TXU Power

1. …And Developed The TXU Operating System To Implement Lean Principles In Generation 24 21 18 • 1. Technical system • 2. Learning/ capability building system • 3. Behavior/ culture alignment system • 4. Performance • management • system Gas (10.2 GW) 15 12 TXU Power: Well Mixed; Scaled Position;Strong Fundamentals Lignite (5.8 GW) Nuclear (2.3 GW) 9 • Strategy/ • aspiration • Frontline execution 6 • TXU units 3 10 20 30 40 50 60 70 80 ERCOT full load average implied heat rate 04; MMBtu/MWh Large portfolio 03; TWh of deregulated generation Gas fleet provides shaping and ancillary services • 152 Solid fuel capacity provides low cost baseload power “What to do” “How to do it” “Why do it” “Accountability” “Actions” • 73 • 63 • 52 • 50 • 48 • 48 • 45 • Key • changes: • Standardize best practices • Apply Lean, RCM, etc. • Standard problem- solving methodology • Build internal capability and replicability (e.g., Academy) • Drive performance culture down to frontline • Institute a meritocracy model • Focus on value drivers • Create line of sight metrics • Hold managers accountable for stretch targets • Build a program that delivers sustainable productivity gains year after year • 41 • 40 EXC TXU CPN PPL CEG PEG EIX CNP RRI FE Source: Platts Cumulative GWs Robust wholesale prices 04; $ per MWh for 24X7 wholesale prices NYMEX Henry Hub calendar strip gas prices 02-04; $/MMBtu 6 $2-3 increase 58 49 44 43 5 41 37 37 36 33 4 06 05 04 3 NPCC MAAC MAPP SPP ECAR FRCC ERCOT SERC MAIN 1 2 Source: Platts 3 4 TXU Power We Have Learned From The Pioneers Of Productivity… Profile Robust systems & problem solving Very visual & efficient production processes Excited & involved workforce Managed by performance Common production language & tools Key Success Factors …Which Will Drive Both Cost Leadership and Operational Excellence… EBIT improvement relative to 04E 05-07; $ millions • 235 • Cost leadership initiatives • Coal and nuclear O&M • Strategic sourcing • Employee benefit expenses • Contractor management • Maintenance efficiency • 180 • 2 • 125 • Cost Leadership • 1 • Operational excellence initiatives • Nuclear capacity factor • Coal capacity factor • Heat rate improvement • 2 • Operational Excellence • 1 1 Excludes impact of dual nuclear outage 2 Excludes impact of steam generator replacement

2. …Through Many Initiatives, Like Heat Rate Improvement… …Maintenance Efficiency… Tool time 04; Percent of total time Martin Lake Heat Rate 04; Btu/KWh • Non-value added time • Incidental time • Value-added time • Waiting on clearance • Excess break time • World-class = 60% 2-3% • Failure to use transportation (e.g., bicycle) • Observation for a planned and scheduled job during day shift • Wrong part number on work order • Gasket out of stock Currentheat rate Cycle isolation HP/LP turbine seals Air pre- heaterseals Throttled steam to De-aerator Air in leakage Con-denser back pressure Operator control para-meters Target heat rate • Total time • Waiting time • Search for materials/ tools • Walking to/from job site • Discuss job specifics • Rework • Transport (driving tools to job) • Tool time1 • Identified opportunities to improve plant heat rate by 2-3% • Heat rate improvement translates to $5 million annual EBIT opportunity Maintenance efficiency can be a $15 million EBIT opportunity 5 6 1 Tool time defined as value-added portion of activity (i.e., on tools fixing it right the first time) • Operational EPS03-05; $ per share • EBITDA103-05; $ millions 211% 51% • 03 • 04E • 05E • 03 • 04E • 05E 7 8 1 Results are from continuing operations excluding special items TXU Power …And Increased Capacity Utilization… …Which Will Improve Power’s Financial Performance Operator performance 04; Average MW achieved Relief Operator Primary Operator x x • 2 • 3 • 4 • 5 • 6 • 7 • 8 • 9 • 10 • 1 • Operator Through best practice sharing between operators, average capacity has increased by 9 MW, corresponding to a $3 million EBIT opportunity 1 Excludes all conditions out of the operator’s control (e.g., equipment failures, low Btu fuel)