Effective implementation of electricity industry restructure in Texas. In 1999, the Texas Legislature passed the Texas Electric Choice Act. This law incorporates the best features from restructuring efforts in other states and countries. The Public Utility Commission is now implementing the law to ensure that the transition is made effectively, competition is promoted, and the process is beneficial to all. A key driver of the success of the Texas transition from regulation to competition is a timely and comprehensive resolution of various regulatory rulemakings and proceedings. I am confident these matters will be concluded promptly and fairly.

We are actively working with the Public Utility Commission and interested parties to ensure effective implementation of the law. As the major rulemakings near completion, we have made progress with rational return-on-equity expectations for the regulated transmission and distribution business of 11.25 percent and a favorable ruling from the Travis County District Court on our regulatory asset securitization case. We would expect a ruling on that issue from the Supreme Court of Texas this spring and resolution of most other issues by June when the Texas Electric Choice Pilot Program starts. The pilot program will allow TXU and other electricity providers a chance to test systems and procedures before full competition begins January 1, 2002.

We are eagerly anticipating the opening of the electricity market in Texas. In just a matter of months, TXU will be among the largest competitive generators in the US. At the same time, our customers will move to our new retail electricity provider, making TXU one of the nation’s largest competitive electricity retailers as well.

Texas is not California. Texas legislators examined California’s deregulation law, anticipated many of its problems, and crafted legislation with a far different approach. Unlike California, the competitive wholesale market in Texas has produced enough new generation capacity to meet demand and is not dependent on other states. In 2000, Texas added about 5,000 megawatts of capacity and more is under development.

Market rules are another crucial difference between Texas and California deregulation. All retail electric companies in Texas will be allowed to enter long-term, bilateral contracts with individual wholesalers, making the cost of retail power more predictable and less subject to the volatility of short-term markets. Under California’s system, most power was purchased on the spot market. As a result, rapid increases in energy prices greatly affected both electric utilities and consumers. The Texas law provides customer protection and price benefits and permits adjustments in the retail price to reflect significant increases in the market price of fuel or purchased power.

Competition is not the cause of California’s electricity troubles. Supply that fails to meet demand aided by a flawed deregulation law is the cause. I strongly believe competition is better than regulation, and I am convinced the Texas Electric Choice Act will benefit Texas consumers and TXU and its shareholders.