<PAGE>

                                                               Exhibit 10 (m)


                              EMPLOYMENT AGREEMENT
                              --------------------
         This Employment Agreement is entered into this 13th day of March, 2002,
by and between TXU Corp., a Texas corporation (the "Company") and Eric H.
Peterson, an individual (the "Employee").

         1. Employment. The Company hereby agrees to employ Employee, and
            ----------
Employee hereby agrees to serve the Company as its employee, subject to the
terms and conditions set forth herein. Employee's employment with the Company
shall be subject to the Company's standard policy regarding background
investigations of new employees, which shall be completed prior to Employee's
commencement of employment.

         2. Term. Employee shall commence his employment with the Company on May
            ----
1, 2002 and, unless terminated earlier pursuant to the provisions hereof, this
Agreement shall expire on April 30, 2005 ("Term").

         3. Initial Title and Duties. Employee shall initially serve as
            ------------------------
Executive Vice President and General Counsel of the Company and shall have
responsibility and authority for the oversight and coordination of all legal
matters of, or relating to, the Company and all of its subsidiaries. Employee
will serve as an advisory member of the Executive Committees of the Company, and
as a member of the Policy Forum of the Company. Employee will report to the
Chief Executive of the Company and will perform such duties and tasks as he may
be called upon by the Company to perform from time to time, such duties to be
consistent with those described generally herein or other duties consistent with
Employee's title as set forth above. Employee will endeavor to promote the
business affairs and interests of the Company and will devote all of his working
time and attention to the Company.

         4. Compensation.
            ------------

           (a) Base Salary. As compensation for his services hereunder,
               -----------
Employee shall initially receive a base salary of $33,333.33 per month, payable
in equal installments at such periods as shall from time to time be established
by the Company as regular payroll periods. Employee's base salary shall be
subject to review and modification from time to time at the discretion of the
Company; provided that Employee's base salary may be increased, but not
decreased, during the Term.

           (b) Special Bonus Payment. Employee will receive a special
               ---------------------
one-time lump sum signing bonus in the amount of $160,000, which shall be paid
as soon as reasonably practical following Employee's commencement of employment
hereunder.

           (c) Annual Bonus. Employee shall be entitled to receive
               ------------
incentive annual bonus awards subject to, and in accordance with the provisions
of, the Company's Annual Incentive Plan ("AIP"). For each of 2002, 2003 and
2004, Employee's target award under the AIP will be 50% of Employee's annualized
base salary.
<PAGE>

           (d) Long Term Incentive Compensation. Employee shall be
               --------------------------------
entitled to receive an award of not less than 8,000 shares of restricted stock
under the LTICP: (i) as soon as reasonably practical following Employee's
commencement of employment, and (ii) following, and in connection with, the
executive officer annual review by the Organization and Compensation Committee
of the Board of Directors of the Company ("O&C Committee") in each of 2003 and
2004 (currently expected to occur in February of each such year). Each such
award shall be subject to terms, conditions and restrictions comparable to those
contained in contemporaneous awards granted to comparably situated officers
within the TXU Corp. System. In the event that no awards of restricted stock are
made under the LTICP at one or more of the above-referenced times to any other
officer or key employee, Employee shall, in lieu of receiving an award of
restricted stock, receive at such time(s) an award of a type comparable to that
awarded to other officers of similar rank having a value reasonably comparable
to an award of at least 8,000 shares of restricted stock (taking into
consideration performance targets and vesting periods applicable to restricted
stock awards heretofore granted under the LTICP, and assuming that performance
goals and targets would have been attained so that 100% of the restricted stock
would have become payable). In the event that no awards of any type are awarded
under the LTICP at one or more of the above-referenced times, Employee will be
entitled to receive at such time(s) cash in an amount equal to the present value
of an award of at least 8,000 shares of restricted stock (taking into
consideration performance targets and vesting periods applicable to restricted
stock awards heretofore granted under the LTICP and assuming that performance
goals and targets would have been attained so that 100% of the restricted stock
would have become payable).

            (e) Special "Time-Based" Restricted Stock Award. In addition
                -------------------------------------------
to the long-term incentive awards provided for above, to offset certain deferred
compensation which Employee will forfeit as a result of his entering into this
Agreement, Employee shall be entitled to receive a one-time special award of
11,000 shares of restricted stock under the LTICP. Such award shall be made as
soon as reasonably practical following Employee's commencement of employment,
and shall be in the general form of other "time-based" restricted stock awards
made under the LTICP and will vest and become distributable, subject to the
terms and conditions of such award, over a three (3) year period in accordance
with the following schedule:

                           Date of Vesting                      Number of
                           and Distribution                       Shares
                           ----------------                     ---------
                           May 1, 2003                              3,667
                           May 1, 2004                              3,667
                           May 1, 2005                              3,666

         Dividends paid on such restricted shares after the award is made and
prior to distribution of the shares will be reinvested in Company common stock
and will be distributed concurrently with the distribution of the underlying
restricted shares.

          (f) Additional Special "Performance-Based" Restricted Stock Awards.
              -------------------------------------------------------------
In addition to the awards provided for in paragraphs (d) and (e) above,
and to offset certain deferred compensation which Employee will forfeit as a
result of his entering into this Agreement, Employee shall be entitled to
receive two (2) additional awards of performance-based restricted stock under
and subject to the terms of the LTICP in an amount of 3,000 shares each
(aggregate of 6,000 shares). Such awards shall be made as soon as reasonably
practical following Employee's commencement of employment, and shall be subject
to the terms, conditions and restrictions comparable to those contained in
performance-based awards granted under the LTICP to similarly situated officers
in connection with the O&C Committee's annual review of executive officers in
2000 and 2001, respectively (i.e., one such award shall be subject to the 2000
terms, and the other award shall be subject to the 2001 terms).
<PAGE>

         (g) Additional Retirement Compensation. In addition to the
             ----------------------------------
compensation and benefits described above, Employee shall be entitled to
additional retirement compensation on the following basis:

     (i) Employee shall be entitled to receive additional retirement
compensation ("Additional Retirement Compensation") equal to the aggregate
benefits which would have been payable to Employee under the TXU Retirement Plan
(the "Retirement Plan") and the TXU Second Supplemental Retirement (the
"Supplemental Retirement Plan") as if, during each of the first ten (10) years
of employment with the Company, Employee was credited with two (2) years of
Accredited Service (as defined in the Retirement Plan). Thus, after having
completed ten (10) full years of employment, Employee will have accrued twenty
(20) years of Accredited Service for purposes of calculating the Additional
Retirement Compensation. The Additional Retirement Compensation shall be reduced
by: (a) all amounts payable to Employee under the Retirement Plan and the
Supplemental Retirement Plan (or any successor plan or plans) pursuant to the
provisions of those plans as a result of his employment with the Company; and
(b) all amounts payable to Employee as a result of the vesting of retirement
benefits under any other employer sponsored defined benefit retirement plan or
for any amounts paid or payable to him in lieu thereof.

     (ii) The Additional Retirement Compensation shall accrue and vest in the
same manner and at the same time as benefits under the Retirement Plan accrue
and vest.

     (iii) The Additional Retirement Compensation shall be payable in the form
elected by Employee with respect to benefits payable under the Retirement Plan.
The amount of the Additional Retirement Compensation shall be determined by the
actuary for the Retirement Plan using actuarial assumptions substantially
similar to those used in connection with the determination of benefits payable
under the Retirement Plan.

     (iv) The Additional Retirement Compensation is not intended to meet the
qualification requirements of Section 401 of the Internal Revenue Code of 1986,
as amended (the "Code"); however the Additional Retirement Compensation shall be
funded and payable under the rabbi trust established under the Supplemental
Retirement Plan.

     (h) Employee Benefits. Employee shall be entitled to participate in all of
         -----------------
the Company's employee benefit plans, programs, arrangements and fringe benefit
policies to the extent he is qualified to do so by virtue of his employment with
the Company, subject to the terms, conditions and limitations of such plans,
arrangements and policies, as they may be amended, altered or terminated from
time to time. For purposes of the Company's vacation policy, Employee shall be
deemed to have fifteen (15) years of service with the Company as of the
effective date of this Agreement, so as to provide four (4) weeks vacation
during the first year of employment.
<PAGE>

     (i) Relocation Benefits. Employee shall be entitled to relocation benefits
         -------------------
under the Company's normal relocation policy applicable to similarly situated
executive officers.

     (j) Country Club. The Company shall pay, or reimburse Employee for, the
         ------------
initiation costs and monthly membership dues for a country club mutually agreed
upon by Employee and the Company on a comparable basis with other similarly
situated executive officers.

     (k) Provision for Company Automobile. Employee shall be entitled to
         -------------------------------
participate in the Company's executive automobile policy on a comparable basis
with other similarly situated executive officers.

         5. Severance Benefits. If Employee is terminated by the Company without
            ------------------
Cause (as defined below) during the Term, Employee shall be entitled to receive
the compensation and benefits described in (a), (b), (c) and (d) hereinbelow:

     (a) A one-time cash severance payment, which shall be payable as soon as
reasonably practical following such termination, but in any event within ten
(10) business days thereafter, in an aggregate amount equal to the sum of the
following:

     (i) The greater of: (a) the amount of base salary (as in effect on the date
of the termination) plus annual incentive awards (at the highest previous target
level and assuming performance satisfying a target payout) that Employee would
have received had he continued in the employment of the Company hereunder
through the expiration of the Term; or (b) twelve months' base salary (as in
effect on the date of the termination) plus Employee's target annual incentive
award for the year of the termination;

     (ii) An amount equal to the sum of: (a) the value (as of the date of
termination) of all unvested and otherwise unpayable restricted stock (or
alternative) awards previously granted to Employee under the LTICP (as if
performance criteria had been met to permit payment of 100% of the award), and
(b) the forfeited portion of Employee's accounts under the TXU Deferred and
Incentive Compensation Plan ("DICP") and the TXU Salary Deferral Program ("SDP")
(valued in accordance with the relevant provisions of the DICP and SDP,
respectively);

     (iii) An amount equal to the sum of: (a) matching contributions which would
have been made under the DICP had Employee continued to defer salary thereunder
at the rate in effect as of the date of such termination for the remainder of
the Term, plus (b) the value (as of the date of termination) of restricted stock
(or alternative) awards which had not theretofore been made to Employee under
paragraph 4(d) hereof (valued on the basis of the assumption that the
performance criteria which would have been applicable to such awards had been
met so that 100% of the award(s) would have been payable); and

     (iv) An amount equal to the difference between (a) the aggregate required
monthly premium for continuation coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") under the TXU Medical (including
prescription drugs), Dental and Group Life Insurance Plans, and (b) the
aggregate monthly employee contribution rate in effect for Employee under such
plans immediately prior to such termination, multiplied by eighteen (18).
<PAGE>

     (b) In addition to such severance payment, Employee shall be entitled to
the following benefits:

     (i) The Company shall (a) to the extent such benefits are not continued, or
(b) Employee's termination would constitute an Early Termination under the
provisions of the TXU Split-Dollar Life Insurance Program ("Split-Dollar Life
Insurance Program"), provide Employee with the benefits contemplated under the
Split-Dollar Life Insurance Program, as in effect on the effective date of this
Agreement, as if the Participation Agreement between the Company and Employee
entered into under the Split-Dollar Life Insurance Program continued in
accordance with its terms as in effect on the effective date of this Agreement
as if Employee's termination had not occurred. Such continuation of benefits
shall be accomplished, at the Company's election, by: (a) continuing to maintain
the policies securing Employee's benefit under the Split-Dollar Life Insurance
Program, at the Company's sole cost and expense, as if the Participation
Agreement continued in full force and effect; or (b) paying Employee an
additional lump sum cash amount sufficient for Employee to maintain such
policies until such time as they are fully paid up, at no cost to Employee.

     (ii) The Company shall pay on behalf of Employee, or shall reimburse
Employee for, the physician fees for one physical examination of Employee under
the general parameters of the Company's executive physical program for each year
during the period equal to the greater of the remainder of the Term or one (1)
year following Employee's termination; and

     (iii) Employee shall, at the Company's cost, be entitled to financial
planning services equivalent to services available under the TXU executive
financial planning program during the period equal to the greater of the
remainder of the Term or twelve months following Employee's termination.

     (c) In addition to such severance payments and benefits, Employee shall be
entitled to additional retirement compensation ("Additional Severance Retirement
Compensation") in an amount equal to the difference between: (i) the benefit
Employee is entitled to receive under the TXU Retirement Plan ("Retirement
Plan") and the TXU Second Supplemental Retirement Plan ("Supplemental Retirement
Plan"), and (ii) the amount of the retirement benefit Employee would have been
entitled to receive under the Retirement Plan and the Supplemental Retirement
Plan had Employee continued in the employment of the Company, and continued
participating in the Retirement Plan, through the expiration of the Term. The
calculation of the Additional Severance Retirement Compensation shall take into
consideration and include the additional "deemed" Accredited Service comprising
the Additional Retirement Compensation provided for in Section 4(g) above, and
shall assume: (x) an annual increase in base salary (effective as of the normal
effective date for executive salary adjustments under the Company's standard
practice in effect as of the termination) equal to Employee's greatest base
salary increase during the Term, and (y) an annual bonus payment (payable at the
normal time under the AIP, or successor plan) equal to the highest annual bonus
payment previously paid to Employee. The Additional Severance Retirement
Compensation shall be payable in the form elected by Employee with respect to
benefits under the Retirement Plan. The amount of the Additional Severance
Retirement Compensation shall be determined by the actuary for the Retirement
Plan using the assumptions set forth above and other reasonable and consistent
actuarial assumptions substantially similar to those used in connection with the
determination of benefits payable under the Retirement Plan. The Additional
Severance Retirement Compensation is not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code of 1986, as amended
("Code"); however the Additional Severance Retirement Compensation shall be
funded and payable under the rabbi trust established under the Supplemental
Retirement Plan.
<PAGE>

     (d) In the event that the foregoing payments, or any portion thereof,
constitute an "excess parachute payment" under Section 4999 of the Code, or any
successor provision, the Company shall, in addition to providing the foregoing
payments and benefits, pay Employee a tax gross-up cash payment(s) in an amount
agreed upon by Employee to be sufficient to fully offset the excise tax which
Employee is, or may be, required to pay as a result thereof. Such tax gross-up
payment shall be paid to Employee concurrently with the cash payments provided
for hereinabove; provided that if the amount of such tax gross-up payment cannot
be finally determined by such date, the Company shall pay Employee concurrently
with such other payments an estimate, determined in good faith by the Company,
of the minimum amount of the required tax gross-up payment. Thereafter, the
Company shall promptly (but in any event within forty-five (45) days of
Employee's termination) determine in good faith the total amount of the tax
gross-up payment and seek to obtain Employee's approval thereof. The remaining
portion of the tax gross-up payment shall be paid to Employee promptly after
Employee approves the total amount.

     Notwithstanding any other provision of this Agreement seemingly to the
contrary, each of the benefits provided for in subparagraphs 5(b) (ii) and (iii)
above shall be provided to Employee if and only to the extent that a similar
type of benefit is not provided to Employee through his subsequent employment
with another employer. Additionally, Employee shall not be entitled to any of
the payments or benefits provided for under this Section 5 if Employee's
termination is for Cause, or if the circumstances of Employee's termination
entitle him to the payments and benefits provided for in Section 6 below.

     6. Change In Control. If, during the Term: (i) Employee voluntarily
        -----------------
terminates his employment with the Company (or its successor) within six (6)
months following a Change in Control (as defined below), or (ii) Employee's
employment is terminated by the Company (or its successor) without Cause, or
Employee terminates his employment for Good Reason (as defined below), in either
case within twenty-four (24) months following a Change in Control, Employee
shall be entitled to receive the compensation and benefits described in (a),
(b), (c) and (d) hereinbelow:

     (a) A one-time cash payment, which shall be payable as soon as reasonably
practical following such termination, but in any event within ten (10) business
days thereafter, in an aggregate amount equal to the sum of the following:

     (i) An amount equal to three (3) times the aggregate of Employee's
annualized base salary as in effect immediately prior to the Change in Control
plus Employee's target annual incentive award for the year in which the Change
in Control occurs;
<PAGE>

     (ii) An amount equal to the sum of: (a) the value (as of the date of
termination) of all unvested and otherwise unpayable restricted stock (or
alternative) awards previously granted to Employee under the LTICP (as if
performance criteria had been met to permit payment of 100% of the award), and
(b) the forfeited portion of Employee's accounts under the DICP and SDP (valued
in accordance with the relevant provisions of the DICP and SDP, respectively);

     (iii) An amount equal to the sum of: (a) the matching contributions which
would have been made under the DICP had Employee continued to defer salary
thereunder at the rate in effect as of the effective date of the Change in
Control, for an additional three years following the termination of employment;
and value (as of the date of termination) of restricted stock (or alternative)
awards which had not theretofore been made to Employee under paragraph 4(d)
hereof (valued on the basis of the assumption that the performance criteria
which would have been applicable to such award(s) had been met so that 100% of
the award would have been payable); and

     (iv) An amount equal to the difference between (a) the monthly COBRA
premium for coverage under the Company's medical (including prescription drugs),
dental and group life insurance plans, and (b) the monthly employee contribution
under such plans in effect for Employee immediately prior to the termination,
multiplied by eighteen (18);

     (b) In addition to such payment, Employee shall be entitled to the
following benefits:

     (i) The Company shall fully secure the benefit provided for under the
Split-Dollar Life Insurance Program by making irrevocable contributions to the
trust established thereunder ("Trust") as contemplated in Section 11 of the
Split-Dollar Life Insurance Program. Additionally, Employee's participation in
the Split-Dollar Life Insurance Program shall continue notwithstanding the
termination of employment as if the Participation Agreement between the Company
and Employee entered into under the Split-Dollar Life Insurance Program
continued in accordance with its terms as in effect prior to Employee's
termination and as if Employee's termination had not occurred. In the event the
Company terminates the Split-Dollar Life Insurance Program, the Company shall
nonetheless provide Employee with the benefits contemplated under the
Split-Dollar Life Insurance Program, as in effect on the effective date of this
Agreement, and shall fully secure such benefits through irrevocable
contributions to the Trust;

     (ii) Employee shall, at the Company's cost, be entitled to financial
planning services equivalent to services available under the Company's executive
financial planning program for three years from the date of the termination; and

     (iii) The Company shall pay on behalf of Employee, or shall reimburse
Employee for, the physician fees for one physical examination of Employee per
year for three years from the date of the termination.

     (c) In addition to such severance payments and benefits, Employee shall be
entitled to the Additional Severance Retirement Compensation as calculated and
payable under the provisions of paragraph 5(c) above.
<PAGE>

     (d) In the event that the foregoing payments, or any portion thereof,
constitute an "excess parachute payment" under Section 4999 of the Code, or any
successor provision, the Company shall, in addition to providing the foregoing
payments and benefits, pay Employee a tax gross-up cash payment(s) in an amount
agreed upon by Employee to be sufficient to fully offset the excise tax which
Employee is, or may be, required to pay as a result thereof. Such tax gross-up
payment shall be paid to Employee concurrently with the cash payments provided
for hereinabove; provided that if the amount of such tax gross-up payment cannot
be finally determined by such date, the Company shall pay Employee concurrently
with such other payments an estimate, determined in good faith by the Company,
of the minimum amount of the required tax gross-up payment. Thereafter, the
Company shall promptly (but in any event within forty-five (45) days of
Employee's termination) determine in good faith the total amount of the tax
gross-up payment and seek to obtain Employee's approval thereof. The remaining
portion of the tax gross-up payment shall be paid to Employee promptly after
Employee approves the total amount.

     (e) For purposes of this Agreement, "Change in Control" shall mean a change
in control of the Company of a nature that would be required to be reported in
response to Item 1(a) of the Securities and Exchange Commission Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act), or would have been required to
be so reported but for the fact that such event had been "previously reported"
as that term is defined in Rule 12b-2 of Regulation 12B under the Exchange Act;
provided that, without in any way limiting the foregoing, a Change in Control
shall be deemed to have occurred if any one or more of the following events
occurs: (i) any Person is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then outstanding securities having the right to vote at elections of directors
of the Company ("Voting Securities"); (ii) individuals who constitute the board
of directors of the Company on the effective date of this Agreement (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the
effective date of this Agreement whose election, or nomination for election by
the Company's shareholders, was approved by at least three-quarters of the
Company's directors comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company in which such person is named
as a nominee for director, without objection to such nomination) shall, for
purposes of this clause (ii), be considered as though such person were a member
of the Incumbent Board; (iii) a recapitalization or reclassification of the
Voting Securities of the Company , which results in either (a) a decrease by 33%
or more in the aggregate percentage ownership of Voting Securities held by
Independent Shareholders (on a primary basis or on a fully diluted basis after
giving effect to the exercise of stock options and warrants), or (b) an increase
in the aggregate percentage ownership of Voting Securities held by
non-Independent Shareholders (on a primary basis or on a fully diluted basis
after giving effect to the exercise of stock options and warrants) to greater
than 50%; (iv) all or substantially all of the assets of the Company are
liquidated or transferred to an unrelated party; or (v) the Company is a party
to a merger, consolidation, reorganization or similar transaction pursuant to
which the Company is not the surviving ultimate parent entity. For purposes of
this definition, the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person", as such term is
used in Section 14(d) of the Exchange Act, other than the Company, a subsidiary
of the Company or any employee benefit plan(s) sponsored or maintained by the
Company or any subsidiary thereof, and the term "Independent Shareholder" shall
mean any shareholder of the Company except any employee(s) or director(s) of the
Company or any employee benefit plan(s) sponsored or maintained by the Company
or any subsidiary thereof.
<PAGE>

     (f) For purposes of this Agreement, "Good Reason" shall mean any one or
more of the following occurrences: (i) Employee's base salary as in effect
immediately prior to the Change in Control, or as it may be increased subsequent
to the Change in Control, is reduced; (ii) Employee's status or responsibilities
with the Company immediately prior to the Change in Control are materially
reduced, or Employee is assigned duties which are inconsistent with such status
or responsibilities, or Employee's business location is materially changed;
(iii) the Company (or its successor) fails to continue in effect any pension,
health care or executive compensation plan or arrangement in which Employee was
participating immediately prior to the Change in Control, or Employer or the
Company (or their successors) takes some action which materially reduces
Employee's benefits under any such plan or program, without (in either such
case) providing Employee with substantially similar benefits; or (iv) any
successor to the Company in connection with the Change in Control does not,
prior to the Change in Control, expressly assume this Agreement.

     7. Definition of Cause. For purposes of this Agreement, the term Cause
        -------------------
shall mean any one or more of the following: (a) the material breach by the
Employee of this Agreement; (b) Employee's breach of his fiduciary duty to the
Company and/or its shareholders in his capacity as an officer of the Company;
(c) any action or failure to act on the part of Employee which results in
material injury to the assets, business prospects or reputation of the Company
or any affiliate of the Company; (d) the appropriation of a material business
opportunity of the Company or any affiliate of the Company, including attempting
to secure or securing any personal profit in connection with any transaction
entered into on behalf of the Company; or (e) Employee's failure to
substantially perform his duties and responsibilities hereunder, including
without limitation Employee's breach of the Company's Code of Conduct or an
express employment policy of the Company.

     8. Severance/Change in Control Benefits Contingent Upon Full Release.
        -----------------------------------------------------------------
Employee acknowledges and agrees that the benefits and payments provided for in
Section 5 or 6, as applicable, constitute the exclusive remedy of Employee upon
termination of employment under the circumstances described in Section 5 or 6,
as the case may be. Notwithstanding any other provision of this Agreement, as a
condition to receiving such benefits and payments, Employee shall be required to
execute a release of claims in favor of the Company in a form reasonably
acceptable to the Company.

    9. Confidentiality and Nondisclosure.
       ---------------------------------

     (a) Employee understands and agrees that he will be given Confidential
Information (as defined below) and Training (as defined below) during his
employment with the Company relating to the business of the Company and/or its
Affiliates (as defined below). Employee hereby expressly agrees to maintain in
strictest confidence and not to use in any way (including without limitation in
any future business relationship of Employee), publish, disclose or authorize
anyone else to use, publish or disclose in any way, any Confidential Information
relating in any manner to the business or affairs of the Company and/or its
Affiliates. Employee agrees further not to remove or retain any figures,
calculations, letters, documents, lists, papers, or copies thereof, which embody
Confidential Information of the Company and/or its Affiliates, and to return,
prior to Employee's termination of employment, any such information in
Employee's possession. If Employee discovers, or comes into possession of, any
such information after his termination he shall promptly return it to the
Company. Employee acknowledges that the provisions of this paragraph are
consistent with the Company's Code of Conduct with which Employee, as an
employee of the Company, is bound.
<PAGE>

     (b) For purposes of this Agreement, "Confidential Information" includes,
but is not limited to, information in the possession of, prepared by, obtained
by, compiled by, or that is used by the Company or any of its Affiliates or
customers and (1) is proprietary to, about, or created by the Company or its
Affiliates or customers; (2) gives the Company or its Affiliates or customers
some competitive business advantage, the opportunity of obtaining such
advantage, or disclosure of which might be detrimental to the interest of the
Company or its Affiliates or customers; and (3) is not typically disclosed by
the Company or its Affiliates or customers, or known by persons who are not
employed by the Company or its Affiliates or customers. Without in any way
limiting the foregoing and by way of example, Confidential Information shall
include: information not generally available to the general public pertaining to
the Company's business operations such as financial and operational information
and data, operational plans and strategies, business and marketing strategies
and plans for various products and services, global operational planning, and
acquisition and divestiture planning.

     (c) For purposes of this Agreement, "Training" includes, but is not limited
to, specialized and valuable training regarding Confidential Information.

     (d) For purposes of this Agreement, "Affiliate" shall mean any person, or
entity (or sub-unit of an entity) that, directly or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with the Company.

      10. Non-Compete and Non-Solicitation. Employee acknowledges and agrees
          --------------------------------
that: (1) in order to perform his obligations and job duties for the Company,
Employee will gain Training and access to Confidential Information regarding the
Company and/or its Affiliates or customers; (2) use of such Confidential
Information in competition with the Company and/or its Affiliates or customers
would be detrimental to the business interests of the Company and/or its
Affiliates or customers; and (3) Employee would not have been allowed to gain
access to Confidential Information, or to provide the obligations and job duties
contemplated under this Agreement without his promises and agreements contained
in the following paragraph. Employee acknowledges and agrees further that the
Company is a diverse, global energy company and that, based on the nature and
size of the Company and the scope of its operations, the areas in which the
Company competes are not limited. Employee also acknowledges and agrees that the
services he will be performing for the Company, and the Confidential Information
and Training he will be provided, relate to the world-wide operations of the
Company and its Affiliates, and will not be limited to any specific geographic
location within which the Company, or any of its Affiliates, conducts business.

     Employee agrees that, during his employment with the Company, and for a
period of one (1) year thereafter, Employee shall not, directly or indirectly,
either as an employee, employer, independent contractor, consultant, agent,
principal, partner, stockholder, officer, director, or in any other individual
<PAGE>

or representative capacity, either for his own benefit or the benefit of any
other person or entity: (i) engage or participate in a business which competes
in a material manner with the Company or any of its Affiliates in any geographic
location in which the Company conducts business; (ii) contact, solicit or
attempt to solicit the business or patronage of any of the Company's (or
Affiliate's) customers, or prospective customers, or any person, firm,
corporation, company, partnership, association or entity which was contacted or
whose business was solicited, serviced or maintained by the Company (or its
Affiliates) during the term of Employee's employment with the Company; or (iii)
solicit, recruit, induce, encourage or in any way cause any employee of the
Company (or an Affiliate) to terminate his/her employment with the Company (or
such Affiliate). Notwithstanding the foregoing, the restriction provided in (i)
above shall apply following the termination of this Agreement only if Employee
receives the payments and benefits provided for in Section 5 or 6 above.

     11. Injunctive Relief. Because of the unique nature of the business to be
         -----------------
conducted by the Company and its Affiliates and the Confidential Information
relating thereto, Employee acknowledges, understands and agrees that the Company
and/or its Affiliates will suffer immediate and irreparable harm if Employee
fails to comply with any of his obligations under Sections 9 and 10 of this
Agreement, and that monetary damages alone will be inadequate to compensate the
Company or its Affiliates for such breach. Accordingly, Employee agrees that the
Company and/or its Affiliates shall, in addition to any other remedies available
to it at law or in equity, be entitled to temporary, preliminary, and permanent
injunctive relief and specific performance to enforce the terms of Sections 9
and 10 without the necessity of proving inadequacy of legal remedies or
irreparable harm or posting bond.

     12. Deductions and Nonalienation of Benefits. Employee shall be required to
         ----------------------------------------
pay promptly on demand, by payroll deduction or otherwise, the amount required
to be withheld by the Company for income and employment taxes in respect of
amounts paid under this Agreement. No right, benefit or payment hereunder shall
be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber
or charge the same shall be null and void. No right, benefit or payment
hereunder shall in any manner be subject to, voluntarily or involuntarily, the
debts, contracts, liabilities or torts of Employee or be otherwise subject to
any execution, garnishment, attachment, insolvency, bankruptcy or legal
proceedings of any character or legal sequestration, levy or sale. If Employee
or any other beneficiary hereunder shall become bankrupt or attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge any right,
benefit or payment hereunder, such right, benefit or payment may be terminated
at any time by the Company without liability or further obligation.

     13. The Company's Right to Modify Employee Benefit Plans. Nothing in this
         ----------------------------------------------------
Agreement shall be construed as a limitation on the absolute right of the
Company, at any time and from time to time at its sole discretion, to amend or
modify, in whole or in part, or to terminate, any employee benefit plan, program
or policy sponsored or maintained by the Company; provided, however, that no
such amendment or termination shall eliminate or reduce the payments and
benefits provided for in Sections 5 and 6 hereof, it being understood that, if
from and after the date hereof, any plan or program referenced in Section 5 or 6
hereof is terminated or amended and such termination or amendment would reduce
the payments or benefits provided for under Section 5 or 6, such terminated or
amended plan or program shall, for purposes of calculating the payments and
benefits under Section 5 or 6 hereof be deemed to be in effect as of the
effective date of this Agreement. Any plan or program which is specifically
referenced herein shall be deemed to include any successor plan or program or
any similar plan or program adopted and maintained by the Company to provide
Employee with the same or similar benefits provided for under such specifically
referenced plan or program.
<PAGE>

     14. Entire Agreement. This Agreement contains the complete understanding
         ----------------
and agreement between the parties and supersedes any and all other agreements,
understandings, or communications of any kind, either oral or in writing,
between the parties hereto with respect to the subject matter hereof. Each party
to this Agreement acknowledges that no representations, inducements, promises,
or agreements, orally or otherwise, have been made by any party, or anyone
acting on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise with respect to the subject matter of this
Agreement shall be valid or binding. Subject to the provisions of Section 5 and
6 hereof regarding certain payments and benefits upon a termination satisfying
the criteria set forth in such sections, nothing in this Agreement shall be
construed as conferring any right upon Employee to continued employment by the
Company. Any modification of this Agreement will be effective only if it is in
writing signed by both of the parties hereto.

     15. Severability. If any provision in this Agreement is held by a court of
         ------------
competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.

     16. Survival. The parties hereby acknowledge and agree that certain
         --------
provisions of this Agreement are, by their nature, intended to survive this
Agreement and the parties agree that all of such provisions shall survive
Employee's termination of employment, regardless of the reason for such
termination. Employee acknowledges and agrees that the covenants and
restrictions in Sections 9 and 10 of this Agreement are reasonable and necessary
due to the highly competitive, confidential and proprietary nature of the
services to be performed by Employee hereunder.

     17. Successors. This Agreement shall be binding upon and inure to the
         ----------
benefit of Employee, his heirs, beneficiaries and personal representatives, and
the Company and any successor or assignee of the Company, but neither this
Agreement, nor any of the rights or obligations of either party hereunder may be
assigned, in whole or in part, except the Company may assign this Agreement to
any affiliate of the Company. The Company will seek to obtain the written
acknowledgment and assumption of this agreement by any successor of the Company
prior to any transaction or event pursuant to which such successor becomes the
successor to the Company. Whether or not such written acknowledgment and
assumption is given, this Agreement shall be binding on such successor and its
assignees.

     18. Notices. Any notices to be given hereunder by either party to the other
         -------
may be effected by personal delivery in writing, by facsimile or by mail,
registered or certified, postage prepaid to the current address of the other
party with return receipt requested. Notices delivered personally or by
facsimile shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of three (3) days after mailing.

     19. Governing Law. This Agreement shall be governed by and construed in
         -------------
accordance with the laws of the State of Texas.

         EXECUTED on the date first set forth above.


                        TXU CORP.


                        By:  /s/ Erle Nye
                          ------------------------------------------------
                                 Erle Nye, Chairman of the Board
                                 and Chief Executive



                        EMPLOYEE:


                              /s/ Eric H. Peterson
                                 Eric H. Peterson