The commitment of TXU's leaders and employees to the restructuring program generated a lot of successes in 2004. These are at the
top of the list:
We reshaped TXU's business portfolio to focus on three core businesses. In six months, a very dedicated team sold three large
noncore businesses: TXU Australia, TXU Fuel Company and TXU Gas. Overall, sales transactions generated more than $6.5 billion in
cash proceeds and assumed debt, with minimal impact on ongoing free cash flow. TXU is now focused on businesses with strategic
advantages and positions in Texas, the nation's highest growth region in electricity demand. Two of these businesses, TXU Energy and
TXU Power, form the core of TXU Energy Holdings (legally TXU Energy Company LLC), which conducts business primarily in Texas'
deregulated power market. TXU Energy is the nation's largest competitive electric retailer, with over 2.5 million customers. TXU
Power is the second-largest unregulated power producer in the U.S. TXU Electric Delivery is the nation's sixth-largest transmission
and distribution company. We think we have winning potential with these three businesses.
We improved the company’s financial strength and reduced risks. Along with the portfolio reshaping, we undertook a systematic
program to restructure TXU’s balance sheet. Over $14 billion in cash and assumed debt, including $6.5 billion from asset sales, was
deployed to restructure debt, reduce diluted shares of common stock outstanding by 37% and avoid issuing up to 36 million
additional shares, pay dividends and invest in the core businesses. Kirk Oliver, your chief financial officer, and his team were
instrumental in this effort. Overall, TXU plans to reduce total debt, excluding transition bonds, by more than 20% by the end of
2005 relative to 2003. Eric Peterson and his new legal group were responsible for removing billions of dollars of litigation
exposure from your company. This was a heroic effort and will make us a much safer investment.
We dramatically improved customer service, thanks to the hard work of Paul O'Malley and his TXU Energy team. In 2003, the
quality of customer service dropped to unacceptable levels, as average call answer times in call centers hit almost 270 seconds.
In March 2004, we launched a major new initiative to offer the best customer service of any electric provider in the nation by
the summer. Additional people were hired to reduce answer times to the best in the industry. By the summer of 2004, the call centers
were answering calls in 15 seconds or less, a world-class achievement. They got even better. By December, the average speed to
answer calls was just 10 seconds. Customer time in the integrated voice recognition system, which automates the handling of
customer calls, also dropped 32% by the end of 2004. A more thorough and broad-based program to achieve world-class customer service
across all key interaction points is a crucial goal of Phase 2. Our objective is to build a reputation for market leadership in
customer service and satisfaction, which is expected to translate directly into keeping and attracting customers.
We achieved power production records in an environmentally responsible way. TXU Power, headed by Mike Greene and a very capable
team of employees, achieved all-time records in lignite and nuclear generation in 2004, reflecting the progress of Phase 2
initiatives. The lignite mines kept pace with production that exceeded 23 million tons. As part of Phase 2, TXU Power also began
implementing the TXU Operating System in its lignite operations in 2004. The TXU Operating System is a systematic program to apply
manufacturing principles focused on cost containment and operational improvement. It is a first in the coal generation industry. The
TXU Operating System can enable more than $140 million in earnings improvement before taxes by 2007 as waste is eliminated and work
processes improved. A critical part of operational excellence is environmental responsibility. According to the U.S. Environmental
Protection Agency, America's air is the cleanest it has been in over 30 years. TXU is playing an important part in this progress by
reducing air emissions and complying with all applicable environmental regulations. Since 1990, we have reduced emission rates of
nitrogen oxides (NOx) by 64%, carbon dioxide by 11% and sulfur dioxide by 13%. In the Dallas-Fort Worth area, we've reduced NOx
emission rates by almost 90% since 1997.
We achieved top-quartile performance in two key delivery reliability benchmarks last year and progressed toward that level in the
third metric. Tom Baker and the TXU Electric Delivery team made that happen. Building on this momentum, TXU Electric Delivery has
committed to the objective of reaching top quartile in all reliability metrics by 2006, reducing transmission congestion and
maintaining cost performance leadership.
We increased investment in the core businesses. Along with the investment to improve TXU Energy's customer service, Phase 1 also
included significant additional investment in TXU Electric Delivery and TXU Power. TXU Electric Delivery has increased planned
spending for vegetation management by more than a third over the next three years to achieve top-quartile reliability performance.
The business is also committed to a sixfold increase in transmission improvements compared with investment in the mid-1990s. TXU
Power plans to increase its investment over the next three years by more than 40% to improve plant availability.
We improved back-office effectiveness and reduced costs. An innovative outsourcing partnership with Capgemini that began in July
2004 is reducing overhead costs an estimated $175 million by 2005 and improving service to TXU customers and employees. Around 3,000
TXU employees and contractors transferred to the new joint venture, Capgemini Energy, including billing, call center, human resources
and accounts payable functions.
We reduced TXU's fixed-cost structure. Debt and overhead reductions are significantly lowering fixed costs, improving the
flexibility and resiliency of the company. Fixed costs fell in 2004 at the same time that contribution margin increased, and more
progress is expected in 2005. One element driving the savings is the reduction of retail bad debt, which tripled following
deregulation in 2002. Stricter disconnect policies, upfront billing of deposits and aggressive large-business collections reduced
bad-debt expense by a fifth in 2004, with a 37% decrease targeted in 2005 from 2003 levels. With this new fixed-cost structure, TXU
is much better positioned to withstand potential business shocks and take advantage of unexpected opportunities.
We returned value to shareholders. Our revamped capital deployment and growth program is expected to return more than $5.5
billion through dividends and share repurchases in 2004 and 2005. In late October, we raised the annual dividend from 50 cents
to $2.25 per share.
We increased investment in the communities we serve. In keeping with our heritage of giving back, our contributions clearly set
the standard within Texas in 2004. Representing a fivefold increase, TXU Energy is committing $15 million over three years to Energy
Aid, our program to help customers in need pay their energy bills. TXU Electric Delivery is investing $30 million in weatherization
assistance over three years to help lower-income customers manage their energy use. For its weatherization outreach, TXU Electric
Delivery received the prestigious Platts Global Energy Award for Community Development Program of the Year in 2004. TXU's employees
also reached into their own pockets, as the company exceeded its goal of $1.2 million in contributions to the United Way.
We reshaped TXU's business portfolio to focus on three core businesses. In six months, a very dedicated team sold three large
noncore businesses: TXU Australia, TXU Fuel Company and TXU Gas. Overall, sales transactions generated more than $6.5 billion in
cash proceeds and assumed debt, with minimal impact on ongoing free cash flow. TXU is now focused on businesses with strategic
advantages and positions in Texas, the nation's highest growth region in electricity demand. Two of these businesses, TXU Energy and
TXU Power, form the core of TXU Energy Holdings (legally TXU Energy Company LLC), which conducts business primarily in Texas'
deregulated power market. TXU Energy is the nation's largest competitive electric retailer, with over 2.5 million customers. TXU
Power is the second-largest unregulated power producer in the U.S. TXU Electric Delivery is the nation's sixth-largest transmission
and distribution company. We think we have winning potential with these three businesses.
We improved the company’s financial strength and reduced risks. Along with the portfolio reshaping, we undertook a systematic
program to restructure TXU’s balance sheet. Over $14 billion in cash and assumed debt, including $6.5 billion from asset sales, was
deployed to restructure debt, reduce diluted shares of common stock outstanding by 37% and avoid issuing up to 36 million
additional shares, pay dividends and invest in the core businesses. Kirk Oliver, your chief financial officer, and his team were
instrumental in this effort. Overall, TXU plans to reduce total debt, excluding transition bonds, by more than 20% by the end of
2005 relative to 2003. Eric Peterson and his new legal group were responsible for removing billions of dollars of litigation
exposure from your company. This was a heroic effort and will make us a much safer investment.
We dramatically improved customer service, thanks to the hard work of Paul O'Malley and his TXU Energy team. In 2003, the
quality of customer service dropped to unacceptable levels, as average call answer times in call centers hit almost 270 seconds.
In March 2004, we launched a major new initiative to offer the best customer service of any electric provider in the nation by
the summer. Additional people were hired to reduce answer times to the best in the industry. By the summer of 2004, the call centers
were answering calls in 15 seconds or less, a world-class achievement. They got even better. By December, the average speed to
answer calls was just 10 seconds. Customer time in the integrated voice recognition system, which automates the handling of
customer calls, also dropped 32% by the end of 2004. A more thorough and broad-based program to achieve world-class customer service
across all key interaction points is a crucial goal of Phase 2. Our objective is to build a reputation for market leadership in
customer service and satisfaction, which is expected to translate directly into keeping and attracting customers.
We achieved power production records in an environmentally responsible way. TXU Power, headed by Mike Greene and a very capable
team of employees, achieved all-time records in lignite and nuclear generation in 2004, reflecting the progress of Phase 2
initiatives. The lignite mines kept pace with production that exceeded 23 million tons. As part of Phase 2, TXU Power also began
implementing the TXU Operating System in its lignite operations in 2004. The TXU Operating System is a systematic program to apply
manufacturing principles focused on cost containment and operational improvement. It is a first in the coal generation industry. The
TXU Operating System can enable more than $140 million in earnings improvement before taxes by 2007 as waste is eliminated and work
processes improved. A critical part of operational excellence is environmental responsibility. According to the U.S. Environmental
Protection Agency, America's air is the cleanest it has been in over 30 years. TXU is playing an important part in this progress by
reducing air emissions and complying with all applicable environmental regulations. Since 1990, we have reduced emission rates of
nitrogen oxides (NOx) by 64%, carbon dioxide by 11% and sulfur dioxide by 13%. In the Dallas-Fort Worth area, we've reduced NOx
emission rates by almost 90% since 1997.
We achieved top-quartile performance in two key delivery reliability benchmarks last year and progressed toward that level in the
third metric. Tom Baker and the TXU Electric Delivery team made that happen. Building on this momentum, TXU Electric Delivery has
committed to the objective of reaching top quartile in all reliability metrics by 2006, reducing transmission congestion and
maintaining cost performance leadership.
We increased investment in the core businesses. Along with the investment to improve TXU Energy's customer service, Phase 1 also
included significant additional investment in TXU Electric Delivery and TXU Power. TXU Electric Delivery has increased planned
spending for vegetation management by more than a third over the next three years to achieve top-quartile reliability performance.
The business is also committed to a sixfold increase in transmission improvements compared with investment in the mid-1990s. TXU
Power plans to increase its investment over the next three years by more than 40% to improve plant availability.
We improved back-office effectiveness and reduced costs. An innovative outsourcing partnership with Capgemini that began in July
2004 is reducing overhead costs an estimated $175 million by 2005 and improving service to TXU customers and employees. Around 3,000
TXU employees and contractors transferred to the new joint venture, Capgemini Energy, including billing, call center, human resources
and accounts payable functions.
We reduced TXU's fixed-cost structure. Debt and overhead reductions are significantly lowering fixed costs, improving the
flexibility and resiliency of the company. Fixed costs fell in 2004 at the same time that contribution margin increased, and more
progress is expected in 2005. One element driving the savings is the reduction of retail bad debt, which tripled following
deregulation in 2002. Stricter disconnect policies, upfront billing of deposits and aggressive large-business collections reduced
bad-debt expense by a fifth in 2004, with a 37% decrease targeted in 2005 from 2003 levels. With this new fixed-cost structure, TXU
is much better positioned to withstand potential business shocks and take advantage of unexpected opportunities.
We returned value to shareholders. Our revamped capital deployment and growth program is expected to return more than $5.5
billion through dividends and share repurchases in 2004 and 2005. In late October, we raised the annual dividend from 50 cents
to $2.25 per share.
We increased investment in the communities we serve. In keeping with our heritage of giving back, our contributions clearly set
the standard within Texas in 2004. Representing a fivefold increase, TXU Energy is committing $15 million over three years to Energy
Aid, our program to help customers in need pay their energy bills. TXU Electric Delivery is investing $30 million in weatherization
assistance over three years to help lower-income customers manage their energy use. For its weatherization outreach, TXU Electric
Delivery received the prestigious Platts Global Energy Award for Community Development Program of the Year in 2004. TXU's employees
also reached into their own pockets, as the company exceeded its goal of $1.2 million in contributions to the United Way.
