Operational Excellence

We've made very good progress toward achieving operational excellence. The improvements in our nuclear and lignite fleets are the best in the industry and a real testament to the TXU Power team, headed by Mike Greene. The new Power Optimization Center, our generation-fleet support and monitoring facility, and the TXU Operating System, our version of lean manufacturing, are really beginning to make a difference. Last year, Richard Wistrand and Steve Kopenitz led a great employee team that drove to record coal generation. Likewise, Mike Blevins, Rafael Flores, Mitch Lucas, and an exceptional group of employees at the Comanche Peak nuclear plant achieved the third-best annual production ever in spite of refueling both units during the year.

Electric reliability performance declined slightly for several reasons. Even though we have top-quartile performance in delivery reliability, I am not satisfied that our customers have to be without electricity for approximately 77 minutes per year. Our long-term goal is to reduce outages to 50 minutes per year. This is a very ambitious pursuit because no similarly situated company in the United States has achieved this performance level. I have great confidence in Tom Baker, Rob Trimble, and the TXU Electric Delivery team, and I believe we can be the first to achieve this spectacular level of reliability. Jim Greer, supported by many others, is leading an aggressive capital expenditure and technology enhancement program over the next three years that will put TXU Electric Delivery in good position to attain this industry-leading reliability performance by the end of the decade.

While an emphasis on cost leadership has driven down non-fuel costs by 20 percent and fixed costs by 27 percent, we have an opportunity to strip out additional operating costs from all our businesses, including our nuclear and lignite operations. Cost reductions will be a big focus in 2006. Grade: A-

¹ Based on actual 2003 financial results including subsequently discontinued operations.
³ Nuclear generation operations refueled both units in 2005; 2005 results have been adjusted to approximate a single outage year.
⁴ System Average Interruption Duration Index: the number of minutes an average customer's power is out during a year.
⁵ Based on Lost Time Incident Rate: the number of injuries requiring time away from the job per 200,000 employee hours worked.
⁶ 2003 amount includes $477 million related to discontinued operations.
⁷ Includes non-variable operating costs and SG&A expenses, interest expense and related charges, and maintenance capital expenditures. All operating costs, SG&A expenses, interest expense and related charges, and capital expenditures totaled $4,704 million in 2003 and $4,055 million in 2005. Of this total 2003 amount, $903 million relates to discontinued operations.