<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549




                                    FORM 10-Q

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


                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

                                    -- OR --

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



                       Commission File Number 001 - 15709

                               TXU Europe Limited

Incorporated under the                         I.R.S. Employer Identification
Laws of England and Wales                               No. 98-0188080




          The Adelphi, 1-11 John Adam Street, London, England WC2N 6HT
                               011-44-207-879-8081

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

 Yes   X        No
    --------      ----------


Common Stock outstanding at August 13, 2002 - 2,455,705,299 shares, at US$1 par
value, 351,180,000 shares, at (pound)1 par value and 100 deferred shares, at
(pound)1 par value.

================================================================================

<PAGE>

TABLE OF CONTENTS
--------------------------------------------------------------------------------

PART I.  FINANCIAL INFORMATION                                           PAGE
                                                                         ----
         Item 1. Financial Statements

                 Condensed Statements of Consolidated Income -
                 Three and Six Months Ended June 30, 2002 and 2001 ........    2

                 Condensed Statements of Consolidated Comprehensive Income -
                 Three and Six Months Ended June 30, 2002 and 2001 ........    3

                 Condensed Statements of Consolidated Cash Flows -
                 Six Months Ended June 30, 2002 and 2001 ..................    4

                 Condensed Consolidated Balance Sheets -
                 June 30, 2002 and December 31, 2001 ......................    5

                 Notes to Financial Statements ............................    6

                 Independent Accountants' Report ..........................   14


         Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations ......................   15

         Item 3. Quantitative and Qualitative Disclosures
                 About Market Risk ........................................   23

PART II. OTHER INFORMATION

         Item 1. Legal Proceedings ........................................   24

         Item 2. Changes in Securities and Use of Proceeds ................   24

         Item 6. Exhibits and Reports on Form 8-K .........................   24

SIGNATURES ................................................................   25


                                        1

<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

                       TXU EUROPE LIMITED AND SUBSIDIARIES
                   CONDENSED STATEMENTS OF CONSOLIDATED INCOME
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                  Three Months Ended             Six Months Ended
                                                                       June 30,                      June 30,
                                                                 ------------------------       ---------------------
                                                                   2002           2001          2002          2001
                                                                 -------          -------       -------       -------
                                                                                    ((pound) million)

<S>                                                             <C>             <C>           <C>           <C>
Operating Revenues                                                 2,170            1,869         4,922         4,140
                                                                 -------          -------       -------       -------
Operating Expenses
     Energy purchased for resale, fuel consumed and
       delivery costs ........................................     1,956            1,602         4,534         3,566
     Operation and maintenance ...............................       131              135           257           249
     Depreciation and amortization ...........................        16               31            32            67
     Goodwill amortization ...................................         -               31             -            62
                                                                 -------          -------       -------       -------

    Total operating expenses .................................     2,103            1,799         4,823         3,944
                                                                 -------          -------       -------       -------
Operating Income .............................................        67               70            99           196

Other Income (Note 8) ........................................         2               54            10            63
Other Deductions (Note 8) ....................................         1                -             3             2

Interest Income ..............................................         3               13             7            25

Interest Expense .............................................        55               82           107           173
                                                                 -------          -------       -------       -------

Income From Continuing Operations Before Income Taxes,
  Discontinued Operations, Distributions and
   Minority Interest .........................................        16               55             6           109
Income Tax Expense ...........................................         5               27             2            53
                                                                 -------          -------       -------       -------

Income From Continuing Operations Before Discontinued
  Operations, Distributions and Minority Interest ............        11               28             4            56

Discontinued Operations - Net of Taxes (Note 3) ..............         -               20             -            44

Distributions on Preferred Securities of Subsidiary                                                  (3)           (5)
  Perpetual Trust ............................................        (1)              (2)

Affiliate Interest in Subsidiary .............................        (1)              (2)            1            (4)

Minority Interest ............................................        (3)              (2)           (9)           (8)
                                                                 -------          -------       -------       -------

Net Income (Loss) ............................................         6               42            (7)           83
                                                                 =======          =======       =======       =======
</TABLE>

See Notes to Financial Statements.



                                       2

<PAGE>

                       TXU EUROPE LIMITED AND SUBSIDIARIES
            CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                    Three Months Ended            Six Months Ended
                                                                          June 30,                    June 30,
                                                                 ------------------------       ---------------------
                                                                  2002             2001          2002          2001
                                                                 -------          -------       -------       -------
                                                                                  ((pound) million)
<S>                                                              <C>             <C>           <C>         <C>

Net Income (Loss) ...........................................          6               42            (7)           83
                                                                 -------          -------       -------       -------
Other Comprehensive Income (Loss)
  Net change during period, net of tax effects:
    Investments classified as available for sale:
      Unrealized holding gains (net of taxes of(pound)16) ...          -                -             -            38
      Reclassification of net gain realized on sale of
         investment in Hidrocantabrico to other income (net
         of taxes of(pound)15) ..............................          -              (35)            -           (35)
    Cumulative currency translation adjustment ..............         (5)              (4)           (9)           (3)

    Cash flow hedges:
      Cumulative transition adjustment as of January 1,
         2001 (net of taxes of(pound)31) ....................          -                -             -           (72)
      Discontinued cash flow hedges (net of taxes of(pound)
        .3, (pound)3,(pound).3,(pound)3) ....................          1                7             1             7
      Net change in fair value of derivatives  (net of
         taxes of(pound)23,(pound)1,(pound)12,(pound)8) .....        (53)              (3)          (27)          (18)
      Amount reclassified or realized in earnings
         during the period (net of taxes of(pound)25,
         (pound)13, (pound)18,(pound)15) ....................         60               30            41            36
                                                                 -------          -------       -------       -------


      Total .................................................          3               (5)            6           (47)
                                                                 -------          -------       -------       -------

Comprehensive Income (Loss) .................................          9               37            (1)           36
                                                                 =======          =======       =======       =======

</TABLE>

See Notes to Financial Statements.



                                       3

<PAGE>


                       TXU EUROPE LIMITED AND SUBSIDIARIES
                 CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                            Six Months Ended
                                                                                June 30,
                                                                          ---------------------
                                                                            2002          2001
                                                                          -------       -------
                                                                             ((pound) million)
<S>                                                                        <C>          <C>

Cash Flows - Operating Activities

     Net (loss) income ...............................................         (7)           83
     Adjustments to reconcile net income to cash provided by
       operating activities:
         Gain on sale of assets ......................................          -           (59)
         Depreciation and amortization ...............................         34           147
         Deferred income taxes (benefit) .............................         (6)           60
         Net effect of unrealized mark-to-market valuations ..........         (4)          (58)
         Changes in operating assets and liabilities .................       (215)         (128)
         Other .......................................................        (11)           22
                                                                          -------       -------
             Cash (used in) provided by operating activities .........       (209)           67
                                                                          -------       -------

Cash Flows - Investing Activities
         Proceeds from sale of Networks business .....................        509             -
         Capital expenditures ........................................        (49)         (108)
         Acquisition of businesses ...................................       (119)         (150)
         Proceeds from sale of assets and other investments ..........        124           432
         Proceeds from swap terminations .............................         47             -
         Other investments ...........................................        (30)          (42)
                                                                          -------       -------
             Cash provided by investing activities ...................        482           132
                                                                          -------       -------
Cash Flows - Financing Activities
     Net borrowings under the:
         Revolving Credit Facilities Agreement - Tranche A ...........        421             -
         Sterling credit facility - Tranche B ........................          -            84
         Other long-term debt ........................................          3            23
     Issuance of capital stock .......................................        351             -
     Retirements of:
         Revolving Credit Facilities Agreement - Tranche A ...........       (195)            -
         Sterling credit facility - Tranche B ........................          -           (87)
         Other long-term debt ........................................       (293)         (388)
     Change in notes payable - banks and other short-term loans ......       (755)         (298)
     Debt discount and financing expenses ............................          -            (1)
     Change in affiliate interest in subsidiary ......................         39             -
     Amounts distributed to minority interests .......................          -            (3)
     Distributions on preferred securities of subsidiary perpetual
       trust .........................................................         (3)           (3)
                                                                          -------       -------
             Cash used in financing activities .......................       (432)         (673)
                                                                          -------       -------
Effect of Exchange Rates on Cash and Cash Equivalents ................          1            (1)
                                                                          -------       -------
Net Change in Cash and Cash Equivalents ..............................       (158)         (475)
Cash and Cash Equivalents - Beginning Balance ........................        651           663
                                                                          -------       -------
Cash and Cash Equivalents - Ending Balance ...........................        493           188
                                                                          =======       =======
</TABLE>


See Notes to Financial Statements.


                                       4

<PAGE>

                       TXU EUROPE LIMITED AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                             June 30,
                                                                               2002            December 31,
                                                                        ------------------  -------------------
                                                                            (Unaudited)            2001
                                                                       ------------------  -------------------
                                                                                     ((pound) million)
<S>                                                                 <C>                    <C>

ASSETS

Current Assets

     Cash and cash equivalents .................................                 493                 651
     Accounts receivable .......................................                 939                 946
     Inventories - at average cost .............................                  71                  62
     Commodity contract assets .................................                 460                 573
     Prepayments and other current assets ......................                 153                 267
                                                                        ------------------  -------------------
         Total current assets ..................................               2,116               2,499
                                                                        ------------------  -------------------
Investments
     Restricted cash ...........................................                 342                 358
     Other .....................................................                 457                 394
                                                                        ------------------  -------------------
         Total investments .....................................                 799                 752
                                                                        ------------------  -------------------
Property, plant and equipment - net ............................                 805                 774
Goodwill .......................................................               3,744               3,697
Net assets of discontinued operation (Note 3) ..................                   -               1,579
Commodity contract assets ......................................                 207                 170
Deferred debits and other assets ...............................                 641                 687
                                                                        ------------------  -------------------

             Total .............................................               8,312              10,158
                                                                        ==================  ===================
LIABILITIES AND CAPITALIZATION

Current Liabilities

     Notes payable - banks .....................................                  65                 793
     Long-term debt due currently ..............................                  17                 274
     Short-term loans on accounts receivable ...................                  95                 108
     Accounts payable:
       Trade ...................................................                 860               1,026
       Affiliates ..............................................                  60                  55
     Commodity contract liabilities ............................                 469                 634
     Interest and taxes accrued ................................                  62                  78
     Other current liabilities .................................                 192                 142
                                                                        ------------------  -------------------
       Total current liabilities ...............................               1,820               3,110
                                                                        ------------------  -------------------
Accumulated deferred income taxes ..............................                  53                  64
Provision for unfavorable contracts ............................                 402                 431
Commodity contract liabilities .................................                 222                 183
Net liabilities of discontinued operation (Note 3) .............                   -               1,168
Other deferred credits and noncurrent liabilities ..............                 268                 245
Long-term debt, less amounts due currently .....................               2,989               2,794
Preferred securities of subsidiary perpetual trust . ...........                  95                  95
Affiliate interest in subsidiary ...............................                 246                 208
Minority interest ..............................................                  99                  92
Commitments and contingencies (Note 7)
Shareholder's equity (Note 6) ..................................               2,118               1,768
                                                                        ------------------  -------------------

             Total .............................................               8,312              10,158
                                                                        ==================  ===================
</TABLE>

See Notes to Financial Statements.



                                       5

<PAGE>


                               TXU EUROPE LIMITED
                          Notes to Financial Statements


1.   BUSINESS, ACQUISITIONS AND DISPOSITIONS

     TXU Europe Limited (TXU Europe) is an indirect, wholly-owned subsidiary of
TXU Corp., a Texas corporation. TXU Corp. is a global energy services holding
company that engages in electricity generation, wholesale energy trading and
risk management, retail energy sales, energy delivery, other energy-related
services and, through a joint venture, telecommunications services. TXU Europe
is a holding company for TXU Corp.'s United Kingdom (UK) and other European
operations. Almost all of TXU Europe's operating income is derived from, and
consolidated assets are held by, TXU Europe Group plc (TXU Europe Group) and TXU
Europe Group's subsidiaries.

     TXU Europe is managed as a single, integrated energy business;
consequently, there are no reportable business segments.

     In January 2002, TXU Europe completed the sale of its UK distribution
business (Eastern Electricity Limited), and its 50 percent interest in 24seven
Utility Services Limited (24seven) (together, the "Networks business") to London
Electricity Group plc (LE Group). These operations have been accounted for as
discontinued operations in all periods presented in the financial statements and
related footnotes. See Note 3 to these Financial Statements.

     In March 2002, TXU Europe acquired the UK retail and trading business of
Amerada Hess (Amerada) in a transaction that brought over 400,000 residential
energy and telecommunications accounts to TXU Europe. The (pound)119 million
acquisition, funded through an equity injection from TXU Corp., also included a
63 billion cubic feet (Bcf) commercial and industrial gas supply operation in
the UK as well as wholesale gas marketing operations. The acquisition underlines
TXU Europe's commitment to growing its retail business in the UK. The process of
determining the fair value of assets and liabilities of Amerada continues but is
expected to be completed within one year of the acquisition date. TXU Europe's
preliminary valuation of goodwill and intangible assets is currently (pound)43
million and (pound)9 million, respectively. These valuations are subject to
further revisions, as additional information on the fair value of assets
acquired and liabilities assumed becomes available. The intangible assets will
be amortized over five years. The results of operations of Amerada are reflected
in the consolidated financial statements from the March 1, 2002 acquisition
date. Pro forma information for the three months and six months ended June 30,
2002 and 2001, reflecting the acquisition of Amerada, would not be significantly
different from reported amounts.

     On July 1, 2002, TXU Europe acquired, through its subsidiary TXU Europe
Energy Trading Limited, a 74.9% ownership interest in Braunschweiger
Versorgungs-Aktiengesellschaft (BVAG), a wholly-owned subsidiary of Stadtwerke
Braunschweig GmbH (Stadtwerke Braunschweig), and three minority interest
investments for (euro)434 million ((pound)280 million) in cash. BVAG is an
electricity, gas, heating and water supplier for 210,000 residential, commercial
and industrial customers in the German city of Braunschweig. Under terms of the
acquisition agreement, Stadtwerke Braunschweig has the right until January 1,
2006 to sell its remaining 25.1% ownership interest in BVAG to TXU Europe for
(euro)129 million ((pound)83 million). In July 2002, TXU Europe sold one of the
three minority interests acquired as part of the BVAG acquisition for (euro)28
million ((pound)18 million). BVAG reported revenues of (euro)279 million
((pound)170 million) for the fiscal year ended December 31, 2001, as reported
under accounting principles generally accepted in Germany.

     On July 1, 2002, TXU Europe acquired Forbrukerkraft AS (Forbrukerkraft), a
Norwegian retail electricity business based in Oslo for Norwegian kroner (NOK)
39 million ((pound)3 million). Forbrukerkraft has 43,000 customers and an annual
demand of one terawatt hour.

2.   SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation - The condensed consolidated financial statements of
TXU Europe and its subsidiaries have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP) and,
except for the adoption of the Statement of Financial Accounting Standard (SFAS)
No. 142, "Goodwill and Other Intangible Assets", discussed below, on the same
basis as the audited financial statements included in its Annual Report on Form
10-K for the year ended December 31, 2001 (2001 Form 10-K). In the opinion of
TXU


                                        6

<PAGE>
                               TXU EUROPE LIMITED
                         Notes to Financial Statements


Europe's management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the results of operations and financial
position have been included therein. Certain information and footnote
disclosures normally included in annual consolidated financial statements
prepared in accordance with US GAAP have been omitted pursuant to the rules and
regulations of the United States (US) Securities and Exchange Commission. The
results of operations for an interim period may not give a true indication of
results for a full year. Certain previously reported amounts have been
reclassified to conform to current classifications. Each separate legal entity
within TXU Europe determines its own tax liability based upon the actual
transactions within that legal entity.

     Unless otherwise indicated, all amounts in the financial statements and
notes to financial statements are stated in millions of UK pounds sterling.

     Changes in Accounting Standards - SFAS No. 142 became effective for TXU
Europe on January 1, 2002. SFAS No. 142 requires, among other things, the
allocation of goodwill to reporting units based upon the current fair value of
the reporting units and the discontinuance of goodwill amortization. The
amortization of TXU Europe's existing goodwill (approximately (pound)123 million
on an annualized basis) ceased effective January 1, 2002.

     In addition, SFAS No. 142 required completion of a transitional goodwill
impairment test six months from the date of adoption. It established a new
method of testing goodwill for impairment on an annual basis or on an interim
basis if an event occurs or circumstances change that would reduce the fair
value of a reporting unit below its carrying value. TXU Europe has completed the
transitional impairment test, the results of which indicated no impairment of
goodwill.

     At June 30, 2002 and December 31, 2001, goodwill of (pound)3,744 million
and (pound)3,697 million, respectively was stated net of accumulated
amortization of (pound)338 million and (pound)364 million, respectively.
Amortization of goodwill ceased January 1, 2002, as required by SFAS No. 142. A
small amount of the existing balance may be subject to adjustment because of
foreign exchange valuation. Net income for the three months and six months ended
June 30, 2001 would have been (pound)73 million and (pound)145 million,
respectively had the non-amortization provisions of SFAS No. 142 been applied in
those periods.

     SFAS No. 143, "Accounting for Asset Retirement Obligations", will be
effective for TXU Europe on January 1, 2003. SFAS No. 143 requires the
recognition of a fair value liability for any retirement obligation associated
with long-lived assets. The offset to any liability recorded is added to the
previously recorded asset, and the additional amount is depreciated over the
same period as the long-lived asset for which the retirement obligation is
established. SFAS No. 143 also requires additional disclosures.

     SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", became effective for TXU Europe on January 1, 2002. SFAS No. 144
establishes a single accounting model, based on the framework established in
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", for long-lived assets to be disposed of by
sale and resolves significant implementation issues related to SFAS No. 121. The
adoption of SFAS No. 144 by TXU Europe has not affected its financial position,
cash flows or results of operations.

     SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections", was issued in April 2002 and
will be effective for TXU Europe on January 1, 2003. One of the provisions of
this statement is the rescission of SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt", whereby any gain or loss on the early extinguishment of
debt that was classified as an extraordinary item in prior periods in accordance
with SFAS No. 4 shall be reclassified if it does not meet the criteria of an
extraordinary item as defined by Accounting Principles Board Opinion 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occuring
Events and Transactions".

     SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities", was issued in June 2002


                                        7

<PAGE>

                               TXU EUROPE LIMITED
                         Notes to Financial Statements

and will be effective for TXU Europe on January 1, 2003. SFAS No. 146 requires
that a liability for costs associated with an exit or disposal activity be
recognized only when the liability is incurred and measured initially at fair
value.

     In June 2002, the Emerging Issues Task Force (EITF) reached a consensus on
certain aspects of Issue 02-3, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities", regarding the presentation of trading
activities in the statement of income. The new rules require all trading
contracts, whether or not physically settled, to be recorded net upon
settlement, rather than gross as a sale and cost of sale. TXU Europe has
historically recorded financial contracts net, but has recorded those contracts
that provide for physical delivery gross upon settlement. The change will be
effective with third quarter 2002 reporting and requires reclassification of
prior periods. TXU Europe has not yet determined the amount of the
reclassifications; however, implementation of the new rules is expected to
result in a significant reduction in TXU Europe's operating revenues and energy
purchased for resale. The required reclassifications will have no impact on TXU
Europe's previously reported gross margin, net income or cash provided by
operating activities.

     For accounting standards not yet adopted or implemented, TXU Europe is
evaluating the potential impact on its financial position and results of
operations.

3.   DISCONTINUED OPERATIONS

     On January 18, 2002, TXU Europe completed the sale of its regulated
Networks business to LE Group for (pound)1.3 billion, consisting of a cash
payment of (pound)563 million and the assumption by LE Group of (pound)750
million aggregate principal amount of debt ((pound)350 million of 8.375% bonds
due 2004, (pound)200 million of 8.5% bonds due 2025 and (pound)200 million of
8.75% bonds due 2012). TXU Europe recorded a one-time charge in December 2001 of
(pound)87 million ((pound)61 million after tax) associated with the disposition,
after the estimated costs to be incurred in closing out the business and swaps
related to its debt and the allocation of goodwill in the amount of (pound)252
million. There was (pound)7 million of income for the period from January 1,
2002 through the final completion date of January 18, 2002, which was recorded
in December 2001. The transaction resulted in approximately (pound)1.3 billion
of debt reduction, consisting of (pound)750 million of debt assumed by LE Group
and (pound)563 million of debt being repaid using the cash proceeds from the
sale. In May 2002, the final analysis of working capital and fixed asset amounts
was completed and TXU Europe returned (pound)39 million to LE Group, which had
been included in the original sale calculation accounted for in December 2001.
Further, during the first six months of 2002, (pound)15 million in final legal
and advisory fees were paid. Neither of these payments, which had been accrued
at December 31, 2001, affected the loss on the sale.

     As a result of the disposition of the Networks business, effective April 1,
2002, former TXU Europe employees who have been transferred to LE Group will no
longer participate in TXU Europe's pension scheme. TXU Europe is in the process
of determining the impact of these changes on its pension liability, which could
affect other comprehensive income, and cash funding obligations, if any. This
analysis is expected to be completed later this year.



                                        8

<PAGE>
                               TXU EUROPE LIMITED
                         Notes to Financial Statements


     The following is a summary of 2001 operating results for the discontinued
Networks business:

                                                       Three Months  Six Months
                                                          Ended         Ended
                                                         June 30,      June 30,
                                                          2001          2001
                                                       ------------ -----------
                                                           ((pound) million)

Operating revenues ....................................        72         161
                                                          =======     =======
Operating income ......................................        44          97
Interest expense ......................................       (14)        (28)
Income tax expense ....................................        (8)        (20)
Affiliate interest in subsidiary ......................        (2)         (5)
                                                          -------     -------
  Income from operations of discontinued Networks
    business - net ....................................        20          44
                                                          =======     =======

     Summarized balance sheet information for the discontinued Networks business
is as follows:

                                                        December 31,
                                                            2001
                                                      -----------------
                                                      ((pound) million)

Current assets ........................................        15
Property, plant and equipment .........................     1,335
Other non-current assets ..............................       265
                                                          -------
         Total assets .................................     1,615
                                                          -------

Current liabilities ...................................       196
Long-term liabilities .................................     1,008
                                                          -------
         Total liabilities ............................     1,204
                                                          -------

Net assets of discontinued Networks business ..........       411
                                                          =======



4.   SHORT-TERM FINANCING

     Short-term Facilities - TXU Europe has a Euro term loan facility with a
commercial bank available only to fund its investment in Atro Oyj. At June 30,
2002, there was (euro)50 million ((pound)32 million) outstanding under this
facility at an annual interest rate, based on Euribor, of 4.40%. As of June 30,
2002, total short-term borrowings aggregated (pound)65 million with a weighted
average annual interest rate of 4.54%.

     Accounts Receivable Securitization - TXU Europe has facilities with
Citibank N.A. whereby certain subsidiaries of TXU Europe may sell an undivided
interest in up to (pound)300 million of electricity and gas receivables and
borrow up to an aggregate of (pound)175 million, collateralized by future
receivables,


                                        9

<PAGE>
                               TXU EUROPE LIMITED
                          Notes to Financial Statements


through a short-term note issue agreement. The program has an overall limit of
(pound)300 million. As of June 30, 2002, TXU Europe had sold (pound)205 million
face amount of receivables under the program. In addition, TXU Europe had
borrowed (pound)95 million, collateralized by future receivables of that amount,
which are reflected as notes payable on the balance sheet. For the six months
ended June 30, 2002, debt securitization discounts, which are reflected in
interest expense, were (pound)5 million and interest on the short-term loans was
(pound)1 million. The short-term loans bear interest at an annual rate based on
commercial paper rates plus a margin, which was 4.35% at June 30, 2002.

5.   LONG-TERM DEBT

     Euro Medium Term Note (EMTN) Program - TXU Europe has a (euro)2.0 billion
EMTN program, under which TXU Europe may from time to time issue notes in
various currencies. As of June 30, 2002, a total of (pound)576 million was
outstanding under the program at an average rate of 7.53%. As of June 30, 2002,
a financing subsidiary of TXU Europe has (pound)301 million of 35 Put 5
Resettable Notes due 2035 (Resettable Notes) outstanding under the EMTN program.
The interest rate on the Resettable Notes is 7.79% per annum as of June 30,
2002. The issuer of the Resettable Notes has a call option to repurchase the
Resettable Notes at par on November 30, 2005. This call option has been assigned
to commercial banks for a consideration of approximately (pound)5 million per
annum for five years. The Resettable Notes also include a put option that is
exercisable at November 30, 2005 by the holder and a reset feature that permits
the holder to remarket the Resettable Notes at a different interest rate if the
put is not exercised. On the reset date, the new interest rate will be 6.25% per
annum, plus a margin, in accordance with the terms of the Resettable Notes for
the next 30 years.

     As of June 30, 2002, there was (pound)275 million in 7.25% Sterling
Eurobonds due March 8, 2030 also outstanding under the EMTN program. TXU Europe
has granted to the holders of the 7.25% Sterling Eurobonds due 2030 an optional
put in 2015 in exchange for a waiver of a provision that could have inhibited
the disposition of the Networks business. A similar provision in the Resettable
Notes has been waived for a fee without any further changes to the terms of the
Resettable Notes.

     Revolving Credit Facilities Agreement - The disposition of the Networks
business necessitated the termination of the old Sterling Credit Agreement, with
all borrowings repaid along with associated interest. The Revolving Credit
Facilities Agreement dated November 19, 2001 immediately replaced the old senior
debt facility. As of June 30, 2002 there is one available tranche in this
facility. Tranche A is a multi-currency, (pound)800 million five-year revolving
credit facility that can include long-term drawings. As of June 30, 2002, the
outstanding borrowings under this facility and the associated interest rates are
as follows: (euro)574 million ((pound)371 million) at 4.12% per annum, 700
million NOK ((pound)61 million) at 7.86% per annum, and (pound)220 million at
4.73%, all classified as long-term debt.

     Secured Debt - As of June 30, 2002, the secured long-term debt of TXU
Europe consisted of (pound)119 million of notes that are secured by a lien on
the Shotton Combined Heat and Power Plant and (pound)111 million of various
other long-term debt secured by liens on other assets. TXU Europe's long-term
debt obligations are not guaranteed or secured by affiliates. The credit
facilities discussed above contain cross-default provisions, the triggering of
which would cause the maturity of outstanding balances under the credit
facilities and the notes to be accelerated.

     The terms of certain financing arrangements of TXU Europe contain financial
covenants that require maintenance of specified fixed charge coverage ratios,
shareholders equity to total capitalization ratios and leverage ratios and/or
contain minimum net worth covenants. As of June 30, 2002, TXU Europe was in
compliance with all such applicable covenants.


                                       10

<PAGE>

                               TXU EUROPE LIMITED
                          Notes to Financial Statements

6.   SHAREHOLDER'S EQUITY

     In March 2002, TXU Europe increased its authorized capital by an additional
199,999,900 ordinary shares of (pound)1 par, and subsequently issued at par
150,000,000 of these new ordinary shares to its immediate parent, a wholly-owned
indirect subsidiary of TXU Corp. TXU Europe received (pound)100 million upon
issuance, with the remaining (pound)50 million being received in June 2002.

     Also in June 2002, TXU Europe further increased its authorized capital by
an additional 300,000,000 ordinary shares of (pound)1 par, and subsequently
issued at par 201,180,000 of these new ordinary shares to its immediate parent,
for (pound)201,180,000.
<TABLE>
<CAPTION>
                                                                             June 30,
                                                                               2002             December 31,
                                                                            (Unaudited)            2001
                                                                        ------------------    ----------------
                                                                                    ((pound) million)
<S>                                                                     <C>                  <C>

SHAREHOLDER'S EQUITY

  Common stock with US $1 par value:

     Authorized shares - 3,000,000,000 ordinary and 100 deferred
     Outstanding shares: 2002 and 2001 - 2,455,705,299
       ordinary and 100 deferred ....................................           1,467               1,467
  Common stock with(pound)1 par value:
     Authorized shares - 499,999,900 ordinary
     Outstanding shares: 2002 - 351,180,000 ordinary ................             351                   -
  Retained earnings .................................................             333                 340
  Accumulated other comprehensive loss ..............................             (33)                (39)
                                                                           ----------           ---------
         Total common stock equity ..................................           2,118               1,768
                                                                           ==========           =========
</TABLE>
7.   CONTINGENCIES

     Legal Proceedings - On November 29, 2001, various subsidiaries of Enron
Corporation (Enron) went into Administration (bankruptcy) in the UK. Prior to
Enron's going into Administration, TXU Europe Energy Trading (TXUEET) had
certain energy purchase and sales contracts with Enron, which had been entered
into in the ordinary course of business. The terms of these contracts provided
that they terminated automatically upon a party going into Administration. Also,
on November 29, 2001 just prior to Enron going into Administration, TXUEET
received a notice from Enron purporting to terminate these contracts for cause.
TXUEET and the Administrator have had discussions regarding potential claims
relating to contract termination; in February 2002 TXUEET applied to the High
Court in London for permission to seek a judicial determination regarding
contract termination and, in March 2002, Enron filed an action in the High Court
relating to interpretation of certain other contractual provisions. For the more
expeditious and economic resolution of the issue of the contract termination,
TXUEET and Enron agreed in May 2002 to Enron initiating proceedings in the High
Court to enable the parties to seek a judicial determination regarding contract
termination, which action would supersede the previous actions. In June 2002,
Enron initiated such action and asked for a declaration that Enron is entitled
to payment of the net present value of the contracts or alternatively the market
value of the contracts, both for undetermined amounts, or alternatively, relief
from forfeiture of the contracts, for an undetermined amount, or in the further
alternative, restitution or relief from forfeiture of (pound)55 million
previously paid by Enron to TXUEET for value under the contracts. While the
outcome of this matter cannot be predicted, TXUEET believes, consistent with the
advice of external legal advisors in the UK, that the attempted termination of
the contracts by Enron was without substance. Accordingly, TXUEET believes any
related claims by Enron are without merit and intends to vigorously defend this
suit.


                                       11

<PAGE>
                               TXU EUROPE LIMITED
                          Notes to Financial Statements


     General - TXU Europe and its subsidiaries are involved in various legal and
administrative proceedings arising in the ordinary course of its business. TXU
Europe believes that all such other lawsuits and resulting claims would not have
a material effect on its financial position, results of operations or cash
flows.

     Financial Guarantees - TXU Europe has guaranteed up to US$110 million
((pound)72 million) at June 30, 2002 of certain liabilities that may be incurred
and payable by the purchasers of the US and Australian coal business and US
energy marketing operations of TXU Europe's predecessor, which were sold in 1998
prior to acquisition of the predecessor by TXU Corp. These guarantees are with
respect to the Peabody Holding Company Retirement Plan for Salaried Employees,
the Powder River Coal UMWA Retirement Plan, subject to certain specified
conditions.

8.   SUPPLEMENTARY FINANCIAL INFORMATION

     Accounts Receivable - At June 30, 2002 and December 31, 2001, accounts
receivable were stated net of uncollectible accounts of (pound)54 million and
(pound)41 million, respectively. At June 30, 2002 and December 31, 2001,
accounts receivable included unbilled amounts of (pound)187 million and
(pound)198 million, respectively. These amounts represent the value of
electricity and gas consumed by customers between the date of their last meter
reading and the period-end date.

     Property, Plant and Equipment - At June 30, 2002 and December 31, 2001,
property, plant and equipment were stated net of accumulated depreciation of
(pound)263 million and (pound)234 million, respectively.

     Other income and deductions - Consists of the following for the periods
indicated:
<TABLE>
<CAPTION>
                                                                   Three Months Ended         Six Months Ended
                                                                        June 30,                  June 30,
                                                                 ----------------------  --------------------------
                                                                    2002        2001         2002          2001
                                                                 ---------   ----------  -----------    -----------
                                                                                 ((pound) million)
<S>                                                              <C>       <C>          <C>           <C>

 Other income
    Dividends from cost investments ............................        -           -           1             1
    Gain on sale of investments ................................        -          50           -            50
    Gain on the sale of businesses .............................        -           -           -             7
    Dividends from marketable securities .......................        -           -           -             2
    Foreign currency transaction gain ..........................        -           3           -             -
    Equity in earnings of unconsolidated subsidiaries and
        joint ventures .........................................        2           1           5             2
    Other miscellaneous ........................................        -           -           4             1
                                                                    -----       -----       -----         -----
        Total other income .....................................        2          54          10            63
                                                                    =====       =====       =====         =====


 Other deductions ..............................................        1           -           3             2
                                                                    =====       =====       =====         =====
</TABLE>
     Derivatives and Hedges - Essentially all of the terms of TXU Europe's
derivatives, that have been designated as accounting hedges, match the terms of
the underlying hedged items. TXU Europe experienced hedge ineffectiveness of
less than (pound)1 million for the six months ended June 30, 2002. This amount
was reported in interest expense and represented the total ineffectiveness of
all cash-flow hedges.


                                       12

<PAGE>
                               TXU EUROPE LIMITED
                          Notes to Financial Statements


     As of June 30, 2002, it is expected that (pound)3 million of net gains
accumulated in other comprehensive income will be reclassified into earnings
during the next twelve months. This amount represents the projected value of the
hedges over the next twelve months relative to what would be recorded if the
hedge transactions had not been entered into. The amount expected to be
reclassified is not a forecasted amount incremental to normal operations, but
rather it demonstrates the extent to which volatility in earnings (which would
otherwise exist) is mitigated through the use of cash flow hedges.


                                       13

<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT

To the Board of Directors and Shareholder of TXU Europe Limited and
Subsidiaries:

We have reviewed the accompanying condensed consolidated balance sheet of TXU
Europe Limited and subsidiaries (TXU Europe) as of June 30, 2002, the related
condensed statements of consolidated income and comprehensive income for the
three month and six month periods ended June 30, 2002 and 2001 and the condensed
statements of consolidated cash flows for the six month periods ended June 30,
2002 and 2001. These financial statements are the responsibility of TXU Europe's
management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of TXU
Europe as of December 31, 2001, and the related consolidated statements of
income, comprehensive income, cash flows and shareholder's equity for the year
then ended (not presented herein); and in our report dated January 31, 2002, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2001, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.

As disclosed in Note 2 to the Notes to Financial Statements, TXU Europe Limited
changed its method of accounting for goodwill amortization in 2002 in connection
with the adoption of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets".


DELOITTE & TOUCHE
London, England
August 13, 2002


                                       14

<PAGE>
                               TXU Europe Limited
       Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


BUSINESS, ACQUISITIONS AND DISPOSITIONS

     TXU Europe Limited (TXU Europe) is an indirect, wholly-owned subsidiary of
TXU Corp., a Texas corporation. TXU Corp. is a global energy services holding
company that engages in electricity generation, wholesale energy trading and
risk management, retail energy sales, energy delivery, other energy related
services and, through a joint venture, telecommunications services. TXU Europe
is a holding company for TXU Corp.'s United Kingdom (UK) and other European
operations. Almost all of TXU Europe's operating income is derived from, and
consolidated assets are held by, TXU Europe Group plc (TXU Europe Group) and TXU
Europe Group's subsidiaries.

     TXU Europe is managed as a single, integrated energy business;
consequently, there are no separate reportable business segments.

     TXU Europe manages the energy value chain from fuel through to the retail
customer. It does this through an integrated portfolio of contracts and physical
gas and generation assets, and by serving a substantial retail customer base.
Its contracts include those with sources for supplying the retail customers with
electricity and gas as well as contracts with third party energy retailers,
traders and wholesalers.

     In January 2002, TXU Europe completed the sale of its UK distribution
business (Eastern Electricity Limited), and its 50 percent interest in 24seven
Utility Services Limited (24seven) to London Electricity Group plc (LE Group).
See Note 3 to Financial Statements.

     In March 2002, TXU Europe acquired the UK retail and trading business of
Amerada Hess (Amerada) in a transaction that brought over 400,000 residential
energy and telecommunications accounts to TXU Europe. The (pound)119 million
acquisition, funded through an equity injection from TXU Corp., also included a
63 billion cubic feet (Bcf) commercial and industrial gas supply operation in
the UK as well as wholesale gas marketing operations. The acquisition underlines
TXU Europe's commitment to growing its retail business in the UK. The process of
determining the fair value of assets and liabilities of Amerada continues but is
expected to be completed within one year of the acquisition date. TXU Europe's
preliminary valuation of goodwill and intangible assets is currently (pound)43
million and (pound)9 million, respectively. These valuations are subject to
further revisions, as additional information on the fair value of assets
acquired and liabilities assumed becomes available. The intangible assets will
be amortized over five years. The results of operations of Amerada are reflected
in the consolidated financial statements from the March 1, 2002 acquisition
date.

     On July 1, 2002, TXU Europe acquired, through its subsidiary TXU Europe
Energy Trading Limited, a 74.9% ownership interest in Braunschweiger
Versorgungs-Aktiengesellschaft (BVAG), a wholly-owned subsidiary of Stadtwerke
Braunschweig GmbH (Stadtwerke Braunschweig), and three minority interest
investments for (euro)434 million ((pound)280 million) in cash. BVAG is an
electricity, gas, heating and water supplier for 210,000 residential, commercial
and industrial customers in the German city of Braunschweig. Under terms of the
acquisition agreement, Stadtwerke Braunschweig has the right until January 1,
2006, to sell its remaining 25.1% ownership interest in BVAG to TXU Europe for
(euro)129 million ((pound)83 million). In July 2002, TXU Europe sold one of the
three minority interests acquired as part of the BVAG acquisition for (euro)28
million ((pound)18 million). BVAG reported revenues of (euro)279 million
((pound)170 million) for the fiscal year ended December 31, 2001, as reported
under accounting principles generally accepted in Germany.

     On July 1, 2002, TXU Europe acquired Forbrukerkraft AS (Forbrukerkraft), a
Norwegian retail electricity business based in Oslo for Norwegian kroner (NOK)
39 million ((pound)3 million). Forbrukerkraft has 43,000 customers and an annual
demand of one terawatt hour.


                                       15

<PAGE>
                              TXU Europe Limited
       Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


RESULTS OF OPERATIONS

     Results for the three- and six-month periods presented herein are not
necessarily indicative of expectations for a full year's operations because of
seasonal and other factors, including variations in maintenance and other
operating expense patterns. No significant changes or events which might affect
the financial condition of TXU Europe have occurred subsequent to year-end other
than as disclosed herein. The results of operations of TXU Europe for 2001 have
been restated to reflect the disposition of the Networks business separately as
a discontinued operation in the condensed consolidated financial statements.
(See Note 3 to Financial Statements).

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

     Operating revenues increased by (pound)301 million, or 16% to (pound)2.2
billion in the second quarter of 2002. Increased trading activity in continental
Europe contributed (pound)175 million of the increase. The acquisition of
Amerada during the first quarter of 2002 contributed (pound)140 million of the
increase in revenues over last year. Trading and wholesale energy sales in the
second quarter of 2002 increased 13% over the second quarter of 2001.

     Gross margin, which is revenues less energy purchased for resale and fuel
consumed and delivery costs, decreased (pound)53 million, or 20%, to (pound)214
million compared to 2001. This decrease in gross margin arose almost exclusively
from UK operations. The margin decline in the UK is largely a result of the
decline in wholesale electricity and gas prices and lack of price volatility
that negatively impacted wholesale trading results. Average wholesale prices for
electricity and gas declined 22% and 26%, respectively, during the second
quarter of 2002 as compared with last year. The net effect of mark-to-market
accounting in the second quarter of 2002 was an increase in income of (pound)20
million compared with an increase in income of (pound)37 million in the second
quarter of 2001. In the second quarter of 2001, 5,964 gigawatt-hours (GWh) of
electricity were generated, compared to only 1,760 GWh in the second quarter of
2002. This reflects TXU Europe's capacity reduction, resulting from plant
disposals and the idling of units, a result of low wholesale prices in the
market affecting generating operations. Lower wholesale pricing did not fully
benefit retail results as a significant portion of TXU Europe's retail load is
satisfied with long-term power purchase agreements with above-market pricing.
TXU Europe continues to focus on reducing its UK generation and purchased power
costs. In addition to plant sales and scaling back generation TXU Europe intends
to restructure certain of its long-term power purchase agreements. While retail
pricing exceeds costs under the power purchase agreements, continued weakness in
wholesale pricing may intensify downward pressure on retail pricing. The effort
to restructure long-term power purchase agreements, as discussed above, is
intended to mitigate this pressure.

     Retail operations in the UK were adversely impacted by the effect of
heightened competitive activity and resulting customer attrition. Other factors
affecting gross margin have been the loss of ex-franchise customers, replaced
with customers outside of TXU Europe's ex-franchise area, but who contribute
lower margins. This erosion and change in customer mix had a (pound)20 million
negative impact to gross margin. The acquisition of Amerada on March 1, 2002
(which brought over 40,000 residential energy and telecommunications customers
to TXU Europe) and the idling of plants to reduce operating costs were two of
several actions intended to address these pressures. Also included in gross
margins are gains derived from the recently established UK renewable energy
sector.

     Operation and maintenance expense decreased (pound)4 million over the same
period last year, primarily reflecting the impact of acquisitions offset by cost
reductions resulting from the disposal and idling of generating plants. Other
operating expenses declined by (pound)46 million, primarily as a result of the
discontinuance of goodwill amortization in 2002 and lower depreciation due to
plant disposals.

     Other income decreased (pound)52 million to (pound)2 million in 2002. The
decrease was due primarily to a gain of (pound)50 million in the 2001 period on
the sale of an investment in a Spanish power company.


                                       16

<PAGE>
                              TXU Europe Limited
       Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


     Interest expense, net of interest income, declined (pound)17 million
compared to the second quarter of 2001. This is due to the significant reduction
in debt (which includes capital leases) of (pound)2.3 billion following the
disposition of assets in late 2001 and the sale of the Networks business in
early 2002.

     The effective tax rate in 2002 was 31% compared with 49% for 2001, which
was affected by the non-amortization of goodwill and the reduction in
non-deductible lease expense, as a consequence of the power station disposals.

     Although current year improvement continues, net income for the second
quarter of 2002 declined by (pound)36 million compared to the second quarter of
2001. The decline was driven primarily by lower gross margin and by the gain in
2001 from the sale of an investment in a Spanish power company.

     Discontinued Operations - Operating revenues of the discontinued business
for the second quarter of 2001 were (pound)72 million. Net income from
operations for the second quarter was (pound)20 million.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

     Operating revenues increased by (pound)782 million to (pound)4.9 billion in
the first half of 2002. Increased trading activity in continental Europe
contributed (pound)400 million of the increase and the acquisition of Amerada
during the first half of 2002 contributed (pound)250 million of the increase in
revenues over last year. Additionally, trading activity in the UK increased
partially as a result of the implementation in March 2001 of the New Electricity
Trading Arrangements (NETA), which eliminated the Pool system and allowed
contracts to be made directly between counterparties. Physical purchases of
power and gas are recorded in energy purchased for resale, while financial
contracts are recorded net in revenues. Physical sales of power and gas are
recorded gross in revenues. Wholesale energy sales in the first half of 2002
increased 28% over the first half of 2001.

     Gross margin decreased (pound)186 million, or 32%, to (pound)388 million
compared to 2001. This decrease in gross margin arose almost exclusively from UK
operations. The margin decline in the UK is largely a result of the decline in
wholesale electricity and gas prices. Average wholesale prices for electricity
and gas declined 13% and 11%, respectively, during the first six months of 2002
as compared with last year. The mild weather in the UK during the first half of
2002 resulted in little or no price volatility and depressed retail sales. The
net effect of mark-to-market accounting in the first half of 2002 was an
increase in income of (pound)4 million compared with an increase in income of
(pound)57 million in the first half of 2001. In the first half of 2001, 13,011
gigawatt-hours (GWh) of electricity were generated, compared to only 4,511 GWh
in the first half of 2002. This reflects TXU Europe's capacity reduction,
resulting from plant disposals and the idling of units, as well as the low
prices apparent in the market which affects the operations of generating plants
such as TXU Europe's in the UK. Lower wholesale pricing did not fully benefit
retail results as a significant portion of TXU Europe's retail load is satisfied
with long-term power purchase agreements with above-market pricing. TXU Europe
continues to focus on reducing its UK generation and purchased power costs. In
addition to plant sales and scaling back generation, TXU Europe intends to
restructure certain of its long-term power purchase agreements. While retail
pricing exceeds costs under the power purchase agreements, continued weakness in
wholesale pricing may intensify downward pressure on retail pricing. The effort
to restructure long-term power purchase agreements, as discussed above, is
intended to mitigate this pressure.

     Retail operations in the UK were adversely impacted by the effect of
heightened competitive activity and resulting customer attrition. Other factors
affecting gross margin have been the loss of ex-franchise customers, replaced
with customers outside of TXU Europe's ex-franchise area, but who contribute
lower margins. This erosion and change in customer mix had a (pound)38 million
negative impact on gross margin. The acquisition of Amerada in March 2002 and
the idling of plants to reduce operating costs were two of several actions
intended to address these pressures. The number of UK retail electricity
customers declined 6%, as of June 30, 2002 compared with the same period of
2001, while the number of UK retail gas customers increased by 33% (largely as a
result of the Amerada


                                       17

<PAGE>
                              TXU Europe Limited
       Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


acquisition). The number of retail gas customers in Germany showed a slight
increase compared with those in the first half of 2001, while retail electricity
customers in Germany more than doubled as a consequence of the Ares acquisition
in May of 2001. Also included in gross margins are gains derived from the
recently established UK renewable energy sector. In addition, gross margin for
the Nordic region decreased by (pound)9 million as compared to 2001 as a result
of wholesale trading conditions. The first half of 2001 included a positive
contribution from upstream gas assets, which were disposed of in 2001.

     Operation and maintenance expense increased (pound)8 million over the same
period last year, primarily reflecting the impact of acquisitions, partially
offset by cost reductions resulting from the disposal and idling of generating
plants. Other operating expenses declined by (pound)97 million, primarily as a
result of the discontinuance of goodwill amortization in 2002.

     Other income decreased (pound)53 million to (pound)10 million in 2002. The
decrease was due primarily to a gain of (pound)50 million in the 2001 period on
the sale of an investment in a Spanish power company.

     Interest expense, net of interest income, declined (pound)48 million
compared to the first half of 2001. This is due to the significant reduction in
debt (which includes capital leases) of (pound)2.3 billion following the
disposition of assets in late 2001 and the sale of the Networks business in
early 2002.

     The effective tax rate in 2002 was 33% compared with 49% for 2001, which
was affected by the non-amortization of goodwill and the reduction in
non-deductible lease expense, as a consequence of the power station disposals.

     Net income for the first six months of 2002 declined by (pound)90 million
compared to the same period in 2001. The decline was driven primarily by lower
gross margin and by the gain in 2001 from the sale of an investment in a Spanish
power company.

     Discontinued Operations - Operating revenues for the first six months of
2001 for the discontinued business were (pound)161 million. Net income from
operations for the first six months of 2001was (pound)44 million. The (pound)7
million of income for the period from January 1, 2002 through the final
completion date of January 18, 2002, which was recorded in December 2001.


                                       18

<PAGE>
                               TXU Europe Limited
      Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

<TABLE>
<CAPTION>
OPERATING STATISTICS
                                                                  Three Months Ended             Six Months Ended
                                                                       June 30,                      June 30,
                                                            ----------------------------  ------------------------------
                                                                  2002           2001            2002            2001
                                                           --------------  -------------  --------------    -------------
<S>                                                       <C>             <C>            <C>               <C>
    SALES VOLUMES
           Electricity (GWh):
             Industrial and commercial                               7,635          6,991          15,639          13,277
             Residential                                             4,133          4,513          11,157          11,117
                                                            --------------  -------------  --------------    ------------
                   Total electricity                                11,768         11,504          26,796          24,394
                                                            ==============  =============  ==============    ============


           Gas (billion cubic feet) - (Bcf):
             Industrial and commercial                                  19             12              43              35
             Residential                                                18             17              56              58
                                                            --------------  -------------  --------------    ------------
                   Total gas                                            37             29              99              93
                                                            ==============  =============  ==============    ============


           Wholesale energy sales (physically settled):
             Electricity (GWh)                                      29,792         24,607          66,831          43,484
                                                            ==============  =============  ==============   =============
             Gas (Bcf)                                                 560            348           1,037             738
                                                            ==============  =============  ==============   =============


    OPERATING REVENUES ((pound) millions)
           Electric:
             Industrial and commercial                                 223            220             517             461
             Residential                                               295            295             688             701
                                                            --------------  -------------  --------------    ------------
                     Total electric operating revenues                 518            515           1,205           1,162
                                                            --------------  -------------  --------------    ------------
           Gas:
             Industrial and commercial                                  54             34             129              96
             Residential                                                83             75             226             199
                                                            --------------  -------------  --------------    ------------
                    Total gas operating revenues                       137            109             355             295
                                                            --------------  -------------  --------------    ------------


           Wholesale energy sales
             Gas                                                       764            644           1,840           1,476
             Electric                                                  494            470           1,125             845
                                                            --------------  -------------  --------------    ------------
                    Total wholesale energy sales                     1,258          1,114           2,965           2,321
                                                            --------------  -------------  --------------    ------------


           Other                                                       257            131             397             362
                                                            --------------  -------------  --------------    ------------
                    Total operating revenues                         2,170          1,869           4,922           4,140
                                                            ==============  =============  ==============    ============

           Physical and financial energy trades:
             Electricity (GWh)                                     171,336        181,016         386,332         507,468
                                                             =============  =============   =============    ============
             Gas (Bcf)                                                 809          1,199           1,909           2,578
                                                             =============  =============   =============    ============

-------------------------------------------------------------------------------------------------------------------------
    RETAIL CUSTOMERS (end of period & in thousands)
           Electricity (retail)                                 4,419               4,477
           Gas                                                  1,677               1,276
</TABLE>

                                       19

<PAGE>
                              TXU Europe Limited
      Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


Commodity Contract and Mark-to-Market Activities

     The table below summarizes the changes in commodity contract assets and
liabilities for the six months ended June 30, 2002. The net change, excluding
"other activity" as described below, of (pound)4 million represents the effect
of mark-to-market accounting on earnings for 2002 (in (pound) millions).
<TABLE>
<S>                                                                                    <C>

         Balance of net commodity contract assets/(liabilities) at December 31, 2001 .... (pound) (74)

         Settlements of positions included in the opening balance (1) ...................         (29)

         Unrealized mark-to-market valuations of positions held at quarter-end ..........          33

         Other activity (2) .............................................................          46
                                                                                          -----------

         Balance of net commodity contract assets/(liabilities) at June 30, 2002 ........ (pound) (24)
                                                                                          ===========
</TABLE>

(1)  Represents unrealized mark-to-market valuations of these positions
     recognized in earnings as of December 31, 2001.

(2)  Includes initial values of positions assumed in acquisitions or involving
     the receipt or payment of cash, such as option premiums, and amortization
     of such positions originating in prior periods. This activity has no effect
     on unrealized mark-to-market valuations.

     The above table includes all commodity contracts that are marked to market,
for both trading and non-trading purposes.

     Of the net commodity contract asset/liability balance above at June 30,
2002, the amount representing unrealized mark-to-market net gains that have been
recognized in current and prior years' earnings is (pound)63 million. The
remainder ((pound)87 million) of the June 30, 2002 balance consists of the
initial values, net of amortization, of positions assumed in acquisitions or
involving the receipt or payment of cash. During the first quarter, certain
contracts previously accounted for on a mark-to-market basis were designated
normal purchase contracts according to the exception available within SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". This had no
effect on net income or net assets, but will result in (pound)11 million of
unrealized mark-to-market net gains, included in the closing balance shown in
the table above, being amortized over the remaining life of the contracts rather
than subject to future mark-to-market valuations. The following table presents
the unrealized mark-to-market balance at June 30, 2002 scheduled by contractual
settlement dates of the underlying positions (in (pound) millions).
<TABLE>
<CAPTION>
                                          Maturity dates of unrealized mark-to-market balance at June 30, 2002
                                      -----------------------------------------------------------------------------
                                          Maturity                                      Maturity in
                                            less        Maturity of     Maturity of      Excess of
                                           1 year        1-3 years       4-5 years        5 years         Total
                                      --------------  -------------  --------------  --------------  -------------
<S>                                  <C>              <C>           <C>             <C>             <C>
    Pricing method:
       Prices actively quoted .......             26            (13)              -               -             13
       Prices provided by other
         external sources ...........            (26)            (3)              -               -            (29)
       Prices based on models .......             25             33              20               1             79
                                      --------------  -------------  --------------   ------------- - ------------

    Total ...........................             25             17              20               1             63
                                      ==============  =============  ==============   =============  =============
     Percentage of total                          40%            27%             32%              1%           100%
</TABLE>

      As the above table indicates, 67% of the unrealized mark-to-market
valuations at June 30, 2002 mature within three years. This is reflective of the
terms of the positions and the methodologies employed in valuing positions in
periods of decreased market liquidity and visibility. The "prices actively
quoted" category reflects exchange traded contracts with active quotes available
through 2011. The "prices provided by other external sources" category
represents forward commodity positions at locations for which over-the-counter
(OTC) broker quotes are available.


                                       20

<PAGE>
                              TXU Europe Limited
      Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


The "prices based on models" category contains the value of all non-exchange
traded options, valued using an industry accepted option pricing model. In
addition, this category contains other contractual arrangements, which may have
both forward and option components. In many instances, these contracts can be
broken down into their component parts and modeled by TXU Europe as simple
forward contracts and options based on prices actively quoted. As the modeled
value is ultimately the result of a combination of prices from two or more
different instruments, it has been included in this category.

Regulatory Issues

     Although the electricity and gas markets in the UK have been fully open to
competition for some years, there were certain price restrictions on rates that
could be charged and other price restrictions for electricity supply businesses.
These restrictions, which affected TXU Europe Group's electricity supply
business, were removed in April 2002. TXU Europe Group's natural gas supply
business is not subject to price regulation.

COMPREHENSIVE INCOME

     TXU Europe has historically used, and will continue to use, derivatives
that are effective in offsetting future cash flow volatility in interest rates,
currency exchange rates and energy commodity prices. The fair value of
derivatives that are effective as cash flow hedges are recorded as derivative
assets or liabilities with an offset in other comprehensive income. During the
first six months of 2002, negative changes in the fair value of effective cash
flow hedges were primarily driven by the strengthening of the British pound,
which decreased the value of the hedges of US dollar denominated debt.

     The amounts included in other comprehensive income reflect the value of the
cash flow hedges, based on current market conditions, to be used in the future
to offset the impact on related payments of expected changes in prices. The
effects of the hedges will be recorded in the statement of income as the related
transactions are actually settled.

LIQUIDITY AND CAPITAL RESOURCES

Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001

     For information concerning liquidity and capital resources, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in TXU Europe's 2001 Annual Report on Form 10-K (2001 10-K). No
significant changes or events which might affect the financial condition of TXU
Europe have occurred subsequent to year-end other than as disclosed herein.

     Cash used in operating activities was (pound)209 million for the six months
ended June 30, 2002 compared to cash provided of (pound)67 million for the same
period in 2001. The decline in cash flow from operating activities is
attributable to lower cash operating profits from continuing operations,
together with the end of operating cash contributions from the discontinued
operations. The first half of 2001 included net cash contributions of (pound)46
million from the discontinued Networks business, compared with (pound)23 million
of cash used by the Networks business during 2002, prior to disposition. Cash
flow from operating activities was further influenced by the timing of cash
receipts and payments related to trading activity. Certain positive
mark-to-market positions on some gas contracts, which would have been collected
in 2002, were locked in and collected in 2001. Remaining decreases in cash flow
from operations compared with 2001 resulted primarily from adverse movements in
working capital (either from certain inflows of working capital in the first six
months of 2001 or outflows in the first six months of 2002), especially power
station inventories and wholesale and retail receivables. TXU Europe anticipates
receiving an equity injection from TXU Corp. to support the restructuring of
long-term power purchase contracts.

                                       21

<PAGE>
                              TXU Europe Limited
       Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


     Investing activities provided (pound)482 million of cash in the first half
of 2002 compared to (pound)132 million in the same period last year. The cash
provided in 2002 was primarily from the proceeds from the sale of the Networks
business. Capital expenditures declined (pound)59 million compared to 2001. The
acquisition of Amerada used (pound)119 million of cash in the first half of 2002
compared to (pound)150 million used in the first half of 2001 to acquire
Stadtwerke Kiel AG and Ares Energi GmbH in Germany. The cancellation of two
foreign currency exchange swaps resulted in the amount of (pound)47 million
being received during the second half of 2002. The first half of 2002 also
includes proceeds of (pound)133 million received from the sale of the Rugeley
generating station in 2001 and the final payment of (pound)9 million for
advisors fees related to the plant disposal program, which were accrued in 2001.

     Cash used in financing activities for the six months ended June 30, 2002
was (pound)432 million compared to (pound)673 million in the first half of 2001.
In the first half of 2002, cash was used primarily to reduce debt by (pound)1.2
billion. This was offset by cash provided from (pound)421 million of long-term
debt borrowed under Tranche A of the Revolving Credit Facilities Agreement and
(pound)351 million of equity sold during the first and second quarters from the
issuance of stock. At the time of the second quarter equity sale, TXU Europe
Group received (pound)39 million in cash representing additional affiliate
minority interest. Cash used in the first six months of 2001 reflects debt
repayment of (pound)773 million, offset by cash received of (pound)107 million
from debt issued.

Financing Arrangements

     See Notes 4 and 5 to Financial Statements for more information concerning
available sources of short-term and long-term financing.

     Lines of Credit - TXU Europe has a (euro)2.0 billion Euro Medium Term Note
(EMTN) program, under which TXU Europe may from time to time issue notes in
various currencies. As of June 30, 2002, a total of (pound)576 million was
outstanding under the program at an average rate of 7.53%. As of June 30, 2002,
a financing subsidiary of TXU Europe has (pound)301 million of 35 Put 5
Resettable Notes due 2035 (Resettable Notes) outstanding under the EMTN program.
The interest rate on the Resettable Notes is 7.79% per annum as of June 30,
2002. The issuer of the Resettable Notes has a call option to repurchase the
Resettable Notes at par on November 30, 2005. This call option has been assigned
to commercial banks for a consideration of approximately (pound)5 million per
annum for five years. The Resettable Notes also include a put option that is
exercisable at November 30, 2005 by the holder and a reset feature that permits
the holder to remarket the Resettable Notes at a different interest rate if the
put is not exercised. On the reset date, the new interest rate will be 6.25% per
annum, plus a margin, in accordance with the terms of the Resettable Notes for
the next 30 years.

     As of June 30, 2002, there was (pound)275 million in 7.25% Sterling
Eurobonds due March 8, 2030 also outstanding under the EMTN program. TXU Europe
has granted to the holders of the 7.25% Sterling Eurobonds due 2030 an optional
put in 2015 in exchange for a waiver of a provision that could have inhibited
the disposition of the Networks business. A similar provision in the Resettable
Notes has been waived for a fee without any further changes to the terms of the
Resettable Notes.

     Revolving Credit Facilities Agreement - The disposition of the Networks
business necessitated the termination of the old Sterling Credit Agreement, with
all borrowings repaid along with associated interest. The Revolving Credit
Facilities Agreement dated November 19, 2001 immediately replaced the old senior
debt facility. As of June 30, 2002 there is one available tranche in this
facility. Tranche A is a multi-currency, (pound)800 million five-year revolver
that can include long-term drawings. As of June 30, 2002, the outstanding
borrowings under this facility and the associated interest rates are as follows:
(euro)574 million ((pound)371 million) at 4.12% per annum, 700 million NOK
((pound)61 million) at 7.86% per annum, and (pound)220 million at 4.73%, all
classified as long-term debt.

     Financial Covenants - The terms of some financing arrangements of TXU
Europe contain financial covenants that require it to maintain fixed charge
coverage ratios, equity capitalization ratios, leverage ratios and/or contain
minimum net worth covenants. TXU Europe has credit rating covenants in certain
financing arrangements and commercial agreements that would effect liquidity in
the event of a downgrade to below investment grade status. As of June 30, 2002,
TXU Europe was in compliance with all such applicable covenants.

    TXU Corp. anticipates that it will provide additional equity capital to TXU
Europe later in the year to support the restructuring of long-term purchase
power contracts.


                                       22

<PAGE>
                               TXU Europe Limited
       Item 2. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


In July 2002, Moody's Investors Service Inc. (Moody's) announced that it had
placed the credit ratings of TXU Europe's debt, currently Baa1, under review for
downgrade. Because TXU Europe's rating has been placed on credit watch, the
terms of lease agreements related to certain power stations required TXU Europe
to obtain a letter of credit for (pound)50 million or equivalent collateral to
provide additional security, in addition to the (pound)100 million letter of
credit already in place. TXU Europe would be required to provide up to an
additional (pound)50 million in letters of credit or other collateral in the
event of further notifications from the rating agencies of downgrade or review
for downgrade below ratings of Baa2 (Moody's) or BBB (Standard & Poor's).

CHANGES IN ACCOUNTING STANDARDS

     See Note 2 to Financial Statements for discussion of changes in accounting
standards.

FORWARD-LOOKING STATEMENTS

     This report and other presentations made by TXU Europe contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although TXU Europe believes that in making
any such statement its expectations are based on reasonable assumptions, any
such statement involves uncertainties and is qualified in its entirety by
reference to factors contained in the Forward-Looking Statements section of Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations in TXU Europe's 2001 Form 10-K as well as general economic and
business conditions in the UK, whose energy markets have been opened to
competition; unanticipated changes in interest rates, in rates of inflation, or
in foreign exchange rates; prevailing governmental, statutory, regulatory or
administrative policies and initiatives affecting TXU Europe, its subsidiaries
or the UK or European electric and gas utility industries; general industry
trends, including acquisition and retention of customers; regulation issues;
power costs and availability; changes in business strategy, development plans or
vendor relationships; availability of qualified personnel; changes in, or the
failure or inability to comply with, governmental regulations, including,
without limitation, environmental regulations; changes in tax laws;
implementation of new accounting standards; commercial paper market and capital
market conditions; and access to adequate transmission facilities to meet
changing demands, among others, that could cause the actual results of TXU
Europe to differ materially from those projected in such forward-looking
statements.

     Any forward-looking statement speaks only as of the date on which such
statement is made, and TXU Europe does not undertake any obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for TXU
Europe to predict all of such factors, nor can it assess the impact of each such
factor or the extent to which any factor, or combination of factors, may cause
results to differ materially from those contained in any forward-looking
statement.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information required hereunder is not significantly different from the
information as set forth in Item 7A. Quantitative and Qualitative Disclosures
About Market Risk included in the 2001 Form 10-K and is therefore not presented
herein.


                                       23

<PAGE>

                           PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

     On November 29, 2001, various subsidiaries of Enron Corporation (Enron)
went into Administration (bankruptcy) in the UK. Prior to Enron's going into
Administration, TXU Europe Energy Trading (TXUEET) had certain energy purchase
and sales contracts with Enron, which had been entered into in the ordinary
course of business. The terms of these contracts provided that they terminated
automatically upon a party going into Administration. Also, on November 29, 2001
just prior to Enron going into Administration, TXUEET received a notice from
Enron purporting to terminate these contracts for cause. TXUEET and the
Administrator have had discussions regarding potential claims relating to
contract termination; in February 2002 TXUEET applied to the High Court in
London for permission to seek a judicial determination regarding contract
termination and, in March 2002, Enron filed an action in the High Court relating
to interpretation of certain other contractual provisions. For the more
expeditious and economic resolution of the issue of the contract termination,
TXUEET and Enron agreed in May 2002 to Enron initiating proceedings in the High
Court to enable the parties to seek a judicial determination regarding contract
termination, which action would supersede the previous actions. In June 2002,
Enron initiated such action and asked for a declaration that Enron is entitled
to payment of the net present value of the contracts or alternatively the market
value of the contracts, both for undetermined amounts, or alternatively, relief
from forfeiture of the contracts, for an undetermined amount, or in the further
alternative, restitution or relief from forfeiture of (pound)55 million
previously paid by Enron to TXUEET for value under the contracts. While the
outcome of this matter cannot be predicted, TXUEET believes, consistent with the
advice of external legal advisors in the UK, that the attempted termination of
the contracts by Enron was without substance. Accordingly, TXUEET believes any
related claims by Enron are without merit and intends to vigorously defend this
suit.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     On March 28, 2002, TXU Europe issued 150,000,000 of its ordinary shares of
(pound)1 par to its immediate parent, TXU International Holdings Limited, for
(pound)150,000,000. The proceeds were used to acquire Amerada. The sale of these
shares was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended.

     On June 27, 2002, TXU Europe issued 201,180,000 of its ordinary shares of
(pound)1 par to its immediate parent, TXU International Holdings Limited, for
(pound)201,180,000. The proceeds were used to acquire BVAG. The sale of these
shares was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits filed as a part of Part II are:

          99 (a)  Chief Executive Officer Certification
          99 (b)  Principal Finance Officer Certification

     (b)  Reports on Form 8-K filed since March 31, 2002, are as follows:


                  Date of Report         Item Reported
                  --------------         -------------

                  July 15, 2002          Item 2.     Acquisition of BVAG


                                       24

<PAGE>

                                   SIGNATURES

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

                                                    TXU EUROPE LIMITED

                                             By     /s/ Henry Birt
                                                 -------------------------------
                                                          Henry Birt
                                                  Principal Finance Officer

                                             By     /s/ Henry Davies
                                                 -------------------------------
                                                        Henry Davies
                                                Principal Accounting Officer

Date:  August 14, 2002

                                       25