Market Leadership

The volatile commodity markets in 2005 created headaches for all Texas electricity providers. To guide TXU through these uncertain times, we appointed Mike McCall as chairman and CEO of TXU Wholesale to bring more experience and discipline to our wholesale and market activities.

Despite our market-leading position, our retail operation was challenged by the rising wholesale power prices and a price-to-beat transition mechanism that does not fully reflect these volatile wholesale prices. Under Jim Burke's leadership, we made a good start at improvement in 2005 by restructuring the retail organization, reducing staff, and lowering the overall cost to serve customers. We believe we have at least a 15 percent cost advantage, which allows us to pass the savings on to our customers. While customer call answer times have dropped more than 90 percent since 2003 and are now world class, customer satisfaction remains below our high expectations. The team has taken actions to improve customer service and is beginning to deliver innovative new products, like the Peace of Mind and TXU Energy Market Tracker+ programs, which allow customers to control how their rates adjust with natural gas prices. Over the next 12 months, we expect to launch dozens of new products and continue to differentiate our service offerings to provide more value to our customers.

The retail market remains tough, but the strong retail team and the strategy established in 2005 position us well to improve the performance of this operation. The fully competitive market, which begins in 2007 after the price to beat expires, will create an environment that drives better service and product innovation for customers. As the market transitions to competition, Mike McCall's team is doing a great job in dealing with the crucial regulatory and public policy issues we face. Grade: C+

¹ Based on actual 2003 financial results including subsequently discontinued operations.

TXU Energy Rewards+ and TXU Energy Market Tracker+ are either registered trademarks or service marks of TXU Energy.