Turning A Tanker: Transforming A 100 Year-Old - Corporate-ir

Transcription

Turning A Tanker:
Transforming A 100 Year-Old
Regulated Utility
C. John Wilder
Chief Executive Officer
Southern Methodist University
December 8, 2005
Safe Harbor Statement
This presentation contains forward-looking statements, which are subject to various
risks and uncertainties. Discussion of risks and uncertainties that could cause actual
results to differ materially from management's current projections, forecasts, estimates
and expectations is contained in the company's SEC filings.
Regulation G
This presentation includes certain non-GAAP financial measures. A reconciliation of
these measures to the most directly comparable GAAP measure is included in the
appendix of the version included on the company’s website at www.txucorp.com under
Investor Resources/Presentations.
1
Today’s Discussion
From
To
About
About TXU
TXU
Serving North Texas
for over 100 years
Serving Texas for
the next 100 years
Energy
Energy Market
Market
Restructuring
Restructuring
Centralized
government planning
Full customer choice
TXU
TXU
Turnaround
Turnaround
A regulated monopoly
An industrial
energy company
Investing to survive
Powering Texas’
future
Strategic
Strategic
Focus
Focus
2
TXU: A Piece Of Texas History…
1879: Thomas
Edison invents
light bulb
1911:
SMU
founded
1882: Dallas
gets lights
Stock market
crash, Great
Depression
WW I
WW II
1947: Air
conditioning first
results in summer,
not winter, peak
US lands
on Moon
1999: SB 7
deregulates TX
market
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990
TXU Events
1912: First TXU
company founded
1913: First
high-voltage
transmission
line in Texas,
built by TXU
1926: TXU
brings first
lignite plant
in Texas on
line
1974:
Comanche
Peak starts
construction
1953: TXU
installs first
boiler-turbinegenerator
control board in
plant
2000
2002: TXU
enters
deregulation
1988: First
combustion
turbines
installed
3
…Building On Our Past And Continuing To Serve Our
Customers…
Operating 19 power
plants with over 18,000
MW of capacity (enough
to serve 5.9 million Texas
customers)
Mining 23 million tons per
year of Texas lignite
(enough to fill a coal train
that would stretch from
Dallas to Ketchikan, Alaska)
Serving 633 Texas cities,
over 3 million service
points, and almost onehalf of Texas’ population
with regulated electric
delivery service
Operating 114,000 miles
of transmission and
distribution lines (almost
half way to the moon)
Providing competitive
retail electric service
for over 2.3 million
customers in Texas
Answering about 10
million customer service
calls per year
4
…With Structurally Advantaged Businesses Across The
Texas Electric Value Chain
Competitive Businesses
Regulated Business
Generation
Wholesale
TXU Power
TXU Wholesale
2nd largest U.S.
deregulated
output
Large scale
Access to
competitive
largest Texas
generation fleet retailer
Structural Access to low
advantages cost lignite
reserves
63 TWh of
baseload
production
(20% of Texas
demand)
Access to
largest Texas
retail position
Retail
TXU Energy
Loyal customer
base
Strong brand
recognition
Superior service
Transmission
and
Distribution
TXU Electric Delivery
6th largest U.S.
transmission &
distribution
company
Top quartile costs
and reliability
High growth region
(>2.0%)
TXU
TXUranks
ranksin
intop
top100
100largest
largestmarket
marketcapital
capitalcompanies
companiesin
inUnited
UnitedStates
States
5
From
To
About
About TXU
TXU
Serving North Texas
for over 100 years
Serving Texas for
the next 100 years
Energy
Energy Market
Market
Restructuring
Restructuring
Centralized
government planning
TXU
TXU
Turnaround
Turnaround
An industrial
energy company
Powering Texas’
future
Strategic
Strategic
Focus
Focus
6
Texas Legislators And Regulators Were Ahead Of Their
Time Recognizing The Need To Bring Market Solutions To
The Electric Sector
2
1
Volatile and capital
intensive global
energy market
Failure of regulated
markets to drive
sustained productivity
improvements
Restructuring
Leveraging a markets
solution to drive
efficiency, innovation and
investment
3
Lack of consumer
choice and limited
innovation
Texas
Texasregulators
regulatorsrealized
realizedthat
thataarestructured
restructuredelectric
electricmarket
marketwould
wouldbe
bebetter
better
able
ableto
todeal
dealwith
withthe
thecomplex
complexchallenges
challengesof
ofaaglobal
globalenergy
energymarket
market
7
Increases In Global Population And Relative Wealth Have
Driven Higher Energy Usage
Multiplying masses: World population
80-03; Billions of people
Lighting up: World energy usage
80-03; Billion MMBtu
6.3
4.4
80
80
03
67
4%
80
49%
283
Greater wealth: World energy intensity
80-03; MMBtu per capita
64
422
43%
03
03
Bringing
Bringingelectricity
electricityto
tothe
the
world
worldhas
hassignificant
significanthealth
health
and
andwelfare
welfarebenefits:
benefits:
Access
Accessto
toheat
heatand
andair
air
conditioning
conditioning
Ability
Abilityto
torefrigerate
refrigerateand
and
thoroughly
thoroughlycook
cookfood
food
Ability
Abilityto
tostore
storevaccines
vaccinesand
and
medications
medications
8
Demand Has Temporarily Outpaced Supply, Leading To
Higher And Increasingly Volatile Oil And Gas Prices
Increased demand for energy
90-04; Percent growth
83
Rapidly rising oil and natural gas prices
90-05; Index (January 1990=1)
Gas: 537%
75
6
Oil:
84% Natural
Gas
4
India
China
18
2
US
0
Jan-90
Oil
Jan-95
Jan-00
Jan-05
Increases
Increasesin
inworld
worldhydrocarbon
hydrocarbondemand
demandhave
haveoutpaced
outpacedsupply
supplyincreases
increases
driving
drivingboth
bothhigher
higherprices
pricesand
andhigher
highervolatility
volatility
Source: EIA
9
Regulators Saw An Industry That Historically Lagged Other
Competitive Sectors In Productivity Improvements…
Industry productivity improvements (CAGR)
83-031; Percent
3.4%
2.4%
2.3%
Average
2.3%
1.5%
0.7%
Steel
(workers/
ton)
Telecom
($/line)
Gas
pipelines
($)
Railroads
($/ton/
mile)
Refining
(bpd
throughput)
US
Regulated
generation
O&M
($/MWh)
TXU
TXUPower
Powerisisplanning
planningfor
forcost
costimprovement
improvementthat
thatmatches
matchesother
othercompetitive
competitiveindustries
industries
1
Steel is for the period 1990-2001; Gas pipelines for 1980-2003; Refining is for 1985-2004
10
…And Saw How Restructuring Of Other Capital Intensive
Markets Led To Step Changes In Productivity…
Smaller workforce:
Higher utilization: Percent of unBritish Telecom employees filled available airline seat miles
84-04; Thousands
77-00; Percent
240
58%
58%
44
34%
34%
Leaner cost structure:
Interstate trucking
operating costs
77-93; Real $/mile
5.8
76%
76%
29
100
1.4
84
Prederegulation
04
77
Prederegulation
00
77
Prederegulation
93
AAcompetitive
competitivemarket
marketprovides
providesclear
clearincentives
incentivesand
and
accountability
accountabilityfor
forconstant
constantimprovement
improvement
Source: British Telecom, Airline Form 41, Transportation Technical Services
11
…And Has Provided Customers With Infinitely More
Products And Choice
Pre-deregulation
Post-deregulation
WCDMA,
UMTS,
Mobile-Fi
ATM
GPRS,
HSCSD
Technology
Video
compression
Video
teleconferencing
CDPD, iDEN,
CDMA, TDMA,
GSM
Wavelength
division
multiplexing
SONET
MVL
DSL
Wi-Fi/ Celllular
Roaming,
HSPDA,
UMTS TDD
CRS1
WLL
WWW
Spread
spectrum
Voice
mail
1st communications
satellite
Radio pager
1950
1955
Source: Industry research
1960
1965
WAN
Hosted VoIP Blackberry
3-way
calling
ISDN
Microwave relay
Digital cellular
telephone
Optical
amplifier
1970
1975
1980
BPL
LAN
Caller ID
Touch-tone
telephone
Wi-Max
Wi-Fi
Fiber optic
transatlantic
cable
Pager
EDGE,
1XRTT
1985
VoIP
MMDS,
LMDS
Packet cable
Resilient Multimedia
packet ring
HFC
E-mail
1990
AT&T break-up (1982)
Active
ethernet
Meshed wireless
networking
1995
2000
Line-powered
DSLAMs
2005
12
The Texas Electric Market Is One Of The Largest In The
World
Electricity consumption
02; TWh
3,660
1,457
971
780
513
510
487
415
352
344 320
267
218 196
Japan
Germany
Canada
Texas
United
Brazil
Spain
States
China
Russia
India
France
United
South
Australia
Kingdom
Korea
th
Texas
Texasis
isthe
the11
11thbiggest
biggestmarket
marketin
inthe
theworld
world
Source: EIA
13
Restructuring Of The Texas Power Market Has Allowed
Texans To Capture The Benefits Of Competition
2
Efficiency
1
Investment
Increased
consumer
value
3
Innovation
"Competition
"Competitionon
onits
itsworst
worstday
dayis
isbetter
betterthan
thanregulation
regulation
on
onits
itsbest
bestday.“
day.“--Pat
PatWood,
Wood,former
formerFERC
FERCChairman
Chairman
14
Utility Restructuring “Unbundled” The Electric Power Value
Chain Creating New Competitive Businesses
Generation
Transmission
Distribution
Restructuring
Generation
Wholesale
67 generators and wholesalers
Retail
Transmission
and Distribution
64 active retailers
Restructuring
Restructuringhas
hasbrought
broughtaavariety
varietyof
ofnew
newplayers
playersinto
into
the
themarket
marketand
andincreased
increasedcustomer
customerchoice
choice
5 T&D
15
Competition Has Spurred Massive Generation Investment
Leading To A Significant Increase In Market Efficiency
Capacity additions not in rate base
90-04; $ billions
Texas market efficiency1
99-05; Percent
700%
79%
43
16
24
2
90-97
98-04
99
05
The
Theefficiency
efficiencyimprovement
improvementwould
wouldbe
besimilar
similarto
toimproving
improvingaverage
average
automobile
automobilegas
gasmileage
mileagefrom
from20
20mpg
mpgto
to35
35mpg
mpg
1
Based on comparison of 7X24 heat rate to heat rate of 100% efficient machine (3.6 MMBtu/MWh)
Source: Energy Velocity; NERC
16
This Efficiency Has Translated Into Better Prices Relative
To Regulation…
Average residential prices1
02-05E2; $/MWh
Average large business prices1
02-05E2; $/MWh
17%
17%
102
If regulation
continued
84
Competitive
14%
14%
71
If regulation
continued
61
Competitive
Even
Evenwith
withhigh
highnatural
naturalgas
gasprices,
prices,customers
customershave
havebenefited
benefitedfrom
fromaccess
accessto
to
lower
lowerelectricity
electricityprices
pricesthan
thanthey
theywould
wouldhave
haveexperienced
experiencedunder
underregulation
regulation
1
2
Competitive Residential price based on average 15% discount (’02-’05E) to TXU PTB offered by market competitors. Competitive large business rates include 10%
wholesale gross-up and 1% net margin. Regulated world assumes 4.7 GW added capacity in the rate base at a cost of $600/kw, O&M costs approximately $38/kw-yr
resulting in an average cost of $129/kw-yr in the rate base, SB7 mandated environmental costs approx. $400 million resulting in average cost of $12/kw-yr in the rate
base, Comanche Peak stranded costs $1.2 billion resulting in average cost of $87/kw-yr in the rate base.
Based on forward curve as of 10/4/05.
Source: TXU Energy, ECOM model
17
…Enabling The Only True Competitive Electric Retail Market…
Total US electricity sales
04; 100% = 3,550 TWh
Residential switching by state
04; 100% = ~ 38 TWh
All other markets1
Rest of US
9%
New York
9%
Pennsylvania 3%
Texas
79%
Texas
91%
9%
Large commercial switching by state
04; 100% ~ 133 TWh
All other
markets2
Maryland
30%
Texas
36%
9%
12%
Illinois
13%
New York
While
WhileTexas
Texasis
isonly
only9%
9%of
oftotal
totalelectric
electricsales
salesin
inthe
theUS,
US,ititcomprises
comprisesover
over79%
79%of
of
residential
switching
residential switching
Over
Over10
10million
millioncompetitive
competitivechoices
choiceshave
havebeen
beenmade
madein
inthe
theTexas
Texasmarket
market
1
2
Includes AZ, CA, CT, DC, DE, IL, MA, MD, ME, MI, MT, NH, NJ, NV, OH, OR, RI, VA
Includes MI, PA, CA, ME
18
...With Innovative Products And Offerings
Product
Product
Price
Price
Promotion
Promotion
Placement
Placement
From Regulation
To Full Competition
One meter-driven regulated
product
Basic billing and service
Customer-driven product
proliferation (structure, value
add, energy attributes)
Heightened service focus
One provider
One price, cost-plus basis
Multiple providers in
competitive marketplace
Many prices and terms, supplydemand driven
Energy efficiency and safety
focus
Company branding, innovative
alliances and sponsorships
Segmentation based on
customer needs
Bill and bill insert
Limited advertising
Reactive call center
Increased customer reach (ads,
door to door, Internet, retail)
Proactive and reactive call
center
The
Themarket
marketis
isdriving
drivinginnovation
innovationto
tothe
theresidential
residentialcustomer
customer
19
From
To
About
About TXU
TXU
Serving North Texas
for over 100 years
Serving Texas for
the next 100 years
Energy
Energy Market
Market
Restructuring
Restructuring
Centralized
government planning
TXU
TXU
Turnaround
Turnaround
An industrial
energy company
Powering Texas’
future
Strategic
Strategic
Focus
Focus
20
TXU’s Turnaround Started With An Assessment Of the
Major Uncertainties And Current Competitive Position
Element
Key questions for TXU
External
industry
scan
How to mitigate the major commodity market uncertainties?
How will highly uncertain regulatory/environmental rules
impact the industry?
Which of the many technologies will be the “winner”?
Will hyper-competition continue to transfer value away from
the sector?
Current
competitive
position

Why had TXU stock underperformed the market for 10 years?
How to reduce debt?
How to drive operating performance to best in class?
How to transform customer service to levels achieved in
other industries?
21
The US Energy Sector Faces Many Forces That Point To An
Uncertain Future
Today
In the future
Commodity
Commodity
Weather (hurricanes)
Rapidly growing global
demand (China)
Transportation disruptions
Long term supply
interruptions (Middle East)
Demand destruction
Supply upheavals
Regulation/
Regulation/
Environment
Environment
Market design changes
Federal regulation changes
Changing emissions
standards
Technology
Technology
Choice of fuel (nuclear, coal
gas, renewable)
Demand management
Breakthroughs in efficiency
New fuels (H2, fusion)
Competition
Competition
Nimble new startups
Slow-paced former
monopolies
Hypercompetitive
investment
Breakthrough competitor
(Microsoft of electricity)
22
January 2004: TXU Was Not Positioned Well To Compete
Its New Environment
Too much debt: Debt/Total enterprise value
Jan 04; Percent
Poor returns: Annual TRS
Jan 94 - Jan 04; Percent
11.9
91%
43%
43%
65
37
1.1
TXU
Top quartile
(S&P Electric)
TXU
Costly operations: Nuclear oper. costs
03; $/MWh
18%
18%
12.0
Top quartile
(S&P Electric)
Poor service: Average speed to answer
03; Seconds
96%
96%
280
9.8
12
TXU
Best in class
TXU
Best in class
23
TXU’s Turnaround Was Based On Three Core Principles…
Principle
1
2
3
Long-Term Success In The
Energy Sector Is Based On
Having Access To Structurally
Advantaged Assets
An Industrial Skill Set Is Crucial
For Continual High Performance
Long-Term Winners Must
Leverage Not Only Scale But
“Quality Scale”
Rationale
Energy markets are cyclical; only
assets with a structural cost
advantage will win over the long term
Structurally advantaged positions
provide better opportunities
Superior operational performance
can increase ROIC by 200 basis
points
The sector has not transformed
performance levels to reflect a
competitive environment
Like in other capital intensive
sectors, scale is necessary for
operational improvement
“Quality scale” provides access to
advantaged new build prospects and
enables competitive leadership
24
…And Implemented Through A Three Phase Transformation
Process…
A structured turnaround…
…led to significant value creation
04-05; $ billions
Phase 3:
Sustained
Performance and
Growth
Phase 2:
Strengthen the Core &
Drive Performance
Improvement
Phase 1:
Rationalize,
Restructure & Restore
Financial Strength
6
19
6
7
Risk
International management
Restructuring
Performance
management
Total
TXU
TXUcreated
createdaasignificant
significantamount
amountof
ofvalue
valueby
byrestructuring
restructuring
its
itsinternational
internationaloperations
operationsand
andfocusing
focusingon
onits
itscore
corein
inTexas
Texas
25
…Based Upon The Development Of An Industrial Skill Set
Operational Excellence
Market Leadership
Risk/Return Mindset
• Top decile throughput
• World class industrial
production costs
• Industry leading reliability
• Lean corporate SG&A
• Superior customer service/
brand management
• Customer segmentation
and pricing
• Distinctive commodity
sourcing
• Strict capital allocation
discipline
• Risk/return restructuring
• Commodity risk
management
Performance Management
•
•
•
•
High performance culture
Balanced cascading scorecards
Employee development
Incentives linked to key value drivers
26
Operational Excellence: “Lean Principles” To Generation…
Lignite capacity factors
03-LT; Percent
Lignite fuel & operating expense
03-LT; $/MWh
93
9%
9%
89
85
3.5
3.5
26%
3.3
Top decile
86
2.6
Top decile
03
04
05E
Long term
target
Closing the gap 03-Long term ~ $290MM
03
04
05E
Long term
target
Closing the gap 03-Long term ~ $30MM
27
…Driving Productivity At The Mines…
Digging for gold: Dragline operator productivity performance
04-Oct 05; Average dig yards per hour
5,600
5,300
4,800
04
05
Operator A
6,600
6,500
6,200
04
05
Operator B
04
6,500
5,300
05
Operator C
04
05
Operator D
Average
Averageoperator
operatorperformance
performancehas
hasimproved
improvedby
by23%
23%in
inone
oneyear
year
1
Excludes all conditions out of the operators’ control (e.g., equipment failures, low Btu fuel)
28
…By Leveraging Innovative Work Practices…
Operators are taped on the job…
…and given feedback in the classroom
All-time
All-timeannual
annualrecord
recordfor
foryards
yardsmoved
moved
was
wasbroken
brokenduring
duringthe
thefirst
firstweek
weekof
ofNovember
November
29
…And Technology To Identify Problems Before They Occur
Bowl mills
Power Optimization Center
Equipment Monitoring Process Analysis
Feedwater heaters
Alerts Forecasts Trends Recommendations
Proactive
Proactivedetection
detectionhas
hasdriven
drivenaa0.5%
0.5%improvement
improvement
in
incapacity
capacityfactor
factorincreasing
increasingproductivity
productivityby
by$26
$26million
million
30
TXU’s Focus On Operational Excellence Has Also Driven
Efficiency Gains At The Corporate Center…
Creating an industrial
corporate center…
…with less bureaucracy…
… and lower costs…
03-LT; Number of employees
03-LT; # of management layers
03-LT; $ millions
1,746
90%
90%
37%
37%
8
370
73%
73%
6
5
125
03
235
175
05
Long
term
03
05
Long
term
03
05
100
Long
term
TXU
TXUhas
hasremoved
removedredundancies
redundanciesand
andfocused
focusedon
onvalue
valuecreating
creatingopportunities
opportunities
31
…And Improved Service For Customers
Simplifying the IVR from a complex
maze…
…leads to quicker pick up
Average time to reach call representative
04-05; Seconds
222
58%
58%
…to a straightforward process...
Average
speed of
answer
112
Play outage
message or directed
to CCA queue; ASA
15 seconds
Billing menu
Electric IVR
main menu
2.1 Account
balance
1.0 Outage
1
2.0 Billing
2
2.2 Ways
to Pay
2.2.2 Payment
locations
2.3 Make
time to Pay*
2.2.3 Mail
100
2.4 Other
Directed to CCA
queue; ASA
15 seconds
100
3.0 Existing
service
3
4.0 New
service
4
100
Existing
service menu
3.1 Re
connect
3.2 Stop or
move
services
100
Directed to CCA
queue,
ASA 15 seconds
94
Ways to
pay menu
2.2.1 Account
balance
Reconnect IVR
11
Time in
Interactive
Voice
Response
110
83
Directed to CCA
queue; ASA
15 seconds
Q1 04
YTD 05
32
From
To
About
About TXU
TXU
Serving North Texas
for over 100 years
Serving Texas for
the next 100 years
Energy
Energy Market
Market
Restructuring
Restructuring
Centralized
government planning
TXU
TXU
Turnaround
Turnaround
An industrial
energy company
Powering Texas’
future
Strategic
Strategic
Focus
Focus
33
With Profitability Restored, TXU Is Undertaking An
Aggressive Program To Grow The Business And To
Continue To Deliver Value To The Consumer
Innovating
Investing
TXU:
TXU:
Powering
Powering
Texas
Texas
Serving
Texans
Texanswill
willreap
reapthe
thebenefits
benefitsof
ofTXU’s
TXU’sstrength
strength
through
throughinvestment,
investment,innovation
innovationand
andcorporate
corporateservice
service
34
TXU Has Announced Two Texas New Build Opportunities…
Sandow Unit 5
Rockdale, Texas
Oak Grove Steam Electric Station
Robertson County, Texas
Key statistic
Installed capacity (MW)
Key statistic
600
Installed capacity (MW)
1,720
Primary fuel
TX Lignite
Primary fuel
TX Lignite
Air permit status
Complete
Air permit status
In-Process
Resume construction date
April 06
Resume construction date
Commercial operation date
Oct 08
Commercial operation date
After permit
June 09/Dec 09
TXU
TXUhas
hasannounced
announcedthe
thepotential
potentialfor
forlarge
largescale
scaleinvestments
investments
35
…That Will Employ Advanced Emission Control
Technology
Breathing easier: SO2 emissions
Pounds of SO2 per MWh
Breathing easier: NOx emissions
Pounds of NOx per MWh
9.7
80%
80%
Average
US coal
plant
2.0
2.0
Sandow
Oak
Grove
3.5
Average
US coal
plant
71%
71%
1.0
1.0
Sandow
Oak
Grove
TXU
TXUis
isinvesting
investingapproximately
approximately$1
$1billion
billionon
onadvanced
advancedemissions
emissions
control
controltechnology
technologyto
tominimize
minimizeenvironmental
environmentalimpacts
impacts
Source: Plant permits and permit applications; EPA Clean Air Market Division
36
TXU Is Growing Its Investment In Texas To Improve
Efficiency And Reliability…
TXU annual capital expenditures in Texas
03-08E; $ billions per year
2.1
0.9
0.3
0.6
03-05E
(post-regulation)
132%
0.7
New build generation
0.5
Generation and retail
0.9
Transmission and distribution
06E-08E
(projected)
TXU
TXUis
isreinvesting
reinvestingin
inits
itscore
coremarket
marketto
todeliver
deliveraamore
morereliable
reliablegrid,
grid,more
more
efficient
efficientpower,
power,and
andinnovative
innovativenew
newproducts
products
37
…Making TXU One Of Texas’ Largest Corporate Investors
Capital investment in Texas
03-08E; $ billions per year
2.1
2.0
1.1
TXU
06E-08E
Entire Texas
refining
industry
Source: US Department of Commerce (2003); Perryman Group
Entire Texas
microelectronics
sector
1.05
Entire Texas
basic
chemicals
industry
38
The New Investment Will Generate Economic Growth And
New Jobs For Texans
The color of money: Economic impact from
TXU capital investment1
01-10E; $ billions
Job fair: Employment created by
investment
01-10E; Job-years of employment
290,300
20.9
13.5
TXU capital
invested
Texas gross state
product increase
Employment
generated
Employment
Employmentcreation
creationfigures
figuresare
arecomparable
comparableto
tothe
theannual
annual
2
job
jobbase
baseof
ofWaco,
Waco,Tyler
Tylerand
andAbilene
Abilenecombined
combined 2
1
Expressed in constant 2005 dollars
Total non-farm jobs for one year
Source: Perryman Group; Texas Multi-regional Impact Assessment System; US Department of Labor (2004)
2
39
TXU Is Developing Innovative New Programs To Deliver
Value To Customers…
Available
Availableto
toall
all2+
2+
million
millioncustomers
customers
Over
Over175
175thousand
thousand
customers
customers
activated
activatedTXU
TXU
Energy
EnergyRewards+
Rewards+
accounts
accountsin
inthe
the
first
first99months
months
Over
Over$100
$100million
million
of
Rewards+
of Rewards+
Dollars
Dollarsalready
already
issued
issuedto
to
customers
customers
40
…And Creating A Slate Of New Products Tailored To Meet
Different Customers’ Needs
Existing
Near-term (~06)
Longer-term (07 +)
Innovative “Freedom
Plan” provides price
certainty
“Renewable Energy”
products, environmental benefits
“Home Services”
products, control of
energy usage
Standard offer (like
PTB, month-to-month)
1-3 year term
contracts
Home surge protection
Usage-customized
products
Advanced pricing
plans (e.g., pre-paid
energy, time-of-use/
critical peak pricing)
HVAC tune-ups
Distributed
generation/back-up
power
41
TXU Is Also Exploring New Technologies
Value Chain
Element
Technologies
Generation
Integrated gasification combined cycle
(Clean Coal)
Advanced design nuclear
Next generation combined cycle
Fuel cells
Distributed generation
Transmission &
Distribution
Broadband over power lines
Automated meter reading
Digital protection and control
Digital fault analysis; Self-healing grid
Transmission superconductivity
Smart home energy management
systems
Illustration
42
Restored Profitability Has Helped TXU Give Back To The
Community
Giving back: Total TXU contributions
03-06E; $ millions
40
477%
6
03
Digging deep: TXU United Way Alexis
de Tocqueville Society donors
03-05; Number
22
1,000%
2
06E
03
Valuable resources: Employee volunteering
04-05E; Thousands of hours per year
05
Helping those in need
Oct 05; Hurricane Rita restoration
30
25
04
20%
05E
43
TXU: Powering Texas
Energy
Energy Market
Market
Restructuring
Restructuring
TXU
TXU
Turnaround
Turnaround
Strategic
Strategic
Focus
Focus
Restructuring enabled the Texas market to respond
to the turbulent global energy markets…
Over $15 billion of non-rate base capital deployment
Nearly 80% improvement in market efficiency
Full customer control – many suppliers/ many choices
…Forcing TXU to transform the way it operates…
Restructured international portfolio to focus on Texas
Driving continuous improvement in operations
Delivering superior customer service
…And deliver greater value to our customers
Investing over $13 billion in the Texas economy
Innovating with new products and services
Serving and supporting local and regional communities
44
Regulation G Reconciliations
Financial Definitions
Measure
Definition
Capex
Capital expenditures.
EBITDA (non-GAAP)
Income from continuing operations before interest income, interest expense and related charges, and
income tax plus depreciation and amortization and special items. EBITDA is a measure used by TXU to
assess performance.
Enterprise Value (non-GAAP)
Total debt plus preference stock plus market capitalization less cash and restricted cash.
Market Capitalization
(non-GAAP)
Shares of common stock outstanding multiplied by closing share price as of the balance sheet date.
Measures the market value of a company’s equity at a point in time.
Total Debt (GAAP)
Long-term debt (including current portion), plus bank loans and commercial paper, plus long-term debt held
by subsidiary trusts, plus preferred securities of subsidiaries, including exchangeable preferred
membership interests (EPMIs).
Debt/Total Enterprise Value
(non-GAAP)
Total debt less transition bonds divided by total enterprise value is used by TXU to assess credit quality.
47
Table 1: TXU Corp. Total Debt to Enterprise Value
Twelve Months Ended December 31, 2003
$ millions, unless otherwise noted
2003
Ref
Debt
Notes payable
Long-term debt due currently
Long-term debt held by subsidiary trusts
Other long-term debt less due current
Transition bonds
Preferred securities of subsidiaries
678
546
10,608
(500)
759
Total debt less transition bonds
Preference stock
12,091
300
B
Total debt and preference stock
12,391
C
Market capitalization
Shares outstanding
Price per share
Total market capitalization
324
23.72
7,685
Cash and restricted cash
(1,423)
Enterprise Value
18,653
Debt to enterprise value - % (B/D)
Common equity (GAAP)
Total Capital (C-A+E) (GAAP)
Debt/Total Capital -% (B-A)/F
A
D
64.8
5,619
18,510
68.0
E
F
48