Notes on Financials Statements

1.  Business, Mergers, Acquisitions and Dispositions

Use of the term “TXU Corp.,” unless otherwise noted, refers to TXU Corp., a holding company, and/or its consolidated subsidiaries.

TXU Corp. is an energy company that engages in power production (electricity generation), wholesale energy sales, retail energy sales and related services, portfolio management, including risk management and certain trading activities, energy delivery and, through a joint venture, telecommunications services. TXU Corp. is a holding company whose principal United States (US) operations are conducted through TXU US Holdings Company (US Holdings), formerly TXU Electric Company, and TXU Gas Company (TXU Gas). TXU Corp.’s principal international operations are conducted through TXU Australia Holdings Limited Partnership (TXU Australia) and had also been previously conducted through TXU Europe Limited (TXU Europe).

Exit of TXU Europe Business In October 2002, TXU Corp. made a determination to exit its operations in Europe, which were conducted through TXU Europe. See Note 3 regarding events related to TXU Europe. The results of operations for all periods presented have been restated to reflect the operations in Europe as discontinued.

Business Restructuring Legislation passed during the 1999 session of the Texas Legislature restructured the electric utility industry in Texas and provided for a transition to increased competition in the generation and retail sale of electricity (1999 Restructuring Legislation). As a result, TXU Corp. restructured certain of its US businesses as of January 1, 2002. In order to satisfy its obligations to unbundle its business pursuant to the 1999 Restructuring Legislation and consistent with its business separation plan as approved on October 31, 2001, by the Public Utility Commission of Texas (Commission), as of January 1, 2002, US Holdings transferred:
  • its electric transmission and distribution (T&D) assets to Oncor Electric Delivery Company (Oncor), which is a utility regulated by the Commission and a wholly owned subsidiary of US Holdings,

  • its power generation assets to subsidiaries of TXU Energy Company LLC (TXU Energy), which is the new competitive business and a wholly owned subsidiary of US Holdings, and

  • its retail customers to a subsidiary retail electric provider (REP) of TXU Energy.
The T&D assets of TXU SESCO Company, a subsidiary of TXU Corp., also were transferred to Oncor. In addition, as of January 1, 2002, US Holdings acquired the following businesses from within the TXU Corp. system and transferred them to TXU Energy: the REP of TXU SESCO Company; the wholesale portfolio management and the unregulated commercial and industrial (C&I) retail gas operations of TXU Gas; and the energy management services businesses and other affiliates of TXU Corp., including the fuel procurement and coal mining businesses that service the generation operations.

The relationships of the entities affected by the restructuring and their rights and obligations with respect to their collective assets and liabilities are contractually described in a master separation agreement executed in December 2001.

A settlement of outstanding issues and other proceedings related to implementation of the 1999 Restructuring Legislation received final approval in January 2003. See Note 15 for further discussion.

Concurrent with TXU Corp.’s reorganization as of January 1, 2002, TXU Corp. realigned its operations into three reportable segments: North America Energy, North America Energy Delivery and International Energy. In October 2002, TXU Corp. discontinued its operations in Europe. The International Energy segment has been renamed and consists solely of operations in Australia. (See Note 17 for further information concerning reportable business segments.)

Business Changes

Business Acquisitions TXU Corp. and its continuing subsidiaries have made the following acquisitions, which were accounted for as purchase business combinations. The results of operations of the acquired companies are reflected in the consolidated financial statements from their respective acquisition dates.

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