Gulf Coast Power AssociationSpring ConferenceBrad JonesVice President - DevelopmentApril 6, 20061The Texas Electric Market Is One Of The LargestIn The World...Source: EIAElectricity consumption02; TWhUnitedStatesTexasGermanyJapan Canada Brazil SpainTexas is the 11thbiggest market in the worldTexas is the 11thbiggest market in the world3,6001,457971780513 510487415352344320267218196China Russia India France UnitedKingdomSouthKoreaAustralia2200,000240,000280,000320,000360,00099 00 01 02 03 04 05 06E 07E 08E 09E 10E 11ESource: ERCOT (11-8-05)...and Texas Economic Development Is StrongHistorical Forecast2.1% Average energy growthAnnual energy usage99-11E; GWh3Electric Competition Encouraged Massive Investment InNew Generation ...Capacity additions90-04; GW11.70.20.60.80.40.50.20.75.54.42.95.76.61.11.090 91 92 93 94 95 96 97 98 99 00 01 02 03 04PURA 95(wholesalecompetition)90-97 Additions= 6 GW 98-04 Additions= 26 GW1GW = 1000 MW (1 MW serves approximately 1000 homes)Source: Energy Velocity; NERC, ERCOT 2005 Report On Electric System Constraints / Needs and Planning ActivitiesSB7(retailcompetition)Competition is good: Generation companies have assumed allfinancial risks for new power plants since 1995.Competition is good: Generation companies have assumed allfinancial risks for new power plants since 1995.4...And A Significant Increase In Market Efficiency...Texas market heat rates199-05; MMBtu/MWhThe efficiency improvement wouldbe similar to improving averageautomobile gas mileage from 20 mpg to 35 mpgThe efficiency improvement wouldbe similar to improving averageautomobile gas mileage from 20 mpg to 35 mpg1Heat rate is a measure of the efficiency of converting a unit offuel (MMBtu) into a unit of electricity (MWh); lower heat rates implies higher efficiency.Based on comparison of 7X24 ERCOT market heat ratesSource: Energy Velocity; NERCCapacity additions not in rate base90-04; $ billions21690-97 98-04 

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7 0 0 %14899 0540%40%5Implied 2005 wholesale electricity prices; $ per MWh44%44%99 efficiencyat 05 gas05 efficiency at05 gas99 efficiency at initialfuel-factor gas1Based on initial PTB fuel factor as of 1/1/022Based on TXU Energy PTB underlying naturalgas price as of filing approved on 10/28/053Assumes heat rate = 14 MMBtu/MWh (99 ERCOT heat rate)4Assumes heat rate = 7.8 MMBtu/MWh (05 actual heat rate)Sources: Bloomberg, MegaWatt Daily73%73%05 efficiency atinitial fuel-factor gas...Contributing To A Dramatic Impact On WholesalePower Prices441619024Natural Gas $3.11/MMBtu1$11.5342$11.5342$3.111Efficiency (HR) 1431437.847.84Analogy: Annual cost to drive car (12,000 miles); dollars7501,7581,005429Gasoline $1.25/gallon $2.93 $2.93 $1.25Efficiency (mpg) 20 20 35 3543%43%57%57%63751921Wind andOther RenewablesCoalNatural Gas50182093CoalNatural GasNuclearHydro and OtherRenewablesElectric fuel mix – TexasPercent; MWh*Source: Energy Information Administration, Annual Energy Review 2002Electric fuel mix – USPercent; MWhNuclearOtherOilTexas Is Highly Dependent On Natural Gas – A VolatileCommodity...Like assets in a 401K fund, fuel supply should have an appropriate balanceLike assets in a 401K fund, fuel supply should have an appropriate balance7... and No New Coal Plants Have Been Built in Texas Since199205,00010,00015,00020,00025,00030,00035,000Natural Gas Wind Utility Coal

Installed Generation (MW)InstalledProposed816.016.330.435.626.725.216.913.613.414.813.411.899 00 01 02 03 04 05 06E 07E 08E 09E 10EERCOT Reserve Margins Are Falling And Will Not MeetFuture Minimum Reserve Margins Without New GenerationFalling below the minimum reserve margin puts reliability at riskFalling below the minimum reserve margin puts reliability at riskMinimum ReserveMargin = 12.5%Source: “Report on Existing and Potential Electric System Constraints and Needs” – ERCOT, October 1, 2005Forecasted reserve margins99-10; Percent9Coal Creates An Opportunity To Diversity The Fuel Mix,Though Builders Must Invest Large Amounts of CapitalWith Uncertain ReturnsTexas and Coal:5th largest coal-producing state inthe US200 years of lignite reserves$10 billion annuallyin totalexpenditures$300 million annuallyin state andlocal revenues as well as royalties tolandownersProvides over33,000 permanent jobsRed areas indicateTexas lignite deposits10To become theleader Inclean coalpowerTo become theleader Inclean coalpowerUtilize TXU’sstructurallyadvantaged assetsfor low cost/quick entryUtilize TXU’sstructurallyadvantaged assetsfor low cost/quick entryExpandexisting sitesthrough astandardizedreference plantExpandexisting sitesthrough astandardizedreference plantDevelop west Texas“greenfield”sitesDevelop west Texas“greenfield”sites132TXU Is Exploring Multiple Strategies For Clean Coal PowerExpansionObjective:Strategies:Limited “greenfieldsites” have requiredwater and transmissionDifficult to tailor to allexisting opportunitiesLimited assetsChallengesPotential cost and timesavingsSignificant potentialcost and time savings(learning curve)Shared infrastructureExpedited access toexisting equipment andresourcesAdvantages11TXU Has Announced Two Texas New Build Opportunities...Sandow Unit 5Rockdale, TexasOak Grove Steam Electric StationRobertson County, TexasTXU has announced the potential for large scale investmentsTXU has announced the potential for large scale investmentsIn-ProcessAir permit statusTX LignitePrimary fuelAfter permitResume construction dateJune 09/Dec 09Commercial operation date1,720Installed capacity (MW)Key statisticCompleteAir permit statusTX LignitePrimary fuelApril 06Resume construction dateOct 08Commercial operation date600Installed capacity (MW)Key statistic120.00.20.40.60.8SD OH MD KY DE SC IL LA VT METXU’s New Plants Will Be Among The Cleanest CoalPlants In The US In One Of The US’ Cleanest StatesOak Grove and Sandow 5 will operatewith the best available controltechnology, reinforcing Texas’ proven environmental track recordOak Grove and Sandow 5 will operatewith the best available controltechnology, reinforcing Texas’ proven environmental track recordSource: EPA Acid Rain database and EIA~0.20.30.40.84.4~0.10.10.10.31.1Average emission rates70-15; Lbs/MMBtuSO2NOXUS Avg1970US Avg2004Texas2004CAIR2015Oak Grove,Sandow 5SO2NOXSO2NOXSO2NOXSO2NOXTexas has the 6thcleanest emissions rateand the cleanest of allstates that use coalNational AverageAverage emission rates04; Lbs/MMBtu13The Perryman Report ( 2004, 2005)Oak Grove’s Impact on the Brazos Valley and Texas$364M$299M$3.26B$2.78BGross Product$207M$170M$2.23B$1.93BPersonalIncome$75M$67M$853M$793MRetail Sales$1,065M$859M$6.72B$5.61BTotalExpenditures3,662Permanent Jobs3,062Permanent Jobs48,092Person Years42,934Person YearsEmploymentTexasBrazos ValleyTexasBrazos ValleyOperational PhaseConstruction PhaseEconomic Impact of Construction, Development and OperationsTexas’ coal industry contributes ...$10.5B in annual total expenditures $3.5B in annual gross product$2.1B in annual personal income 33,197permanent jobs14Oak Grove Has a Long History in Central TexasOak Grove was originally named the Twin Oak project and was authorized in January 1973 with aplanned commercial operation datein 1978 (Unit 1) and 1979 (Unit 2).Major eventsMay 1973 Joint memorandum of agreement with Alcoa to jointly construct,own and operate theplant.Nov. 1976 Project delayed two years (firstof several delays)Feb. 1978 Engineering re-startedSept. 1977 EPA issued air construction permit (PSD)Feb. 1979 Plant construction beganOct. 1984 TXU purchased Alcoa’s lignite properties andinterest in the plantSept. 1987 Construction and engineering halted due to multi-yearproject delay (engineering 90%complete, Unit 1 construction 20% complete)Sept. 1989 Engineering re-startedNov. 1992 Construction and engineeringhalted, project delayed indefinitelyDec. 1994 Air permitapplication withdrawnJuly 2005 Project was re-initiated under the newname Oak Grove utilizing the Twin Oak Unit 1equipment and the former Forest Grove Unit 1 equipmentJuly 2005 TXU applied to TCEQ for new air permit197019801990 200015Oak Grove Site SummarySite– Located 40 miles southeast ofWaco, Texas in Robertson,Limestone and Falls Counties.Approximately 4,230 acres (1,900acres for the plant and ancillaryfacilities, and 2,330 acres for thecooling reservoir.Rail Access– Rail spur connection to Union Pacific Railroad isinstalled and operational.Cooling Reservoir– 30,300 acre-ft., normal pool level is 401 ftelevation, current pool level is maintained at 389 ft. elevation, 12feet below normal. Make-up water provided from Lake Limestonevia 12 miles of 42” concrete pressure pipe.Lignite Leases– A total of 4 differentdeposits covering 33,000surface acres. Estimated quantityof lignite is 485,000,000 tonswith delivered heat contentsranging from 6,700 to 7,000Btu/pound.Water Rights Permits– Permit (issued 10-08-74) authorizedconstruction of the dam, the use of30,319 acre-ft. for filling andconsumptive use of 13,100 acre-ft.per year. Permit (issued 10-08-74 and amended 07-14-81) authorizes a maximum make-up of25,000 acre-ft. per year from LakeLimestone. Contract in placewith the Brazos River Authorityto use 25,000 acre-ft. per yearfrom Lake Limestone and the Brazos River.Plant Design– Two 860 MW lignite/coal-fired supercritical steamgenerating units with wet flue gas desulfurization systems.Equipment Available*- Boilers (2), turbines (2), generators (2),boiler feed pump turbines (4), boiler feed pumps (2), feedwaterheaters (8), miscellaneousequipment including 6.9 kVswitchgear, make-up water pumpand equipment, high energypiping. All turbine-generator equipment and all boiler feed pumpand turbine equipment are in storage at Twin Oak.16Oak Grove Is A Structurally Advantaged AssetPrevious site construction includespartial erection of unit 1 boiler structureand cooling lake.Existing equipment including 2 boilers, 2turbine sets, 2 generators, and auxiliaryequipment.345 KV Transmission switching stationlocated within plant property.Approximately 40,000 acre site thatincludes lignite reserves sufficient tofuel the plant for over 40 years.17Oak Grove Will Utilize The Best Available ControlTechnology...NH3InjectionFD FansFly Ash by-productFabric FiltersFabric FiltersSO2ReductionWet-FGD.... Air Heater

SCRLimestoneFGD WasteID Fans ChimneyNOXThe boiler is designed to minimize theformation of nitrogen oxides (NOx)with low NOx burners and overfire airAlso, combustion gases will betreated for the first time on a ligniteunit with selective catalytic reduction(SCR) technology. Combustionexhaust passes through a catalystmaterial where NOx is converted toinert nitrogenSCR removal efficiency will be about75% removal with the SCR (afterabout a 50% reduction with the lowNOX burners).ParticulateAfter the SCR, flue gas passesthrough a fabric filter baghouse thatcatches over 99.9% of particles (coalash)The fabric filters consist of tens ofthousands of 30 foot long bagsScrubberAfter the baghouses, flue gas passesthrough a wet limestone slurry spraytower that removes over 95% of thesulfur dioxide.This is called the wet flue gasdesulfurization unit (FGD)MercuryOak Grove will be the first lignite unit to remove mercury withcarbon injection. Carbon is injected into the flue gas ductworkahead of fabric filter.Carbon covers the filter and absorbs the mercury.Over 75% of the trace mercury in the fuel will be removed18...to Achieve Today’s Improved Air Quality Standards05,00010,00015,00020,00025,00030,00035,00040,00045,00050,000SO2 NOx PMTwin Oak (Then)Oak Grove (Now)

Tons per Year19Oak Grove Enjoys the Support of the Community•Local community support for Oak Grove project – resolutions approved–Robertson Co. Commissioner’s Court–Franklin Chamber of Commerce–Franklin ISD–City of Franklin–Bremond Chamber of Commerce–City of Bremond–Hearne Chamber of Commerce–Hearne Economic Development Corp.–City of Calvert•Held Positive public meetings in Franklin–TXU Power Town Hall meeting on September 1, 2005–TCEQ Public Meeting onNovember 15, 2005•Hired local community representatives•Office space opened in downtown Franklin•Developed the public web sitewww.reliabletexaspower.com