Energy Future Holdings

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05.01.12

Energy Future Holdings Reports First Quarter 2012 Results
DALLAS -

Energy Future Holdings Corp. (EFH) today reported consolidated financial results for the first quarter ended March 31, 2012. The quarter results were reported in EFH’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (SEC) this morning.

"The first quarter ended with strong safety results and solid operations, despite challenging market conditions and equipment reliability issues,” said John Young, Chief Executive Officer, EFH.

First Quarter GAAP Results

For the first quarter 2012, EFH reported a consolidated net loss (in accordance with GAAP) of $304 million compared to a reported consolidated net loss of $362 million for the first quarter 2011. The first quarter 2012 net loss included (all after tax) $98 million in commodity-related unrealized mark-to-market net losses largely related to positions in EFH’s natural gas hedging program, partially offset by $74 million in unrealized mark-to-market net gains on interest rate swaps that hedge EFH’s variable-rate interest expense.

The first quarter 2011 reported net loss (in accordance with GAAP) included (all after tax) $203 million in commodity-related unrealized mark-to-market net losses, partially offset by $92 million in unrealized mark-to-market net gains on interest rate swaps and a $14 million gain related to a counterparty bankruptcy settlement.

First Quarter Adjusted (Non-GAAP) Operating Results

Adjusted (non-GAAP) operating results for the first quarter 2012 totaled a net loss of $280 million compared to a net loss of $265 million for the first quarter 2011. For a reconciliation of reported GAAP results to adjusted (non-GAAP) operating results for the first quarter 2012 and 2011, see Tables A1 and A2.

First quarter 2012 adjusted (non-GAAP) operating results from the Competitive Business declined $22 million (after tax) as compared to first quarter 2011. The decrease reflected (all after tax) a $74 million increase in interest expense driven by higher average interest rates and a $10 million decrease in other income reflecting a property damage claim settlement and a franchise tax refund in the first quarter of 2011. These items were partially offset by a $32 million increase in contribution margin, a $21 million decrease in depreciation expense, a $6 million decrease in operating costs and a $6 million decrease in retail bad debt expense. The increase in contribution margin was primarily driven by higher net margin from asset management and retail activities and lower amortization of intangibles arising from purchase accounting. These factors were partially offset by higher fuel costs for coal and nuclear-fueled generation.

First quarter 2012 adjusted (non-GAAP) operating results related to the Regulated Business increased $7 million (after tax) as compared to first quarter 2011. The results reflected (all after tax) $35 million in higher net revenues reflecting transmission and distribution tariff increases, automated meter surcharges and growth in points of delivery and $30 million in higher revenues from transmission cost recovery charges. These factors were partially offset by $19 million in higher transmission fees, $15 million in lower electricity consumption primarily due to milder weather, $8 million in higher depreciation reflecting infrastructure investment, $6 million in higher operations and maintenance expense, $3 million in higher taxes, and $2 million in higher net interest expense.

Natural Gas Hedging Program

The EFH natural gas hedging program is designed to reduce exposure to changes in future wholesale electricity prices due to changes in the price of natural gas. Under the program, subsidiaries of EFH have entered into market transactions involving natural gas related financial instruments. As of March 31, 2012, these subsidiaries have sold forward approximately 630 million MMBtu of natural gas (equivalent to the natural gas exposure of approximately 74,000 GWh at an assumed 8.5 market heat rate) at weighted average annual hedge prices ranging from $7.19 per MMBtu to $7.80 per MMBtu. These forward natural gas sales include related put and call transactions (referred to as collars), primarily for year 2014 of the program, that effectively hedge natural gas prices within a range. Collars represented approximately 24% of the positions in the natural gas hedging program at March 31, 2012, with the approximate weighted average strike prices under the collars being a floor of $7.80 per MMBtu and a ceiling of $11.75 per MMBtu. Taking into consideration the positions in the natural gas hedging program and forward retail and wholesale power sales, EFH has effectively hedged an estimated 100%, 61% and 32% of the price exposure, on a natural gas equivalent basis, related to Texas Competitive Electric Holdings (TCEH) expected generation output for 2012, 2013 and 2014, respectively (assuming an 8.5 market heat rate). These estimates reflect currently governing Clean Air Interstate Rule (CAIR) regulations and do not include the potential impacts of the Cross State Air Pollution Rule (CSAPR) issued in July 2011 that is currently stayed pending appeal.

Based on the size of the hedging program at March 31, 2012, a $1.00/MMBtu change in natural gas prices across the hedged period would result in the recognition by EFH of up to $630 million in pretax unrealized mark-to-market gains or losses. The effects of changes in forward natural gas prices on the values of positions in the natural gas program are reflected in net income (GAAP) as discussed above. Reported net realized hedging gains associated with this program totaled $513 million (pretax) for the first quarter of 2012. For the same period, reported unrealized mark-to-market net losses associated with the hedging program totaled $129 million (pretax) in 2012, reflecting reversals of previously recorded unrealized gains on positions settled in the quarter, partially offset by the effect of lower natural gas prices on open positions. In comparison, the realized net gains for the first quarter of 2011 were $340 million and unrealized mark-to-market net losses totaled $342 million. Given the volatility of natural gas prices, it is not possible to predict future reported unrealized mark-to-market net gains or losses and the actual net gains or losses that will ultimately be realized upon settlement of the hedge positions in future years. If natural gas prices at settlement are lower than the prices of the hedge positions, the hedges are expected to mitigate the otherwise negative effect on earnings of lower wholesale electricity prices. However, if natural gas prices at settlement are higher than the prices of the hedge positions, the hedges are expected to dampen the otherwise positive effect on earnings of higher wholesale electricity prices and will in this context be viewed as having resulted in an opportunity cost. The cumulative unrealized mark-to-market net gain (pretax) related to positions in the natural gas hedging program totaled $2,995 million and $3,124 million at March 31, 2012 and December 31, 2011, respectively.

Additional Information

Additional information, including the calculation of Adjusted EBITDA, one of the key metrics used for purposes of certain covenants contained in the EFH senior secured notes indenture, is available in the EFH Form 10-Q on the EFH website at www.energyfutureholdings.com.

Investor Call

EFH will host a conference call to discuss its first quarter 2012 results with its investors on Tuesday, May 1, 2012 at 10:00 a.m. Central (11:00 a.m. Eastern). The telephone number to participate in the conference call is (888) 825-4458 in the United States and Canada and (973) 638-3323 internationally, with conference code 67835618. The teleconference will be webcast live in the Investor Relations section on EFH’s website. An audio replay of this conference will be available until May 15th, 2012, via the following telephone numbers: (855) 859-2056 in the United States and (404) 537-3406 internationally.

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About Energy Future Holdings

EFH is a Dallas-based holding company engaged in competitive and regulated energy market activities, primarily in Texas. Its portfolio of competitive businesses consists primarily of TXU Energy, a retail electricity provider with approximately 1.8 million customers in Texas, and Luminant, which is engaged largely in power generation and related mining activities, wholesale power marketing and energy trading. Luminant has approximately 15,400 MW of generation in Texas, including 2,300 MW fueled by nuclear power and 8,000 MW fueled by coal. Luminant is also one of the largest purchasers of wind-generated electricity in Texas and in the United States. EFH’s regulated operations consist of Oncor, which operates the largest electricity distribution and transmission system in Texas with more than three million delivery points and approximately 118,000 miles of distribution and transmission lines. While EFH indirectly owns approximately 80 percent of Oncor, the management of Oncor reports to a separate board with a majority of directors that are independent from EFH.

Forward Looking Statements

This release contains forward-looking statements, which are subject to various risks and uncertainties. A discussion of the risks and uncertainties that could cause actual results to differ materially from management's current projections, forecasts, estimates and expectations is contained in EFH's filings with the SEC. In addition to the risks and uncertainties set forth in EFH's SEC filings, the forward-looking statements in this release regarding the company’s natural gas hedging program could be affected by, among other things: any change in the ERCOT electricity market, including a regulatory or legislative change, that results in wholesale electricity prices not generally moving with natural gas prices; any decrease in market heat rates as the program generally does not mitigate exposure to changes in market heat rates; the unwillingness or failure of any hedge counterparty or the lenders under the company’s collateral revolving credit facility to perform their respective obligations; or any other event that results in the inability to continue to use a first lien on TCEH’s assets to secure a substantial portion of the hedges under the program.

-END-



Additional Document(s): Click here for the complete news release with tables.

Media
Allan Koenig
214-812-8080

Investor Relations
Rima Hyder
214-812-5090

Charles Norvell
214-812-8062


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