds                    and the                    financial institutions do not waive such event of termination.                    The                    thresholds apply to the entire portfolio of sold receivables,                    not                    separately to the receivables of each                    originator. |

***Trade        Accounts Receivable —***

|                                                                                                                                |   | **September                  30,** |   | **December                  31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                                |   | **2006**                           |   | **2005**                          |   |
| Gross                  trade accounts receivable                                                                               |   | $                                  | 1,599  |                              | $      | 1,791 |   |
| Undivided                  interests in accounts receivable sold by TXU Receivables                  Company                   |   |                               | (1,191 | )                                 |   | (736 | ) |
| Subordinated                  notes receivable from TXU Receivables Company                                                    |   |                               | 565    |                              |   | 154 |   |
| Allowance                  for uncollectible accounts related to undivided interests in receivables                  retained  |   |                               | (26    | )                                 |   | (31 | ) |
| Trade                  accounts receivable ― reported                  in balance sheet                                       |   | $                                  | 947    |                              | $      | 1,178 |   |

***Allowance        for Uncollectible Accounts***
* *

|                                                                                      |   | **2006** |   | **2005** |   |
|-------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                                                      |   |     |   |     |   |
| Allowance                  for uncollectible accounts receivable as of January 1     |   | $        | 31     |     | $      | 15 |   |
| Increase                  for bad debt expense                                            |   |     | 52     |     |   | 37 |   |
| Decrease                  for account write-offs                                          |   |     | (55    | )        |   | (43 | ) |
| Changes                  related to receivables sold                                      |   |     | 13     |     |   | 24 |   |
| Other                  (a)                                                                |   |     | (15    | )        |   | 15 |   |
| Allowance                  for uncollectible accounts receivable as of September 30  |   | $        | 26     |     | $      | 48 |   |
| ____________                                                                              |   |     |   |     |   |   |   |

----

**6.**
**SHORT-TERM        AND LONG-TERM DEBT**

***Short-term        Borrowings***
*** ***

|                                                                                                    |   | **At                    September 30, 2006** |   | **At                    December 31, 2005** |   |
|---------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------------|--------|
|                                                                                                    |   | **Outstanding                    Amount**    |   | **Interest****Rate                    (a)** |   | **Outstanding                    Amount** |   | **Interest****Rate                    (a)** |   |
|                                                                                                    |   |                                         |   |                                        |   |   |   |   |   |
| Commercial                    paper                                                                     |   | $                                            | 360    |                                        |   | 5.56 | % | $ | 306 |   |   | 4.48 | % |
| Bank                    borrowings                                                                      |   | $                                            | 295    |                                        |   | 5.88 | % | $ | 440 |   |   | 4.86 | % |
|     Total                                                                      |   | $                                            | 655    |                                        |   |   |   | $ | 746 |   |   |   |   |
| ______________                                                                                          |
|                                                                                                    |
| (a) Weighted                    average interest rate at the end of the                    period. |

***Credit        Facilities***

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

----

***Long-term        debt***

|                                                                                                                                                                             |   | **September                    30,** |   | **December                    31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|
|                                                                                                                                                                             |   | **2006**                             |   | **2005**                            |   |
|                                                                                                                                                                             |   |                                 |   |                                |   |
|                    Pollution                    Control Revenue Bonds:                                                                                                      |   |                                      |   |                                |   |   |   |
| Brazos                  River Authority:                                                                                                                                         |   |                                      |   |                                |   |   |   |
| 5.400%                    Fixed Series 1994A due May 1, 2029                                                                                                                     |   |                                 |   |                                | $      | 39 |   | $ | 39 |   |
| 5.400%                    Fixed Series 1994B due May 1, 2029, remarketing date May 1, 2006(a)                    (b)                                                             |   |                                 |   |                                |   | ― |   |   | 39 |   |
| 5.400%                    Fixed Series 1995A due April 1, 2030, remarketing date May 1,                    2006(a)                    (b)                                        |   |                                 |   |                                |   | ― |   |   | 50 |   |
| 5.050%                    Fixed Series 1995B due June 1, 2030, remarketing date June 19,                    2006(a) (c)                                                          |   |                                 |   |                                |   | ― |   |   | 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 |   |
| 3.850%                    Floating Series 2001A due October 1, 2030(d)                                                                                                           |   |                                 |   |                                |   | 71 |   |   | 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 |   |
| 3.790%                    Floating Series 2001D due May 1, 2033(d)                                                                                                               |   |                                 |   |                                |   | 268 |   |   | 268 |   |
| 5.310%                    Floating Taxable Series 2001I due December 1, 2036(d)                                                                                                  |   |                                 |   |                                |   | 62 |   |   | 62 |   |
| 3.850%                    Floating Series 2002A due May 1, 2037(d)                                                                                                               |   |                                 |   |                                |   | 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 |   |
| 5.000%                    Fixed Series 2006 due March 1, 2041                                                                                                                    |   |                                 |   |                                |   | 100 |   |   | ― |   |
|                                                                                                                                                                             |   |                                 |   |                                |   |   |
| 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 |   |
| 5.200%                    Fixed Series 2001C due May 1, 2028                                                                                                                     |   |                                 |   |                                |   | 70 |   |   | 70 |   |
| 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:                                                                                                                                                                           |   |                                 |   |                                |   |   |   |   |   |   |
| 6.125%                    Fixed Senior Notes due March 15, 2008 (e)                                                                                                              |   |                                 |   |                                |   | 250 |   |   | 250 |   |
| 7.000%                    Fixed Senior Notes due March 15, 2013                                                                                                                  |   |                                 |   |                                |   | 1,000 |   |   | 1,000 |   |
| 4.920%                    Floating Rate Senior Notes due January 17, 2006 (interest rate                    in effect                    atDecember                    31, 2005) |   |                                 |   |                                |   | ― |   |   | 400 |   |
| Capital                    lease obligations                                                                                                                                     |   |                                 |   |                                |   | 101 |   |   | 103 |   |
| Fair                    value adjustments related to interest rate swaps                                                                                                         |   |                                 |   |                                |   | 10 |   |   | 9 |   |
| Total                    TXU Energy Company                                                                                                                                      |   |                                 |   |                                |   | 2,952 |   |   | 3,456 |   |
|                                                                                                                                                                             |   |                                 |   |                                |   |   |
| Less                    amount due currently                                                                                                                                     |   | (11                                  | )      |                                | (401   | ) |
|                                                                                                                                                                             |   |                                 |   |                                |   |   |   |   |   |   |
| Total                    long-term debt                                                                                                                                          | $      | 2,941                                |   | $                                   | 3,055  |   |

| (a) | These                    series are in the multiannual interest rate 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) | Repurchased                    on May 1, 2006 for remarketing at a later date.                                                                                                                                                                                                                                                                                             |
| (c) | Repurchased                    on June 19, 2006 for remarketing at a later date.                                                                                                                                                                                                                                                                                           |
| (d) | Interest                    rates in effect at September 30, 2006. These series are in a                    weekly                    interest rate mode and are classified as long-term as they are                    supported                    by long-term irrevocable letters of credit.                                                                           |
| (e) | Interest                    rate swapped to variable on entire principal                    amount.                                                                                                                                                                                                                                                                        |

----

***Debt        Issuances, Repurchases and Retirements in 2006***

***Fair        Value Hedge***
*** ***

***Long-term        debt fair value adjustments***
* *

|                                                                                                                                                                                     |   | **September                  30,****2006** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
| Long-term                  debt fair value adjustments related to an interest rate swap at                  beginning                  of period ― increase in debt carrying value |   | $                                          | 9      |   |
| Fair                  value adjustments during the period                                                                                                                                |   |                                       | 3      |   |
| Amortization                  of net gains on settled fair value hedge (a)                                                                                                               |   |                                       | (2     | ) |
| Long-term                  debt fair value adjustments at end of period ― increase in                  debtcarrying                  value (net in-the-money value of swap)   |   | $                                          | 10     |   |

|                   | (a) | Net                  value of settled in-the-money fixed-to-variable swap that is being                  amortized as a reduction to interest expense over the                  remaining life of the associated debt. Amount is                  pretax. |
|--------------------------------------------------------------------------------------------------------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**7.**
**MEMBERSHIP        INTERESTS**

| Principal                  amount of the preferred interests                                                                       |   | $      | 750  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------|--------|
| Remaining                  unamortized discount recorded at issuance                                                               |   |   | (208 | )      |
| Remaining                  unamortized issuance costs (a)                                                                          |   |   | (21  | )      |
| Total                  amount recapitalized                                                                                             |   | $      | 521  |   |
| ____________                                                                                                                            |
|                                                                                                                                    |
| (a)                  Reported in other noncurrent assets in the condensed consolidated                  balance                  sheet. |

|                                                                             |   | **Capital****Accounts** |    | **Accumulated                  Other Comprehensive Gain (Loss)** |   | **Total                  Membership Interests** |   |
|----------------------------------------------------------------------------------|--------|-------------------------|---------|------------------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                                             |   |                    |    |                                                             |   |                                            |   |
| Balance                  at December 31, 2005                               |   | $                       | 4,474   |                                                             | $      | (121                                            | )      | $ | 4,353 |   |
| Net                  income                                                      |   |                    | 1,947   |                                                             |   | ─                                         |   |   | 1,947 |   |
| Distributions                  paid to parent                                    |   |                    | (858    | )                                                                |   | ─                                         |   |   | (858 | ) |
| Net                  effects of cash flow hedges (net of tax)                    |   |                    | ─ |                                                             |   | 402                                             |   |   | 402 |   |
| Effects                  of stock-based incentive compensation plans             |   |                    | 19      |                                                             |   | ─                                         |   |   | 19 |   |
| Recapitalization                  of exchangeable preferred membership interests |   |                    | 521     |                                                             |   | ─                                         |   |   | 521 |   |
| Other                                                                            |   |                    | 1       |                                                             |   | ─                                         |   |   | 1 |   |
| Balance                  at September 30, 2006                              |   | $                       | 6,104   |                                                             | $      | 281                                             |   | $ | 6,385 |   |

----

**8.**
**COMMITMENTS        AND CONTINGENCIES**

***Wholesale        Market Activity Investigation***
*2005        State of the Market Report for the ERCOT Wholesale*
*Electricity        Market*

***Guarantees        —***

*Debt        obligation of TXU Corp. *
* *

*Residual        value guarantees in operating leases *

***Letters        of credit***

***Contractual        Obligations***
* *

----

***Legal        Proceedings***
* *
* *

***Environmental        Contingencies***

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

|   | · | the                  identification of sites requiring clean-up or the filing of other                  complaints in which TXU Energy Company or its subsidiaries may                  be asserted                  to be potential responsible                  parties. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**9**
**.**
**COMMODITY        CONTRACT ASSETS AND LIABILITIES**

**10.**
**CASH        FLOW HEDGES UNDER SFAS 133**

----

**11.**
**OTHER        INCOME AND DEDUCTIONS**

|                                                                                      |   | **Three                  Months Ended****September                  30,** |    | **Nine                  Months Ended****September                  30,** |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|---------|--------------------------------------------------------------------------|--------|
|                                                                                      |   |
|                                                                                      |   | **2006**                                                                  |    | **2005**                                                                 |   | **2006** |   | **2005** |   |
|                                                                                      |   |                                                                      |    |                                                                     |   |   |   |   |   |
| Other                  income:                                                            |   |                                                                      |    |                                                                     |   |   |   |   |   |
| Net                  gain on sales of assets (a)                                     |   | $                                                                         | 9       |                                                                     | $      | 5 |   | $ | 9 |   | $ | 6 |   |
| Gain                  on sale of power transmission project investment               |   |                                                                      | ─ |                                                                     |   | 7 |   |   | ─ |   |   | 7 |   |
| Insurance                  recovery of damage claim                                  |   |                                                                      | ─ |                                                                     |   | 6 |   |   | ─ |   |   | 6 |   |
| Power                  services agreement termination fee                            |   |                                                                      | ─ |                                                                     |   | ─ |   |   | ─ |   |   | 4 |   |
| Other                                                                                |   |                                                                      | ─ |                                                                     |   | 1 |   |   | 2 |   |   | 5 |   |
| Total                  other income                                                       |   | $                                                                         | 9       |                                                                     | $      | 19 |   | $ | 11 |   | $ | 28 |   |
|                                                                                      |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Other                  deductions:                                                        |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Impairment                  of natural gas-fired generation plants (b)               |   | $                                                                         | (2      | )                                                                        | $      | ─ |   | $ | 196 |   | $ | ─ |   |
| Charge                  (credit) related to coal contract counterparty claim (c)     |   |                                                                      | ─ |                                                                     |   | ─ |   |   | (12 | ) |   | 12 |   |
| Inventory                  write-off related to natural gas-fired generation plants  |   |                                                                      | ─ |                                                                     |   | ─ |   |   | 3 |   |   | ─ |   |
| Capgemini                  outsourcing transition costs                              |   |                                                                      | ─ |                                                                     |   | 3 |   |   | ─ |   |   | 9 |   |
| Equity                  losses of affiliate holding investment in Capgemini          |   |                                                                      | 3       |                                                                     |   | 2 |   |   | 8 |   |   | 5 |   |
| Charge                  (credit) related to impaired leases (d)                      |   |                                                                      | ─ |                                                                     |   | ─ |   |   | (4 |                  ) |   | (12 | ) |
| Other                                                                                |   |                                                                      | 3       |                                                                     |   | 1 |   |   | 7 |   |   | 5 |   |
| Total                  other deductions                                                   |   | $                                                                         | 4       |                                                                     | $      | 6 |   | $ | 198 |   | $ | 19 |   |

| _____________ |
|---------------|
|          |
| (a)           | In                    the third quarter of 2006, TXU Energy Company recorded an $8                    million gain                    related to the sale of mineral interests. |
| (b)           | See                    Note 2 for discussion of impairment charge recorded in the second                    quarter                    of 2006. The $2 million adjustment in the third quarter relates                    to                    combustion turbines held by another TXU Corp.                    subsidiary. |
| (c)           | In                    the first quarter of 2006, TXU Energy Company recorded income                    of $12                    million upon the settlement of a claim against a counterparty                    for                    nonperformance under a coal contract. A charge in the same amount                    was                    recorded in the first quarter of 2005 for losses due to the                    nonperformance. |
| (d)           | Amounts                    recorded in 2005 and 2006 for impaired leases relate to gas-fired                    combustion turbines that TXU Energy Company has ceased operating                    for its                    own benefit. The amounts represent adjustments to the estimated                    charge of                    $157 million recorded in 2004 for net liabilities under the                    leases. |

----

**12.**
**RELATED-PARTY        TRANSACTIONS**

| ·   | TXU                Energy Company incurs electricity delivery fees charged by TXU Electric                Delivery. These fees totaled $346 million and $386 million for the                three                months ended September 30, 2006 and 2005, respectively, and $900                million                and $1.0 billion for the nine months ended September 30, 2006 and                2005,                respectively. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | TXU                Electric Delivery has issued securitization bonds to recover                generation-related regulatory assets through a transition charge                to its                customers. The incremental income taxes TXU Electric Delivery will                pay on                the transition charges it collects will be reimbursed by TXU Energy                Company. Therefore, TXU Energy Company’s financial statements reflect a                noninterest bearing note payable to TXU Electric Delivery of $364                million                ($32 million reported as current liabilities) at September 30, 2006                and                $395 million ($33 million reported as current liabilities) at December                31,                2005. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | TXU                Energy Company records interest expense to reimburse TXU Electric                Delivery                for interest on TXU Electric Delivery’s securitization bonds. This                interest expense totaled $13 million and $14 million for the three                months                ended September 30, 2006 and 2005, respectively, and $40 million                and $42                million for the nine months ended September 30, 2006 and 2005,                respectively. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Current                and noncurrent advances to parent totaled $2.6 billion at September                30,                2006 and $694 million at December 31, 2005. The average daily balances                of                the advances to parent totaled $2.4 billion and $1.5 billion during                the                three months ended September 30, 2006 and 2005, respectively. Interest                income earned on the advances totaled $35 million and $16 million                for the                three months ended September 30, 2006 and 2005, respectively. The                weighted                average annual interest rates were 5.72% and 4.21% for the three                months                ended September 30, 2006 and 2005, respectively. The average daily                balance                of the advances to parent were $1.6 billion and $1.1 billion during                the                nine months ended September 30, 2006 and 2005, respectively. Interest                income earned on the advances totaled $67 million and $32 million                for the                nine months ended September 30, 2006 and 2005, respectively. The                weighted                average annual interest rates were 5.35% and 3.87% for the nine months                ended September 30, 2006 and 2005,                respectively. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | In                December 2005, TXU Energy Company received a $1.5 billion note receivable                from TXU Corp. in partial settlement of outstanding advances to parent.                The note carries interest at the same rate applied to advances to                affiliates as discussed above. Interest                income related to this note totaled $21 million and $61 million for                the                three and nine months ended September 30, 2006,                respectively. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | TXU                Corp. charges TXU Energy Company for financial, accounting, environmental                and other administrative services at cost. These costs, which are                primarily reported in SG&A expenses, totaled $15 million and $18                million for the three months ended September 30, 2006 and 2005,                respectively, and $51 million and $46 million for the nine months                ended                September 30, 2006 and 2005,                respectively. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Under                Texas regulatory provisions, the trust fund for decommissioning the                Comanche Peak nuclear generation facility, reported in investments                on TXU                Energy Company’s balance sheet, is funded by a delivery fee surcharge                billed to REPs by TXU Electric Delivery and remitted to TXU Energy                Company, with the intent that the trust fund assets will be sufficient                to                fund the decommissioning liability, reported in noncurrent liabilities                on                TXU Energy Company’s balance sheet. Income and expenses associated with                the trust fund and the decommissioning liability incurred by TXU                Energy                Company are offset by a net change in the intercompany receivable/payable                with TXU Electric Delivery, which in turn results in a change in                the net                regulatory asset/liability. The regulatory liability, which totaled                $2                million at September 30, 2006 and is reported on TXU Electric Delivery’s                balance sheet, represents the excess of the trust fund balance over                the                decommissioning liability. The regulatory asset, which totaled $8                million                at December 31, 2005 and is reported on TXU Electric Delivery’s balance                sheet, represents the excess of the decommissioning liability over                the                trust fund balance. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Distributions                    and discount amortization (both reported as interest expense)                    related to                    TXU Energy Company’s exchangeable preferred membership interests held                    entirely by subsidiaries of TXU Corp. totaled $23 million and                    $22 million                    for the three months ended September 30, 2006 and 2005, respectively,                    and                    totaled $67 million and $65 million for the nine months ended                    September                    30, 2006 and 2005, respectively. Effective September 30, 2006,                    these                    securities were recapitalized into common equity membership interests                    (see Note 7). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In                    March 2006, US Holdings completed the purchase of the owner participant                    interest in a trust that leases combustion turbines to TXU Energy                    Company.                    The trust was consolidated by US Holdings at December 31, 2005.                    In 2004,                    TXU Energy Company had recorded a liability for lease payments                    to the                    trust because TXU Energy Company had ceased using certain of                    the                    combustion turbines for its own benefit. The remaining liability                    totaled                    $50 million ($12 million reported as due currently) at September                    30, 2006                    and $59 million ($15 million reported as due currently) at December                    31,                    2005. TXU Energy Company’s lease expense for the trust’s other combustion                    turbines that it continues to operate for its own benefit totaled                    $3                    million and $8 million for the three and nine months ended September                    30,                    2006, respectively, and are reported as operating                    costs. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | TXU                    Energy Company has a 53.1% limited partnership interest, with                    a carrying                    value of $16 million and $24 million at September 30, 2006 and                    December                    31, 2005, respectively, in a TXU Corp. subsidiary holding                    Capgemini-related assets. Equity losses related to this interest                    totaled                    $3 million and $2 million for the three months ended September                    30, 2006                    and 2005, respectively, and totaled $8 million and $5 million                    for the nine                    months ended September 30, 2006 and 2005, respectively. These                    losses                    primarily represent amortization of software assets held by the                    subsidiary. The equity losses are reported as other                    deductions. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | TXU                    Corp. files a consolidated federal income tax return, and federal                    income                    taxes are allocated to subsidiaries based on their respective                    taxable                    income or loss. As a result, TXU Energy Company had an income                    tax payable                    to TXU Corp. of $620 million at September 30, 2006 and an income                    tax                    receivable from TXU Corp. of $361 million at December 31,                    2005. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | TXU                    Energy Company charges TXU DevCo for employee services related                    to the                    development of generation facilities in Texas. These charges                    totaled $1                    million and $2 million for the three and nine months ended September                    30,                    2006, respectively, and are largely reflected as a reduction                    in TXU Energy                    Company’s SG&A                    expenses. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**13.**
**SUPPLEMENTARY        FINANCIAL INFORMATION**

***Interest        Expense and***
***Related***
***Charges***
* *

|                                                                                |   | **Three                  Months Ended****September                  30,** |   | **Nine                  Months Ended****September                  30,** |   |
|-------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                                                                |   |
|                                                                                |   | **2006**                                                                  |   | **2005**                                                                 |   | **2006** |   | **2005** |   |
|                                                                                |   |                                                                      |   |                                                                     |   |   |   |   |   |
| Interest                                                                       |   | $                                                                         | 89     |                                                                     | $      | 84 |   | $ | 256 |   | $ | 224 |   |
| Distributions                  on exchangeable preferred membership interests  |   |                                                                      | 17     |                                                                     |   | 17 |   |   | 51 |   |   | 51 |   |
| Amortization                  of discount and debt issuance costs              |   |                                                                      | 8      |                                                                     |   | 4 |   |   | 22 |   |   | 21 |   |
| Interest                  capitalized in accordance with SFAS 34               |   |                                                                      | (6     | )                                                                        |   | (3 | ) |   | (19 | ) |   | (9 | ) |
| Total                  interest expense and related charges                    |   | $                                                                         | 108    |                                                                     | $      | 102 |   | $ | 310 |   | $ | 287 |   |

***Restricted        Cash***

|                                                                               |   | **Balance                  Sheet Classification** |    |
|------------------------------------------------------------------------------------|--------|---------------------------------------------------|---------|
|                                                                               |   | **At                  September 30, 2006**        |    | **At                  December 31, 2005** |   |
|                                                                               |   | **Current****Assets**                             |    | **Noncurrent                  Assets** |   | **Current                  Assets** |   | **Noncurrent                  Assets** |   |
|                                                                               |   |                                              |    |   |   |   |   |   |   |
| Pollution                  control revenue bond funds held by trustee (See Note 6) |   | $                                                 | ― |   | $ | 101 |   | $ | ― |   | $ | ― |   |
| All                  other                                                    |   |                                              | 3       |   |   | ― |   |   | 8 |   |   | ― |   |
| Total                  restricted cash                                             |   | $                                                 | 3       |   | $ | 101 |   | $ | 8 |   | $ | ― |   |

***Inventories        by Major Category***

|                                                                        |   | **September                  30,** |   | **December                  31,** |   |
|-----------------------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                                        |   | **2006**                           |   | **2005**                          |   |
|                                                                        |   |                               |   |                              |   |
| Materials                  and supplies                                |   | $                                  | 116    |                              | $      | 108 |   |
| Environmental                  energy credits and emission allowances  |   |                               | 15     |                              |   | 21 |   |
| Fuel                  stock                                            |   |                               | 95     |                              |   | 81 |   |
| Natural                  gas in storage                                |   |                               | 88     |                              |   | 99 |   |
| Total                  inventories                                          |   | $                                  | 314    |                              | $      | 309 |   |

***Investments***

|                                                                                                                    |   | **September                  30,** |   | **December                  31,** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                    |   | **2006**                           |   | **2005**                          |   |
|                                                                                                                    |   |                               |   |                              |   |
| Nuclear                  decommissioning trust                                                                     |   | $                                  | 424    |                              | $      | 389 |   |
| Assets                  related to employee benefit plans, principally employee savings                  programs  |   |                               | 47     |                              |   | 54 |   |
| Land                                                                                                               |   |                               | 31     |                              |   | 32 |   |
| Investment                  in affiliate holding Capgemini-related assets                                          |   |                               | 16     |                              |   | 24 |   |
| Miscellaneous                  other                                                                               |   |                               | 1      |                              |   | 2 |   |
| Total                  investments                                                                                      |   | $                                  | 519    |                              | $      | 501 |   |

***Property,        Plant and Equipment***

----

***Asset        Retirement Obligations***
* *

| Asset                  retirement liability at December 31, 2005            |   | $      | 558    |   |
|----------------------------------------------------------------------------------|--------|--------|--------|--------|
| Additions:                                                                       |   |   |   |   |
| Accretion                                                                   |   |   | 27     |   |
| Reductions:                                                                      |   |   |   |   |
| Net                  change in mining land reclamation estimated liability  |   |   | (4     | )      |
| Mining                  reclamation payments                                |   |   | (20    | )      |
| Asset                  retirement liability at September 30, 2006           |   | $      | 561    |   |

***Intangible        Assets***
* *

|                                                                |   | **As                  of September 30, 2006** |   | **As                  of December 31, 2005** |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                                                                |   | **Gross**                                     |   |                                         |   |   |   | **Gross** |   |   |   |   |   |
|                                                                |   | **Carrying**                                  |   | **Accumulated**                              |   |   |   | **Carrying** |   | **Accumulated** |   |   |   |
|                                                                |   | **Amount**                                    |   | **Amortization**                             |   | **Net** |   | **Amount** |   | **Amortization** |   | **Net** |   |
| Intangible                  assets subject to amortization included |   |                                          |   |                                         |   |   |   |   |   |   |   |   |   |
| in                  property, plant and equipment:                  |   |                                          |   |                                         |   |   |   |   |   |   |   |   |   |
| Mineral                  rights and other                           |   | $                                             | 31     |                                         | $      | 24 |   | $ | 7 |   | $ | 31 |   | $ | 24 |   | $ | 7 |   |
| Capitalized                  software placed in service             |   |                                          | 11     |                                         |   | 5 |   |   | 6 |   |   | 7 |   |   | 3 |   |   | 4 |   |
| Land                  easements                                     |   |                                          | 2      |                                         |   | 1 |   |   | 1 |   |   | 2 |   |   | 1 |   |   | 1 |   |
| Total                                                               |   | $                                             | 44     |                                         | $      | 30 |   | $ | 14 |   | $ | 40 |   | $ | 28 |   | $ | 12 |   |

----

***Pension        and Other Postretirement Benefits (OPEBs)***
* *

***Severance        Liabilities Related to Strategic Initiatives***

| Liability                  for severance costs as of December 31, 2005                                                     |   | $      | 18     |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Additions                  to liability (a)                                                                                     |   |   | 8      |   |
| Payments                  charged against liability                                                                             |   |   | (23    | )      |
| Other                  adjustments to liability                                                                                 |   |   | (1     | )      |
| Liability                  for severance costs as of September 30, 2006                                                    |   | $      | 2      |   |
| _____________                                                                                                                   |   |   |   |   |
|                                                                                                                            |   |   |   |   |
| (a) Additions                  to the liability relate to an outsourcing of certain engineering                  services. |

***Supplemental        Cash Flow Information***
* *

|                                                                                   |   | **Nine                  Months Ended****September                  30,** |    |
|----------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|
|                                                                                   |   | **2006**                                                                 |    | **2005** |   |
| Cash                  payments (receipts) related to continuing operations:            |   |                                                                     |    |   |   |
| Interest                  (net of amounts capitalized)                            |   | $                                                                        | 304     |   | $ | 282 |   |
| Income                  taxes                                                |   | $                                                                        | (169    | ) | $ | 524 |   |
| Noncash                  investing and financing activities:                           |   |                                                                     |    |   |   |   |   |
| Capital                  lease for generation plant rail spur                     |   | $                                                                        | ─ |   | $ | 95 |   |
| Noncash                  contribution of pension-related assets                   |   | $                                                                        | (8      | ) | $ | 156 |   |
| Recapitalization                  of exchangeable preferred membership interests  |   | $                                                                        | 521     |   | $ | ─ |   |

----

**REPORT        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

----

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

**BUSINESS**

**SIGNIFICANT        DEVELOPMENTS IN 2006**

***New        Generation Development Program***

***Impairment        of Natural Gas-Fired Generation Plants***

***Long-term        Hedging Program and Related Collateral        Arrangements***

----

***TXU        Energy Retail Customer Initiatives***

|   | · | Those                  residential customers receiving service from TXU Energy Retail                  as of                  October 29, 2006 and who live in areas where TXU Energy Retail                  offers the                  price-to-beat rate will receive a special one-time customer appreciation                  bonus of $100. This bonus program is expected to result in an estimated                  pretax charge of approximately $165 million in the fourth quarter                  of 2006.                  These bonuses are expected to be paid in four quarterly installments                  beginning November 2006. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In                  order to protect customers against the risk of rising wholesale                  power                  prices, TXU Energy Retail has committed to not raise rates for                  its                  residential price-to-beat customers and other month-to-month customers                  paying a rate that is equal to the price-to-beat rate as of December                  31,                  2006 who choose to remain on their existing plan and meet certain                  other                  criteria, for a period of three years or until at least January                  1,                  2010. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | For                  a limited time, any residential price-to-beat customer who chooses                  one of                  TXU Energy Retail’s non-price-to-beat plans, or any residential customer                  who chooses any of TXU Energy Retail’s term plans, will receive a $25                  sign-up incentive. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An                  extension of TXU Energy Retail’s 10% discount program for low-income                  residential customers through September 1,                  2007. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**RESULTS        OF OPERATIONS**

***Sales        Volume Data***

|                                                                                               | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|----------------------------------------------------------------------------------------------------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                                                               | **September                  30,**      |   | **September                  30,**     |   |
|                                                                                               | **2006**                                |   | **2005**                               |   | **Change                  %** |   | **2006** |   | **2005** |   | **Change                  %** |   |
| **Sales                  volumes:**                                                                |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
|                                                                                               |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Retail                  electricity sales volumes (GWh):                                           |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Historical                  service territory:                                                     |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                   |                                    | 8,838  |                                   |   | 9,965 |   |   | (11.3 | ) |   | 20,896 |   |   | 23,382 |   |   | (10.6 | ) |
| Small                  business (a)                                                           |                                    | 2,408  |                                   |   | 2,801 |   |   | (14.0 | ) |   | 6,203 |   |   | 7,124 |   |   | (12.9 | ) |
| Total                  historical service territory                                                |                                    | 11,246 |                                   |   | 12,766 |   |   | (11.9 | ) |   | 27,099 |   |   | 30,506 |   |   | (11.2 | ) |
| Other                  territories:                                                                |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                   |                                    | 1,245  |                                   |   | 1,215 |   |   | 2.5 |   |   | 2,874 |   |   | 2,701 |   |   | 6.4 |   |
| Small                  business (a)                                                           |                                    | 213    |                                   |   | 233 |   |   | (8.6 | ) |   | 513 |   |   | 537 |   |   | (4.5 | ) |
| Total                  other territories                                                           |                                    | 1,458  |                                   |   | 1,448 |   |   | 0.7 |   |   | 3,387 |   |   | 3,238 |   |   | 4.6 |   |
| Large                  business and other customers                                           |                                    | 3,918  |                                   |   | 4,006 |   |   | (2.2 | ) |   | 10,703 |   |   | 12,540 |   |   | (14.6 | ) |
| Total                  retail electricity                                                          |                                    | 16,622 |                                   |   | 18,220 |   |   | (8.8 | ) |   | 41,189 |   |   | 46,284 |   |   | (11.0 | ) |
| Wholesale                  electricity sales volumes (b)                                      |                                    | 10,268 |                                   |   | 15,679 |   |   | (34.5 | ) |   | 27,138 |   |   | 40,504 |   |   | (33.0 | ) |
| Total                  sales volumes                                                               |                                    | 26,890 |                                   |   | 33,899 |   |   | (20.7 | ) |   | 68,327 |   |   | 86,788 |   |   | (21.3 | ) |
|                                                                                               |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Average                  volume (kWh) per retail customer (c):**                                 |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                               |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                   |                                    | 5,244  |                                   |   | 5,500 |   |   | (4.7 | ) |   | 12,235 |   |   | 12,563 |   |   | (2.6 | ) |
| Small                  business                                                               |                                    | 9,501  |                                   |   | 10,247 |   |   | (7.3 | ) |   | 23,926 |   |   | 25,241 |   |   | (5.2 | ) |
| Large                  business and other customers                                           |                                    | 81,369 |                                   |   | 71,972 |   |   | 13.1 |   |   | 210,515 |   |   | 192,090 |   |   | 9.6 |   |
|                                                                                               |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Weather                  (service territory average) - percent of normal                  (d):** |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                               |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Percent                  of normal:                                                                |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cooling                  degree days                                                               |                                    | 109.0  | %                                      |   | 106.2 | % |   |   |   |   | 118.5 | % |   | 104.5 | % |   |   |   |

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

|   | (b) | See                  Note 1 to Financial Statements for discussion of reporting of trading                  and                  ERCOT balancing activity in 2006. Includes net sales volumes related                  to                  ERCOT balancing of 103 GWh in the third quarter of 2006 and 1,910                  GWh in                  the third quarter of 2005, and net sales volumes of 1,268 GWh and                  3,923                  GWh in the nine months ended September 30, 2006 and 2005,                  respectively. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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). |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

***Customer        Count Data***

|                                                                                                 |   | **Nine                  Months Ended** |   |
|------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                                                 |   | **September                  30,**     |   |
|                                                                                                 |   | **2006**                               |   | **2005** |   | **Change                  %** |   |
| **Customer                  counts:**                                                                |   |                                   |   |   |   |   |   |
|                                                                                                 |   |                                   |   |   |   |   |   |
| Retail                  electricity customers (end of period and in thousands)                  (a): |   |                                   |   |   |   |   |   |
| Historical                  service territory:                                                       |   |                                   |   |   |   |   |   |
| Residential                                                                                     |   |                                   | 1,670  |   |   | 1,804 |   |   | (7.4 | ) |
| Small                  business (b)                                                             |   |                                   | 265    |   |   | 285 |   |   | (7.0 | ) |
| Total                  historical service territory                                                  |   |                                   | 1,935  |   |   | 2,089 |   |   | (7.4 | ) |
|                                                                                                 |   |                                   |   |   |   |   |   |   |   |   |
| Other                  territories:                                                                  |   |                                   |   |   |   |   |   |   |   |   |
| Residential                                                                                     |   |                                   | 234    |   |   | 203 |   |   | 15.3 |   |
| Small                  business (b)                                                             |   |                                   | 8      |   |   | 7 |   |   | 14.3 |   |
| Total                  other territories                                                             |   |                                   | 242    |   |   | 210 |   |   | 15.2 |   |
|                                                                                                 |   |                                   |   |   |   |   |   |   |   |   |
| Large                  business and other customers                                             |   |                                   | 47     |   |   | 55 |   |   | (14.5 | ) |
| Total                  retail electricity customers                                                  |   |                                   | 2,224  |   |   | 2,354 |   |   | (5.5 | ) |

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

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

----

***Revenue        and Market Share Data***

|                                                                                                            |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                                                                            |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                                                                            |   | **2006**                                |   | **2005**                               |   | **Change                  %** |   | **2006** |   | **2005** |   | **Change                  %** |   |
| **Operating                  revenues:**                                                                        |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Retail                  electricity revenues:                                                                   |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Historical                  service territory:                                                                  |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                |   | $                                       | 1,333  |                                   | $      | 1,208 |   |   | 10.3 |   | $ | 3,086 |   | $ | 2,682 |   |   | 15.1 |   |
| Small                  business (a)                                                                        |   |                                    | 357    |                                   |   | 333 |   |   | 7.2 |   |   | 923 |   |   | 831 |   |   | 11.1 |   |
| Total                  historical service territory                                                             |   |                                    | 1,690  |                                   |   | 1,541 |   |   | 9.7 |   |   | 4,009 |   |   | 3,513 |   |   | 14.1 |   |
|                                                                                                            |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  territories:                                                                             |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                |   |                                    | 194    |                                   |   | 153 |   |   | 26.8 |   |   | 442 |   |   | 309 |   |   | 43.0 |   |
| Small                  business (a)                                                                        |   |                                    | 25     |                                   |   | 24 |   |   | 4.2 |   |   | 61 |   |   | 51 |   |   | 19.6 |   |
| Total                  other territories                                                                        |   |                                    | 219    |                                   |   | 177 |   |   | 23.7 |   |   | 503 |   |   | 360 |   |   | 39.7 |   |
|                                                                                                            |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Large                  business and other customers                                                        |   |                                    | 375    |                                   |   | 347 |   |   | 8.1 |   |   | 1,031 |   |   | 1,006 |   |   | 2.5 |   |
| Total                  retail electricity revenues                                                         |   |                                    | 2,284  |                                   |   | 2,065 |   |   | 10.6 |   |   | 5,543 |   |   | 4,879 |   |   | 13.6 |   |
| Wholesale                  electricity revenues (b)                                                        |   |                                    | 648    |                                   |   | 959 |   |   | (32.4 | ) |   | 1,629 |   |   | 2,091 |   |   | (22.1 | ) |
| Net                  gains (losses) from risk management and tradingactivities                             |   |                                    | 72     |                                   |   | (116 | ) |   | ─ |   |   | 134 |   |   | (122 | ) |   | ─ |   |
| Other                  revenues                                                                            |   |                                    | 87     |                                   |   | 86 |   |   | 1.2 |   |   | 263 |   |   | 243 |   |   | 8.2 |   |
| Total                  operating revenues                                                                       |   | $                                       | 3,091  |                                   | $      | 2,994 |   |   | 3.2 |   | $ | 7,569 |   | $ | 7,091 |   |   | 6.7 |   |
|                                                                                                            |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Risk                  management and trading activities:**                                                    |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Realized                  net gains (losses) on settled positions                                          |   | $                                       | (67    | )                                      | $      | (11 | ) |   |   |   | $ | (153 | ) | $ | (35 | ) |   |   |   |
| Reversal                  of prior periods’ unrealized net (gains) losses                                 |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| on                  positions settled in current period                                                         |   |                                    | (21    | )                                      |   | 3 |   |   |   |   |   | 1 |   |   | (20 | ) |   |   |   |
| Other                  unrealized net gains (losses), including cash flowhedge                  ineffectiveness |   |                                    | 160    |                                   |   | (108 | ) |   |   |   |   | 286 |   |   | (67 | ) |   |   |   |
| Total                  net gains (losses)                                                                       |   | $                                       | 72     |                                   | $      | (116 | ) |   |   |   | $ | 134 |   | $ | (122 | ) |   |   |   |
|                                                                                                            |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Average                  revenues per MWh:**                                                                  |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                |   | $                                       | 151.45 |                                   | $      | 121.81 |   |   | 24.3 |   | $ | 148.44 |   | $ | 114.71 |   |   | 29.4 |   |
| Small                  business                                                                            |   | $                                       | 145.66 |                                   | $      | 117.37 |   |   | 24.1 |   | $ | 146.44 |   | $ | 115.09 |   |   | 27.2 |   |
| Large                  business and other customers                                                        |   | $                                       | 95.83  |                                   | $      | 86.61 |   |   | 10.6 |   | $ | 96.29 |   | $ | 80.20 |   |   | 20.1 |   |
|                                                                                                            |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Estimated                  share of ERCOT retail markets (c)(d):**                                            |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Historical                  service territory:                                                                  |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                     |   | 67                                      | %      |                                   | 74     | % |   |   |   |
| Small                  business                                                                                 |   | 67                                      | %      |                                   | 73     | % |   |   |   |
| Total                  ERCOT:                                                                                   |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                     |   | 37                                      | %      |                                   | 40     | % |   |   |   |
| Small                  business                                                                                 |   | 27                                      | %      |                                   | 30     | % |   |   |   |
| Large                  business and other customers                                                             |   | 16                                      | %      |                                   | 19     | % |   |   |   |

**__________________________**

|   | (a) | Customers                    with demand of less than 1 MW annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (b) | See                    Note 1 to Financial Statements for discussion of reporting of                    trading and                    ERCOT balancing activity in 2006. Includes net purchases related                    to ERCOT                    balancing of $32 million in the third quarter of 2006 and $123                    million of                    net sales in the third quarter of 2005, and net purchases of                    $6 million                    and net sales of $189 million in the nine months ended September                    30, 2006                    and 2005, respectively. |
|   | (c) | Based                    on number of meters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | (d) | Estimated                    market share is based on the number of customers that have                    choice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

----

***Production,        Purchased Power and Delivery Cost Data***

|                                                                |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|---------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                                |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                                |   | **2006**                                |   | **2005**                               |   | **Change                  %** |   | **2006** |   | **2005** |   | **Change                  %** |   |
|                                                                |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| **Fuel,                  purchased power costs and delivery fees**  |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| **($                  millions):**                                  |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
|                                                                |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Nuclear                  fuel                                  |   | $                                       | 22     |                                   | $      | 21 |   |   | 4.8 |   | $ | 65 |   | $ | 60 |   |   | 8.3 |   |
| Lignite/coal                                                   |   |                                    | 124    |                                   |   | 121 |   |   | 2.5 |   |   | 353 |   |   | 354 |   |   | (0.3 | ) |
| Total                  baseload fuel                                |   |                                    | 146    |                                   |   | 142 |   |   | 2.8 |   |   | 418 |   |   | 414 |   |   | 1.0 |   |
| Natural                  gas/oil fuel and purchased power      |   |                                    | 740    |                                   |   | 1,194 |   |   | (38.0 | ) |   | 1,429 |   |   | 2,446 |   |   | (41.6 | ) |
| Other                  costs                                   |   |                                    | 41     |                                   |   | 64 |   |   | (35.9 | ) |   | 163 |   |   | 197 |   |   | (17.3 | ) |
| Fuel                  and purchased power costs (a)                 |   |                                    | 927    |                                   |   | 1,400 |   |   | (33.8 | ) |   | 2,010 |   |   | 3,057 |   |   | (34.2 | ) |
| Delivery                  fees                                 |   |                                    | 415    |                                   |   | 435 |   |   | (4.6 | ) |   | 1,065 |   |   | 1,116 |   |   | (4.6 | ) |
| Total                                                               |   | $                                       | 1,342  |                                   | $      | 1,835 |   |   | (26.9 | ) | $ | 3,075 |   | $ | 4,173 |   |   | (26.3 | ) |
|                                                                |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Fuel                  and purchased power costs (which excludes** |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **generation                  plant operating costs) per MWh:**     |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nuclear                  generation                            |   | $                                       | 4.29   |                                   | $      | 4.22 |   |   | 1.7 |   | $ | 4.25 |   | $ | 4.20 |   |   | 1.2 |   |
| Lignite/coal                  generation (b)                   |   | $                                       | 11.73  |                                   | $      | 11.22 |   |   | 4.5 |   | $ | 12.11 |   | $ | 11.71 |   |   | 3.4 |   |
| Natural                  gas fuel and purchased power          |   | $                                       | 69.87  |                                   | $      | 68.32 |   |   | 2.3 |   | $ | 65.71 |   | $ | 59.17 |   |   | 11.1 |   |
|                                                                |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Delivery                  fee per MWh**                      |   | $                                       | 24.75  |                                   | $      | 23.60 |   |   | 4.9 |   | $ | 25.60 |   | $ | 23.81 |   |   | 7.5 |   |
|                                                                |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Production                  and purchased power volumes (GWh):**  |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nuclear                                                        |   |                                    | 5,115  |                                   |   | 5,099 |   |   | 0.3 |   |   | 15,292 |   |   | 14,146 |   |   | 8.1 |   |
| Lignite/coal                                                   |   |                                    | 11,886 |                                   |   | 11,597 |   |   | 2.5 |   |   | 32,804 |   |   | 32,722 |   |   | 0.3 |   |
| Total                  baseload generation                          |   |                                    | 17,001 |                                   |   | 16,696 |   |   | 1.8 |   |   | 48,096 |   |   | 46,868 |   |   | 2.6 |   |
| Natural                  gas-fired generation                  |   |                                    | 1,948  |                                   |   | 1,682 |   |   | 15.8 |   |   | 3,487 |   |   | 2,947 |   |   | 18.3 |   |
| Purchased                  power (a)                           |   |                                    | 8,641  |                                   |   | 15,798 |   |   | (45.3 | ) |   | 18,258 |   |   | 38,397 |   |   | (52.4 | ) |
| Total                  energy supply                                |   |                                    | 27,590 |                                   |   | 34,176 |   |   | (19.3 | ) |   | 69,841 |   |   | 88,212 |   |   | (20.8 | ) |
| Less                  line loss and power imbalances           |   |                                    | 700    |                                   |   | 277 |   |   | ─ |   |   | 1,514 |   |   | 1,424 |   |   | 6.3 |   |
| Net                  energy supply volumes                          |   |                                    | 26,890 |                                   |   | 33,899 |   |   | (20.7 | ) |   | 68,327 |   |   | 86,788 |   |   | (21.3 | ) |
|                                                                |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Baseload                  capacity factors (%):**                 |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nuclear                                                        |   |                                    | 101.2  | %                                      |   | 100.8 | % |   | 0.4 |   |   | 102.0 | % |   | 94.2 | % |   | 8.3 |   |
| Lignite/coal                                                   |   |                                    | 95.8   | %                                      |   | 93.2 | % |   | 2.8 |   |   | 89.5 | % |   | 89.3 | % |   | 0.2 |   |
| Total                  baseload                                     |   |                                    | 97.3   | %                                      |   | 95.3 | % |   | 2.1 |   |   | 93.1 | % |   | 90.7 | % |   | 2.6 |   |

----

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

|   | · | The                  retail revenue increase reflected $400 million in higher average                  pricing.                  Higher retail prices reflected increases in natural gas prices                  that                  resulted in the regulatory-approved price-to-beat rate increase                  implemented in October 2005 and January                  2006. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                  effect of higher retail pricing was partially offset by $181 million                  in                  lower retail volumes. Total retail sales volumes declined 9%. Residential                  and small business volumes fell 11% on a net loss of customers                  due to                  competitive activity and lower average consumption per customer.                  The lower                  consumption reflected customer efficiency measures in response                  to prices                  and warmer weather. Large business market volumes declined 2% as                  the                  effect of fewer customers was largely offset by higher average                  consumption                  per customer. A change in large business customer mix reflected                  a                  continuing strategy to improve                  margins. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Retail                  electricity customer counts at September 30, 2006 declined 6% from                  September 30, 2005. Total residential and small business customer                  counts                  in the historical service territory declined 7% and in all combined                  territories declined 5%. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $132                  million in unrealized cash flow hedge ineffectiveness net gains,                  which                  includes $127 million in net gains on unsettled positions and $5                  million                  in net gains that represent reversals of previously recorded unrealized                  net losses on positions settled in the current                  period; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $7                  million in unrealized mark-to-market net gains on unsettled positions                  that                  are not being accounted for as cash flow hedges;                  and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $30                  million in realized net losses associated with cash flow hedges,                  including                  $25 million previously deferred in accumulated other comprehensive                  income,                  that partially offset the hedged electricity revenues recognized                  in the                  current period. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $15                  million in unrealized net losses that represent reversals of previously                  recorded unrealized net gains on physical power positions (which                  were                  economic hedges marked-to-market) that were settled in the current                  period                  and reported in electricity revenues and fuel and purchased power                  costs; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $14                  million in realized net losses associated with hedges entered into                  in                  prior years (largely 2003), including $10 million related to cash                  flow                  hedges previously deferred in accumulated other comprehensive income,                  that                  partially offset the hedged electricity revenues recognized in                  the current                  period; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $11                  million in unrealized net losses primarily relating to economic                  hedge                  positions that are marked-to-market;                  and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $7                  million in unrealized net gains on various commodity trading positions,                  primarily natural gas. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                           |   |
|----------------------------------------------------------------|--------|
|                                                           |   | **Three                  Months Ended September 30,** |   |
|                                                           |   | **2006** |   | **%                  of Revenue** |   | **2005** |   | **%                  of Revenue** |   |
|                                                           |   |   |   |   |   |   |   |   |   |
| Operating                  revenues                       |   | $ | 3,091 |   |   | 100 | % | $ | 2,994 |   |   | 100 | % |
| Costs                  and expenses:                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel,                  purchased power costs and delivery fees |   |   | 1,342 |   |   | 43 |   |   | 1,835 |   |   | 61 |   |
| Generation                  plant operating costs              |   |   | 142 |   |   | 5 |   |   | 151 |   |   | 5 |   |
| Depreciation                  and amortization                 |   |   | 80 |   |   | 3 |   |   | 77 |   |   | 3 |   |
| Gross                  margin                             |   | $ | 1,527 |   |   | 49 | % | $ | 931 |   |   | 31 | % |

|   | · | higher                  average pricing, as the average retail sales price per MWh rose                  21% and                  the average wholesale sales price per MWh rose 3% (7 percentage                  point                  margin increase); |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the                  effect of reporting wholesale power trading activity on a net basis                  (5                  percentage point margin increase); |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the                  effect of unrealized cash flow hedge ineffectiveness and mark-to-market                  gains related to the long-term hedge program (2 percentage point                  margin                  increase); and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | improved                  baseload generation plant productivity (1 percentage point margin                  increase). |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | $8                  million in lower maintenance expense, including amounts related                  to                  outages, due to timing of projects;                  and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $2                  million in savings from staff                  reductions. |
|--------|--------|--------------------------------------------------------------------------------|

----

|   | · | $4                  million in lower marketing expenses due to timing of                  activities; |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | $3                  million benefit from cost reduction                  initiatives; |
|--------|--------|---------------------------------------------------------------------------------------|

|   | · | $2                  million in lower expenses related to stock-based incentive compensation                  and a deferred compensation plan;                  and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $2                  million in lower consulting fees related to various strategic                  initiatives, |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | $5                  million in higher bad debt expense reflecting higher retail accounts                  receivable balances due to higher prices and the effects of a                  regulatory-mandated deferred payment arrangement and disconnect                  moratorium                  applicable to certain retail customers;                  and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $5                  million in higher fees related to the sale of accounts receivable                  program                  due to higher interest rates. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | · | The                  retail revenue increase reflected $1.2 billion in higher average                  pricing.                  Higher retail prices reflected increases in natural gas prices                  that                  resulted in the regulatory-approved price-to-beat rate increases                  implemented in May 2005, October 2005 and January                  2006. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                  effect of higher retail pricing was partially offset by $537 million                  in                  lower retail volumes. Total retail sales volumes declined 11%.                  Residential                  and small business volumes fell 10% on a net loss of customers                  due to                  competitive activity and lower average consumption per customer.                  The lower                  consumption reflected customer efficiency measures in response                  to prices                  and warmer weather. Large business market sales volumes declined                  15% as                  the effect of fewer customers was partially offset by higher average                  consumption per customer. A change in large business customer mix                  reflected a continuing strategy to improve                  margins. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Retail                  electricity customer counts at September 30, 2006 declined 6% from                  September 30, 2005. Total residential and small business customer                  counts                  in the historical service territory declined 7% and in all combined                  territories declined 5%. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $257                  million in unrealized cash flow hedge ineffectiveness net gains,                  which                  includes $262 million in net gains on unsettled positions and $5                  million                  in net losses that represent reversals of previously recorded unrealized                  net gains on positions settled in the current period;                  and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $7                  million in unrealized mark-to-market net gains on unsettled positions                  that                  are not being accounted for as cash flow                  hedges. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $46                  million in unrealized net losses that represent reversals of previously                  recorded unrealized net gains on physical power positions (which                  were                  economic hedges marked-to-market) that were settled in the current                  period                  and reported in electricity revenues and fuel and purchased power                  costs; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $57                  million in realized net losses associated with hedges entered into                  in                  prior years (largely 2003), including $24 million related to cash                  flow                  hedges previously deferred in accumulated other comprehensive income,                  that                  partially offset the hedged electricity revenues recognized in                  the current                  period; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $29                  million in unrealized cash flow hedge ineffectiveness net gains,                  which                  includes $17 million in net gains that represent reversals of previously                  recorded unrealized net losses on positions (largely the 2003 hedges)                  settled in the current period; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $38                  million in unrealized net losses primarily relating to economic                  hedge                  positions that are                  marked-to-market; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $84                  million in realized net losses on settlement of economic hedge                  positions                  that partially offset the hedged electricity revenues recognized                  in the                  current period; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $70                  million in unrealized net gains that represent reversals of previously                  recorded net unrealized losses on positions settled in the current                  period,                  primarily the economic hedges referred to immediately                  above. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                           |   |
|----------------------------------------------------------------|--------|
|                                                           |   | **Nine                  Months Ended September 30,** |   |
|                                                           |   | **2006** |   | **%                  of Revenue** |   | **2005** |   | **%                  of Revenue** |   |
|                                                           |   |   |   |   |   |   |   |   |   |
| Operating                  revenues                       |   | $ | 7,569 |   |   | 100 | % | $ | 7,091 |   |   | 100 | % |
| Costs                  and expenses:                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel,                  purchased power costs and delivery fees |   |   | 3,075 |   |   | 41 |   |   | 4,173 |   |   | 59 |   |
| Generation                  plant operating costs              |   |   | 447 |   |   | 6 |   |   | 482 |   |   | 7 |   |
| Depreciation                  and amortization                 |   |   | 246 |   |   | 3 |   |   | 231 |   |   | 3 |   |
| Gross                  margin                             |   | $ | 3,801 |   |   | 50 | % | $ | 2,205 |   |   | 31 | % |

|   | · | higher                  pricing, as the average retail sales price per MWh rose 28% and                  the                  average wholesale sales price per MWh rose 16% (9 percentage point                  margin                  increase); |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the                  effect of reporting wholesale power trading activity on a net basis                  (6                  percentage point margin increase);                  and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the                  effect of unrealized cash flow hedge ineffectiveness and mark-to-market                  gains related to the long-term hedge program (2 percentage point                  margin                  increase); and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | improved                  baseload generation plant productivity (1 percentage point margin                  increase), |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | $32                  million in lower maintenance costs reflecting costs incurred for                  the                  spring 2005 nuclear generation plant refueling outage and the timing                  of                  other maintenance projects; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $6                  million in lower incentive compensation expense;                  and |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | · | $7                  million in severance and early retirement costs associated with                  generation                  outsourcing services agreements entered into in early                  2006. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | $15                  million in higher bad debt expense reflecting higher retail accounts                  receivable balances due to higher prices and the effect of a                  regulatory-mandated deferred payment arrangement and disconnect                  moratorium                  applicable to certain retail                  customers; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $13                  million in higher fees related to the sale of accounts receivable                  program                  due to higher interest rates; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $6                  million in executive severance expense (including amounts allocated                  from                  parent), |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $9                  million in lower consulting fees primarily reflecting expenses                  in 2005 for                  the development and implementation of the TXU Operating System                  to improve                  productivity; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $6                  million in lower stock-based incentive compensation and deferred                  compensation expenses; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | $4                  million in lower marketing expenses due to timing of                  activities. |
|--------|--------|-------------------------------------------------------------------------------------------------------|

----

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

* *

|                                                                                                      |   | **Nine                  Months**        |    |
|-----------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                                                      |   | **Ended**                               |    |
|                                                                                                      |   | **September                  30, 2006** |    |
|                                                                                                      |   |                                    |    |
| Commodity                  contract net liability at beginning of period                                  |   | $                                       | (56     | ) |
|                                                                                                      |   |                                    |    |   |
| Settlements                  of positions included in the opening balance (1)                             |   |                                    | 1       |   |
|                                                                                                      |   |                                    |    |   |
| Unrealized                  mark-to-market valuations of positions held at end of                  period |   |                                    | ─ |   |
|                                                                                                      |   |                                    |    |   |
| Other                  activity (2)                                                                       |   |                                    | (16     | ) |
|                                                                                                      |   |                                    |    |   |
| Commodity                  contract net liability at end of period                                        |   | $                                       | (71     | ) |
|                                                                                                      |   |                                    |    |   |

**                __________________________**

|                   | (1) | Represents                  reversals of unrealized mark-to-market valuations of these positions                  recognized in earnings prior to the beginning                  of the period, to offset gains and losses realized upon settlement                  of the                  positions in the current period. |
|--------------------------------------------------------------------------------------------------------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                   | (2) | These                  amounts do not arise from mark-to-market activities. Includes initial                  values of positions involving the receipt or                  payment of cash or other consideration such as option premiums                  paid and                  received and related amortization. Activity                  for the period includes $24 million of natural gas received related                  to                  physical swap transactions as well as $8                  million of option premium payments. |
|--------------------------------------------------------------------------------------------------------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                   |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                                                   |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                                                   |   | **2006**                                |   | **2005**                               |   | **2006** |   | **2005** |   |
|                                                                                   |   |                                    |   |                                   |   |   |   |   |   |
| Unrealized                  gains (losses) related to contracts marked-to-market  |   | $                                       | 3      |                                   | $      | (107 | ) | $ | 1 |   | $ | (95 | ) |
|                                                                                   |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Ineffectiveness                  gains related to cash flow hedges (a)            |   |                                    | 136    |                                   |   | 2 |   |   | 286 |   |   | 8 |   |
|                                                                                   |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Total                  unrealized gains (losses) related to commodity contracts   |   | $                                       | 139    |                                   | $      | (105 | ) | $ | 287 |   | $ | (87 | ) |

**__________________________**

|   | (a) | See                  Note 10 to Financial Statements. |
|--------|-----|-------------------------------------------------------|

----

***Maturity        Table***

|                                                  |   | **Maturity                  dates of unrealized commodity contract net assets (liabilities)                  at                  September 30, 2006** |   |
|-------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|  **Source                  of fair value**  |   | **Less                  than****1                  year**                                                                                             |   | **1-3                  years** |   | **4-5                  years** |   | **Excess                  of****5                  years** |   | **Total** |   |
| Prices                  actively quoted          |   | $                                                                                                                                                     | 13     |   | $ | 18 |   | $ | 7 |   | $ | (2 | ) | $ | 36 |   |
| Prices                  provided by other             |   |                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| external                  sources                     |   |                                                                                                                                                  | (65    | ) |   | 2 |   |   | (8 | ) |   | 1 |   |   | (70 | ) |
| Prices                  based on models          |   |                                                                                                                                                  | 43     |   |   | 29 |   |   | ─ |   |   | ─ |   |   | 72 |   |
| Total                                                 |   | $                                                                                                                                                     | (9     | ) | $ | 49 |   | $ | (1 | ) | $ | (1 | ) | $ | 38 |   |
| Percentage                  of total fair value  |   |                                                                                                                                                  | (23    | )% |   | 129 | % |   | (3 | )% |   | (3 | )% |   | 100 | % |
|                                                  |   |                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**COMPREHENSIVE        INCOME**

|                                                                                                                                                                                  |   | **Three                    Months Ended****September                    30,** |   | **Nine                    Months Ended****September                    30,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                  |   | **2006**                                                                      |   | **2005**                                                                     |   | **2006** |   | **2005** |   |
|                                                                                                                                                                                  |   |                                                                          |   |                                                                         |   |   |   |   |   |
| Net                      increase (decrease) in fair value of cash flow hedges (all                      commodity)held                      at end of period                    |   | $                                                                             | 342    |                                                                         | $      | (71 | ) | $ | 381 |   | $ | (58 | ) |
| Derivative                    value net losses reported in net income that relate to hedgedtransaction                    recognized in the period:                                   |   |                                                                          |   |                                                                         |   |   |   |   |   |   |   |   |   |
| Commodities                                                                                                                                                                      |   |                                                                          | 9      |                                                                         |   | 14 |   |   | 16 |   |   | 47 |   |
| Financing                    - interest rate swaps                                                                                                                               |   |                                                                          | 2      |                                                                         |   | 3 |   |   | 5 |   |   | 5 |   |
|                                                                                                                                                                                  |   |                                                                          | 11     |                                                                         |   | 17 |   |   | 21 |   |   | 52 |   |
| Total                    income (loss) effect of cash flow hedges reported in other comprehensive                    income                    related to continuing operations  |   | $                                                                             | 353    |                                                                         | $      | (54 | ) | $ | 402 |   | $ | (6 | ) |

----

**FINANCIAL        CONDITION**

***LIQUIDITY        AND CAPITAL RESOURCES***

***Cash        Flows***
* *
***—***

|   | · | higher                    operating earnings after taking into account noncash items such                    as                    depreciation, deferred income tax expense, the generation plant                    impairment                    charge and the net effect of unrealized mark-to-market                    valuations; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a                    favorable change of $1.2 billion in the federal income tax liability                    to                    TXU Corp. due to an increase in the 2006 income tax liability                    resulting                    from higher taxable earnings and a tax refund received in 2006                    related to                    2005 reflecting a market value tax loss related to a power sales                    agreement                    (approximately $500 million in income taxes related to 2006 taxable                    earnings is expected to be paid largely in the first quarter                    of 2007);                    and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a                    favorable change of $415 million in net margin deposits, primarily                    reflecting amounts received from counterparties related to natural                    gas                    positions in the long-term hedging                    program. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                             |   | **Nine                  Months Ended September 30,** |   |
|----------------------------------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                                             |   | **2006**                                             |   | **2005** |   |
| Net                  repayments, repurchases and issuances of borrowings    |   | $                                                    | (609   | ) | $ | 236 |   |
| Decrease                  in note payable to TXU Electric Delivery          |   |                                                 | (31    | ) |   | (40 | ) |
| Distributions                  paid to parent                               |   |                                                 | (858   | ) |   | (525 | ) |
| Excess                  tax benefits on stock-based incentive compensation  |   |                                                 | 13     |   |   | 7 |   |
| Total                                                                            |   | $                                                    | (1,485 | ) | $ | (322 | ) |

|                                                                                         |   | **Nine                  Months Ended September 30,** |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                                                         |   | **2006**                                             |   | **2005** |   |
|                                                                                         |   |                                                 |   |   |   |
| Advances                  to affiliates                                            |   | $                                                    | (1,864 | ) | $ | (661 | ) |
| Capital                  expenditures, including nuclear fuel                      |   |                                                 | (488   | ) |   | (246 | ) |
| Proceeds                  from sale of assets                                           |   |                                                 | 11     |   |   | 36 |   |
| Deposit                  of proceeds from pollution control revenue bonds with trustee  |   |                                                 | (99    | ) |   | ― |   |
| Net                  investments in nuclear decommissioning trust fund securities       |   |                                                 | (12    | ) |   | (11 | ) |
| Other                                                                                   |   |                                                 | 2      |   |   | 2 |   |
| Total                                                                                        |   | $                                                    | (2,450 | ) | $ | (880 | ) |

----

***Long-term        Debt Activity***
*—*
*** ***

|                                             |   | **Issuances** |    | **Retirements                  and Repurchases** |   |
|--------------------------------------------------|--------|---------------|---------|--------------------------------------------------|--------|
|                                             |   |          |    |                                             |   |
| Pollution                  control revenue bonds |   | $             | 100     |                                             | $      | 203 |   |
| Senior                  notes                    |   |          | ― |                                             |   | 400 |   |
| Other                  long-term debt            |   |          | ― |                                             |   | 2 |   |
|                                             |   |          |    |                                             |   |   |   |
| Total                                            |   | $             | 100     |                                             | $      | 605 |   |

***Credit        Facilities***
*—*

***Capital        Expenditures —***

***Short-term        Borrowings***

***Sale        of Accounts Receivable***

***Liquidity        Effects of Risk Management and Trading Activities***

|   | · | $669                  million in cash has been received related to daily margin settled                  transactions primarily associated with positions in the long-term                  hedging                  program; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $52                  million in cash has been received from counterparties as                  collateral; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | · | $30                  million in cash has been posted with counterparties as collateral;                  and |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | $449                  million in letters of credit have been posted as                  collateral. |
|--------|--------|-----------------------------------------------------------------------------------------------------|

----

***Financial        Covenants, Credit Rating Provisions and Cross Default Provisions***

*Credit        Ratings*

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

*Material        Credit Rating Covenants*

----

*Material        Cross Default Provisions *

***Long-term***
** **
***Contractual        Obligations and Commitments***

----

**OFF        BALANCE SHEET ARRANGEMENTS**

** **

**COMMITMENTS        AND CONTINGENCIES**

**REGULATION        AND RATES**

***Wholesale        Market Activity Investigation***

***Retail        Product Service Offerings***

***Price-to-Beat        Inquiry***

***Provider        of Last Resort Rule***
* *

----

***Disconnect        Rulemaking***
* *

|   | · | For                  customers who have been designated as “critical care” because interruption                  or suspension of electric service will create a dangerous or                  life-threatening condition, there shall be no disconnection through                  September 30, 2006, regardless of whether the customer makes payments                  for                  electricity use; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | With                  respect to elderly low-income customers who contacted their electric                  provider, disconnection was also prohibited through September 30,                  2006,                  regardless of whether the customer made payments for electricity                  use. The                  Commission did encourage customers to pay as much as they could                  to avoid                  building up significant unpaid balances. These customers were entitled                  to                  enter into a deferred payment arrangement with 25% of their balance                  due in                  October and the balance of the deferred bills to be paid over the                  next                  five months; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All                  other low-income customers were able to avoid disconnection through                  September 30, 2006 by paying 25% of their current month’s bill and                  entering into a deferred payment arrangement that spread remaining                  amounts                  over the next five months. In each of July, August and September                  2006, the                  customer was able to avoid disconnection by paying 25% of that                  particular                  month’s bill and also paying the deferral installment that is due for                  that                  month. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Texas        Legislative Special Session***
* *

----

***Wholesale        Market Design***
* *
* *

|   | · | 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). |
|--------|--------|---------------------------------------------------------------------------------------------------|

***2007        Texas Legislative Session***

***Summary***

**CHANGES        IN ACCOUNTING STANDARDS**

----

**ITEM        3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK        **

***RISK        OVERSIGHT***

***COMMODITY        PRICE RISK***

***Long-term        Hedging Program***
* *

----

***VaR        Methodology***

***VaR        for Energy Contracts Subject to Mark-to-Market Accounting***

|                                             |   | **September                  30, 2006**            |   | **December                  31, 2005**          |   |
|--------------------------------------------------|--------|----------------------------------------------------|--------|-------------------------------------------------|--------|
|                                             |   | **Five                  to 60 day holding period** |   | **Five-day****holding                  period** |   | **Five-day****holding                  period** |   |
|  Period-end                  MtM VaR        |   | $                                                  | 246    |                                            | $      | 77 |   | $ | 19 |   |
|  Average                  Month-end MtM VaR |   | $                                                  | 48     |                                            | $      | 21 |   | $ | 20 |   |

***VaR        Earnings at Risk (EaR)***

|      |   | **September                  30, 2006**            |   | **December                  31, 2005**          |   |
|-----------|--------|----------------------------------------------------|--------|-------------------------------------------------|--------|
|      |   | **Five                  to 60 day holding period** |   | **Five-day****holding                  period** |   | **Five-day****holding                  period** |   |
|  EaR |   | $                                                  | 241    |                                            | $      | 72 |   | $ | 32 |   |

----

***INTEREST        RATE RISK***

***CREDIT        RISK***

***Credit        Risk***

***Credit        Exposure***

----

|                                       |   |                                                   |   |                                               |   |                            |   | **Net                  Exposure by**** ****Maturity** |   |
|--------------------------------------------|--------|--------------------------------------------------------|--------|----------------------------------------------------|--------|---------------------------------|--------|------------------------------------------------------------|--------|
|                                       |   | **Exposure                  before Credit Collateral** |   |   **Credit                  Collateral** |   |   **Net****Exposure** |   | **2                  years or less**                       |   | **Between****2-5                  years** |   | **Greater                  than 5 years** |   | **Total** |   |
|                                       |   |                                                   |   |                                               |   |                            |   |                                                       |   |   |   |   |   |   |   |
|                                       |   |                                                   |   |                                               |   |                            |   |                                                       |   |   |   |   |   |   |   |
| Investment                  grade     |   | $                                                      | 1,230  |                                               | $      | 64                              |   | $                                                          | 1,166  |   | $ | 766 |   | $ | 254 |   | $ | 146 |   | $ | 1,166 |   |
| Noninvestment                  grade  |   |                                                   | 266    |                                               |   | 84                              |   |                                                       | 182    |   |   | 144 |   |   | 17 |   |   | 21 |   |   | 182 |   |
| Totals                                     |   | $                                                      | 1,496  |                                               | $      | 148                             |   | $                                                          | 1,348  |   | $ | 910 |   | $ | 271 |   | $ | 167 |   | $ | 1,348 |   |
|                                       |   |                                                   |   |                                               |   |                            |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment                  grade     |   |                                                   | 82     | %                                                  |   | 43                              | %      |                                                       | 86     | % |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninvestment                  grade  |   |                                                   | 18     | %                                                  |   | 57                              | %      |                                                       | 14     | % |   |   |   |   |   |   |   |   |   |   |   |   |

----

**FORWARD-LOOKING        STATEMENTS**

|   | · | prevailing                    governmental policies and regulatory actions, including those                    of the Texas                    Legislature, the Governor of Texas, FERC, the Commission, the                    RRC, the                    NRC, the EPA and the TCEQ, with respect                    to: |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**ITEM        4. CONTROLS AND PROCEDURES**

----

**PART        II. **
**OTHER        INFORMATION**

**ITEM        1. LEGAL PROCEEDINGS**

**ITEM        1A. RISK FACTORS**

**TXU        Corp.’s generation development program is subject to risks that could ultimately        impact TXU Energy Company.**

----

**ITEM        6. EXHIBITS**

| **(a) Exhibits                  provided as part of Part II are:** |
|-------------------------------------------------------------------------|
| **Exhibits**                                                            | **Previously                  Filed With File****Number*** | **As****Exhibit** |   |   |
| **3(ii)**                                                               | **By-laws.** |
| 3(a)                                                                    |   |   | — | Third                  Amended and Restated Limited Liability Company Agreement of TXU                  Energy                  Company LLC, dated as of September 29, 2006. |
|                                                                    | **Material                  Contracts.** |
| 10(a)                                                                   | 1-12833Form                  10-Q(filed                  November 9, 2006) | 10(d) | — | Deed                  of Trust, Assignment of Rents, Security Agreement, Financing Statement                  and                  Fixture Filing, dated as of August 28, 2006, regarding the Big                  Brown                  Lien. |
| **(31)**                                                                | **Rule                  13a - 14(a)/15d - 14(a) Certifications**. |
| 31(a)                                                                   |   |   | — | Certification                  of M. S. Greene, Chairman of the Board, President and Chief Executive                  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 David A. Campbell, Manager and Acting Chief 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, Chairman of the Board, President and Chief Executive                  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 David A. Campbell, Manager and Acting Chief 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 September 30, 2006. |
|                                                                    |

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

----

**SIGNATURE**

|   |   | **TXU                  ENERGY COMPANY LLC**           |   |
|--------|--------|-------------------------------------------------------|--------|
|   |   |                                                  |   |
|   |   |                                                  |   |
|   |   |                                                  |   |
|   |   |                                                  |   |
|   | By:    | /s/                  Stan Szlauderbach                |   |
|   |   | Stan                  Szlauderbach                    |   |
|   |   | Senior                  Vice President and Controller |   |
|   |   |                                                  |   |

----