Dear Fellow Shareholders,

TXU is delivering excellent results on the three-year turnaround plan launched in early 2004. Our solid performance in 2005 has put us a full year ahead of schedule in transforming TXU into a high-performance company that can compete with the best industrial businesses. We are well on our way to achieving our five core business objectives for 2010:

1. Drive 3 to 5 percent annual improvement in reliability, efficiency, and service through our power, electric delivery, and retail operations.
2. Grow the Texas baseload power generation portfolio organically by 25 to 50 percent through the development of clean coal power plants.
3. Maintain our residential market share throughout Texas by profitably gaining customers outside North Texas and providing innovative products and services to customers state-wide.
4. Leverage superior baseload operations, construction expertise, and structuring skills to build a high-quality solid-fuel generation business in other competitive U.S. wholesale markets.
5. Continue to enhance our business through building strong management, ensuring that our financial risk profile is commensurate with our business risk profile, and mitigating risks that are not an inherent part of TXU's core business.

Our financial and operating performance has improved sharply relative to 2003, and we have moved from the bottom quartile to the top quartile across a variety of business dimensions. In 2005, TXU was in the top decile in the industry in total shareholder return, growth in operational earnings per share, and return on invested capital. Operating and free cash flow is also top quartile, reflecting our focus on driving operational excellence, managing the cost structure, and enhancing financial strength. We have slashed fixed costs by $1 billion, or more than 25 percent, without negatively affecting the earnings and cash-generating power of the company.

This turnaround success has also earned us the right to pursue sensible initiatives to drive future earnings growth. While we still have a lot to do, TXU is a much stronger, more resilient, and better-performing company than it was two years ago.