-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ry6UAQGABQHy0PBVxiZZn7iddBvjLzgUIxPZ+Q8MOZCZ2T3KsZe1c2gq2diHzmvJ wyMO0exx4E/8Q4+8NhN7jA== 0000912057-01-527770.txt : 20010813 0000912057-01-527770.hdr.sgml : 20010813 ACCESSION NUMBER: 0000912057-01-527770 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TXU ELECTRIC CO CENTRAL INDEX KEY: 0000710182 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 751837355 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11668 FILM NUMBER: 1705127 BUSINESS ADDRESS: STREET 1: ENERGY PLAZA STREET 2: 1601 ENERGY PLAZA CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2148125210 MAIL ADDRESS: STREET 1: 1601 ENERGY PLAZA STREET 2: SUITE 36056 CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: TEXAS UTILITIES ELECTRIC CO DATE OF NAME CHANGE: 19920703 10-Q 1 a2056644z10-q.txt 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 -- OR -- ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------- Commission File Number 1-11668 TXU ELECTRIC COMPANY A Texas Corporation I.R.S. Employer Identification No. 75-1837355 ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411 (214) 812-4600 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- COMMON STOCK OUTSTANDING AT AUGUST 8, 2001: 58,802,600 shares, without par value. ================================================================================ TABLE OF CONTENTS - --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION PAGE ---- ITEM 1. FINANCIAL STATEMENTS Condensed Statements of Consolidated Income and Comprehensive Income - Three and Six Months Ended June 30, 2001 and 2000........................ 1 Condensed Statements of Consolidated Cash Flows - Six Months Ended June 30, 2001 and 2000.................................. 2 Condensed Consolidated Balance Sheets - June 30, 2001 and December 31, 2000...................................... 3 Notes to Financial Statements............................................ 4 Independent Accountants' Report.......................................... 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................ 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............... 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................... 15 SIGNATURE....................................................................................... 16
(i) PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TXU ELECTRIC COMPANY AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2001 2000 2001 2000 ---- ---- ---- ---- MILLIONS OF DOLLARS Operating revenues................................................... $1,930 $1,684 $3,758 $3,035 ------ ------ ------ ------ Operating expenses Energy purchased for resale and fuel consumed................... 806 684 1,663 1,118 Operation and maintenance....................................... 375 327 708 638 Depreciation and amortization................................... 153 151 308 303 Income taxes.................................................... 110 94 179 152 Taxes other than income......................................... 151 130 298 264 ------ ------ ------ ------ Total operating expenses.................................. 1,595 1,386 3,156 2,475 ------ ------ ------ ------ Operating income..................................................... 335 298 602 560 Other income (deductions) Allowance for equity funds used during construction............. 1 2 2 3 Other income (deductions) -- net................................ (5) (5) (8) (8) Income tax benefit (expense).................................... 3 7 3 (1) ------ ------ ------ ------ Total other income (deductions)........................... (1) 4 (3) (6) ------ ------ ------ ------ Income before interest and other charges............................. 334 302 599 554 ------ ------ ------ ------ Interest income...................................................... -- -- -- 1 Interest expense and other charges Interest........................................................ 93 99 184 189 Distributions on TXU Electric Company obligated, mandatorily redeemable, preferred securities of subsidiary trusts holding solely junior subordinated debentures of TXU Electric Company. 17 17 34 34 Allowance for borrowed funds used during construction and capitalized interest.......................................... (4) (2) (7) (4) ------ ------ ------ ------ Total interest expense and other charges.................. 106 114 211 219 ------ ------ ------ ------ Net income .......................................................... 228 188 388 336 Preferred stock dividends............................................ 3 2 5 5 ------ ------ ------ ------ Net income available for common stock................................ $ 225 $ 186 $ 383 $ 331 ====== ====== ====== ======
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2001 2000 2001 2000 ---- ---- ---- ---- MILLIONS OF DOLLARS Net income........................................................... $ 228 $ 188 $ 388 $ 336 ----- ----- ----- ----- Other comprehensive loss -- Net change during period, net of tax effects: Cash flow hedges: Cumulative transition adjustment as of January 1, 2001..... -- -- -- -- Net change in fair value of derivatives.................... (1) -- (2) -- ----- ----- ----- ----- Total.................................................. (1) -- (2) -- ----- ----- ----- ----- Comprehensive income................................................. $ 227 $ 188 $ 386 $ 336 ===== ===== ===== =====
See Notes to Financial Statements. 1 TXU ELECTRIC COMPANY AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 2001 2000 ---- ---- MILLIONS OF DOLLARS Cash flows -- operating activities Net income..................................................................... $ 388 $ 336 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization................................................ 349 363 Deferred income taxes and investment tax credits -- net ..................... (5) 5 Reduction in revenues for earnings in excess of earnings cap................. 23 100 Changes in operating assets and liabilities.................................. (254) 81 ----- ----- Cash provided by operating activities.................................. 501 885 ----- ----- Cash flows -- financing activities Issuances of long-term debt.................................................... 121 14 Retirements/repurchases of securities: Long-term debt............................................................... (153) (110) Common stock................................................................. (420) (372) Change in notes payable -- affiliates.......................................... 385 (32) Preferred stock dividends paid................................................. (5) (5) Debt premium, discount, financing and reacquisition expenses................... (10) (3) ----- ----- Cash used in financing activities...................................... (82) (508) ----- ----- Cash flows -- investing activities Capital expenditures........................................................... (409) (318) Nuclear fuel .................................................................. (11) (38) Other.......................................................................... (11) (10) ----- ----- Cash used in investing activities...................................... (431) (366) ----- ----- Net change in cash and cash equivalents.......................................... (12) 11 Cash and cash equivalents -- beginning balance................................... 21 4 ----- ----- Cash and cash equivalents -- ending balance...................................... $ 9 $ 15 ===== =====
See Notes to Financial Statements. 2 TXU ELECTRIC COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2001 2000 (UNAUDITED) ------- ----------- ASSETS MILLIONS OF DOLLARS Current assets: Cash and cash equivalents........................................................... $ 9 $ 21 Accounts receivable................................................................. 383 287 Inventories -- at average cost...................................................... 212 217 Other current assets................................................................ 71 38 ------- ------- Total current assets..................................................... 675 563 Investments............................................................................ 662 662 Property, plant and equipment -- net................................................... 15,403 15,324 Regulatory assets...................................................................... 2,314 2,206 Deferred debits and other assets....................................................... 82 61 ------- ------- Total assets............................................................. $19,136 $18,816 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable -- affiliates......................................................... $ 687 $ 302 Long-term debt due currently........................................................ 543 220 Accounts payable: Affiliates....................................................................... 183 278 Trade............................................................................ 232 256 Taxes accrued....................................................................... 332 243 Deferred income taxes............................................................... 318 268 Other current liabilities........................................................... 336 344 ------- ------- Total current liabilities................................................ 2,631 1,911 Accumulated deferred income taxes...................................................... 3,238 3,237 Investment tax credits................................................................. 482 493 Other deferred credits and noncurrent liabilities...................................... 409 407 Long-term debt, less amounts due currently............................................. 4,686 5,039 TXU Electric Company obligated, mandatorily redeemable, preferred securities of subsidiary trusts holding solely junior subordinated debentures of TXU Electric Company................................................................ 829 829 Preferred stock subject to mandatory redemption........................................ 21 21 Contingencies (Note 5) Shareholders' equity: Preferred stock not subject to mandatory redemption................................. 115 115 ------- ------- Common stock without par value: Authorized shares: 180,000,000 Outstanding shares: 2001 -- 65,757,600 and 2000 -- 79,749,600................... 2,001 2,421 Retained earnings................................................................... 4,726 4,343 Accumulated other comprehensive loss................................................ (2) -- ------- ------- Total common stock equity....................................................... 6,725 6,764 ------- ------- Total shareholders' equity............................................... 6,840 6,879 ------- ------- Total liabilities and shareholders' equity............................... $19,136 $18,816 ======= =======
See Notes to Financial Statements. 3 TXU ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. BUSINESS TXU Electric Company (TXU Electric) is an electric utility engaged in the generation, purchase, transmission, distribution and sale of electric energy in the north-central, eastern and western parts of Texas. As an integrated electric utility, TXU Electric has only one reportable segment. TXU Electric is a wholly-owned subsidiary of TXU Corp., a Texas corporation. TXU Corp. is a global energy services company that engages in electric and natural gas services, electricity generation, merchant energy trading, energy marketing, energy delivery, telecommunications, and other energy-related services. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION -- The condensed consolidated financial statements of TXU Electric and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and, except for the adoption of the new accounting standard for derivatives discussed below, on the same basis as the audited financial statements included in its Annual Report on 2000 Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position have been included therein. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with US GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for an interim period may not give a true indication of results for the full year. Certain previously reported amounts have been reclassified to conform to current classifications. All dollar amounts in the financial statements and tables in the notes are stated in millions of US dollars unless otherwise indicated. CHANGES IN ACCOUNTING STANDARDS -- On January 1, 2001, TXU Electric adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as extended by SFAS No. 137 (June 1999) and amended by SFAS No. 138 (June 2000). In accordance with the transition provisions of SFAS No. 133, TXU Electric recorded, as of January 1, 2001, $.6 million of derivatives as liabilities with a cumulative effect of $.4 million after-tax as a decrease to other comprehensive income to recognize the fair value of all derivatives effective as cash-flow hedging instruments. At June 30, 2001, none of these amounts have been reclassified into earnings. The terms of TXU Electric's interest rate derivatives match the terms of the underlying hedged item. As a result, TXU Electric experienced no hedge ineffectiveness during the period. As of June 30, 2001, it is expected that $2.2 million of net losses included in the net gains/losses from derivative instruments that are accumulated in Other Comprehensive Income will be reclassified into earnings during the next twelve months. This amount is not a forecasted loss incremental to normal operations, but rather it demonstrates the extent to which volatility in earnings (which would otherwise exist) is mitigated through the presence of cash flow hedges. Capacity Auction -- Legislation was passed during the 1999 session of the Texas Legislature to restructure the electric utility industry in Texas (1999 Restructuring Legislation). Pursuant to the requirements of the 1999 Restructuring Legislation, in the third quarter of 2001, TXU Electric and most other electric utility companies in Texas that own generation production assets will auction 15 percent of the output of that generation effective January 1, 2002. The form of contract that will be entered into as a result of that auction will be a derivative pursuant to SFAS No. 133. The capacity auction for periods ended prior to December 31, 2003 will directly affect amounts ultimately recovered from or returned to customers under the Texas deregulation legislation. The amount TXU Electric will finally recover from the auction process is a function 4 of the regulatory process and not of interim movements in the fair value of the contracts. As a result, regulatory assets/liabilities will be established for movements in the fair value of the derivatives. Ongoing implementation issues being addressed by standard-setting groups may affect the application of SFAS No. 133. In June 2001, the Financial Accounting Standards Board approved a number of implementation issues regarding the normal purchase and sale exception. One of the issues applied exclusively to the electric industry. TXU Electric will apply the new guidance from July 1, 2001 and does not expect the guidance to have a material effect. SFAS No. 141, "Business Combinations", is effective for TXU Electric beginning July 1, 2001. SFAS No. 141 requires the purchase method of accounting for business combinations initiated and completed after June 30, 2001 and eliminates the use of the pooling-of-interests method. SFAS No. 142, "Goodwill and Other Intangible Assets", is effective for TXU Electric beginning January 1, 2002. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. In addition, SFAS No. 142 requires TXU Electric to complete a transitional goodwill impairment test within six months from the date of adoption. It establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. Any goodwill impairment loss during the transition period will be recognized as the cumulative effect of a change in accounting principle. Subsequent impairments will be recorded in operations. SFAS No. 143, "Accounting for Asset Retirement Obligations", will be effective for TXU Electric beginning January 1, 2003. SFAS No. 143 requires the recognition of a fair value liability for any retirement obligation associated with long-lived assets. The offset to any liability recorded is added to the recorded asset where the additional amount is depreciated over the same period as the long-lived asset for which the retirement obligation is established. SFAS No. 143 also requires additional disclosures. TXU Electric will change its accounting for nuclear decommissioning to conform with the new standard. TXU Electric is evaluating the impact the adoption of these standards will have on its financial position and results of operations. 3. CAPITALIZATION COMMON STOCK -- During the six months ended June 30, 2001, TXU Electric purchased and retired 13,992,000 shares of its issued and outstanding common stock from TXU Corp. at a cost of $420 million. 5 TXU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES OF SUBSIDIARY TRUSTS, HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF TXU ELECTRIC (TRUST SECURITIES) -- The statutory business trust subsidiaries had Trust Securities and Trust Assets outstanding as follows:
TRUST SECURITIES TRUST ASSETS MATURITY -------------------------------------------------- ------------------------ -------- UNITS (000'S) AMOUNT AMOUNT ---------------------- ----------------------- ------------------------ JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 2001 2000 2001 2000 2001 2000 ---- ---- ---- ---- ---- ---- TXU Electric Capital I (8.25% Series)........... 5,871 5,871 $ 141 $ 141 $ 155 $ 155 2030 TXU Electric Capital III (8.00% Series)........... 8,000 8,000 194 194 206 206 2035 TXU Electric Capital IV (Floating Rate Trust Series)(a)............... 100 100 98 98 103 103 2037 TXU Electric Capital V (8.175% Series).......... 400 400 396 396 412 412 2037 ------ ------ ----- ----- ----- ----- Total............... 14,371 14,371 $ 829 $ 829 $ 876 $ 876 ====== ====== ===== ===== ===== =====
(a) Floating rate is determined quarterly based on LIBOR. A related interest rate swap, expiring in May 2002, effectively fixes the rate at 7.183%. TXU Electric owns the common Trust Securities issued by its subsidiary trusts and has effectively issued a full and unconditional guarantee of each such trust's Trust Securities. LONG-TERM DEBT -- Certain variable rate debt of TXU Electric requires periodic remarketing. Because TXU Electric intends to remarket these obligations, and has the ability to refinance if necessary, they have been classified as long-term debt. TXU Electric's first mortgage bonds are secured by a mortgage and deed of trust with a major financial institution. Electric plant of TXU Electric is generally subject to the lien of its mortgage. On April 12, 2001, the Brazos River Authority issued for TXU Electric $120,750,000 aggregate principal amount of Pollution Control Revenue Refunding Bonds, Series 2001A, due October 1, 2030. The Brazos River Authority 2001A bonds bear interest at a rate of 4.95% per annum until the mandatory tender date of April 1, 2004. Proceeds from the issuance and sale of the Brazos River Authority 2001A bonds were used to refund the entire principal amount of the 7-7/8% Brazos River Authority Series 1991A bonds and $20,750,000 of the Brazos River Authority Taxable Series 1993 bonds. On July 2, 2001, TXU Electric issued $400 million aggregate principal amount of Floating Rate First Mortgage Bonds due June 15, 2003. The initial interest rate, based on LIBOR plus a spread, is 4.39%. The rate will be reset quarterly. Proceeds from the issuance were used for general corporate purposes. 4. REGULATION AND RATES REGULATION AND RATES -- TXU Electric has ongoing proceedings outstanding with the Public Utility Commission of Texas (PUC) as of June 30, 2001 that are in different stages of completion. TXU Electric is unable to predict the outcome of these proceedings. The status of these proceedings as of June 30, 2001 is not significantly different from their status as set forth in Note 13 to Financial Statements, Regulation and Rates, included in the TXU Electric 2000 Form 10-K except as presented below. DOCKET NO. 22350 -- Legislation was passed during the 1999 session of the Texas Legislature that will restructure the electric industry in Texas (1999 Restructuring Legislation). As required by the 1999 Restructuring Legislation, in January 2000, TXU Electric filed its business separation plan with the PUC. In March 2000, TXU Electric filed its application for approval of its unbundled cost of service rates with the PUC. This plan and application lay the foundation for TXU Electric to take part in retail competition to begin in the Texas electricity market. Under TXU Electric's business separation plan, the generation business unit 6 and the retail business unit will become unregulated entities and will be allowed to compete for customers. The transmission and distribution (T&D) business units will be separated into regulated entities and will together represent the regulated part of the business. In addition to the actual T&D charges for delivering electricity, these rates include nuclear decommissioning fund charges, system benefit fund charges and stranded cost recovery charges. In the March 2000 filing, stranded costs were estimated to be approximately $3.7 billion, including the regulatory assets that were part of the Docket No. 21527 proceedings and amounts related to the remand of Docket No. 9300, addressed below. TXU Electric filed an updated stranded cost estimate on August 28, 2000 to reflect various determinations made by TXU Electric since Docket No. 22350 was filed. In the August 28, 2000 filing, stranded costs were estimated to be $2.8 billion. Subsequent to the August 2000 filing, the PUC has required TXU Electric to revise the stranded cost estimate to remove amounts related to regulatory assets, certain environmental expenditures, and the remand of Docket No. 9300, which resulted in a revised estimate of $14 million, including displaced worker costs. On March 7, 2001, the PUC issued an Interim Order requiring TXU Electric to file a revised stranded cost estimate using mandated assumptions. On March 28, 2001, TXU Electric filed such revised stranded cost estimate of negative $2.2 billion pursuant to that order. On April 9, 2001, the PUC issued another Interim Order that required TXU Electric to file a further revised stranded cost estimate. On April 18, 2001, TXU Electric filed that required revised estimate, which reflected stranded costs of negative $2.7 billion. The stranded cost estimate established in Docket No. 22350 is subject to a future market-based "true-up" in 2004. The PUC is expected to issue a final order on these matters in August 2001. TXU Electric strongly disagrees with the methodology required by the PUC pursuant to which these stranded costs were calculated as being inconsistent with the 1999 Restructuring Legislation and has appealed certain of the PUC's decisions related to this matter to the Travis County, Texas District Court. On June 5, 2001, the PUC issued an Interim Order that addressed TXU Electric's charges for T&D service that will become effective when retail competition begins. Among other things, that order requires TXU Electric to reverse the effects of the T&D depreciation reclassifications and to refund, over the period from 2002-2008, both the actual 1998-2000 earnings in excess of the earnings cap and estimated earnings for 2001 in excess of the earnings cap. On June 20, 2001, TXU Electric filed a Petition for Writ of Mandamus with the Texas Supreme Court, requesting that the Court issue a writ of mandamus compelling the PUC to vacate the portions of its orders that require TXU Electric to halt mitigation of stranded costs and reverse the stranded cost mitigation already taken. DOCKET NO. 9300/DOCKET NO. 22652 -- The PUC's final order (Order) in connection with TXU Electric's January 1990 rate increase request (Docket No. 9300) was ultimately reviewed by the Texas Supreme Court. As a result, an aggregate of $909 million of disallowances with respect to TXU Electric's reacquisitions of minority owners' interests in Comanche Peak, which had previously been recorded as a charge to TXU Electric's earnings, was remanded to the District Court with instructions that it be remanded to the PUC for reconsideration on the basis of a prudent investment standard. On remand, the PUC also was required to reevaluate the appropriate level of TXU Electric's construction work in progress included in rate base in light of its financial condition at the time of the initial hearing. In connection with the settlement of Docket No. 18490, proceedings in the remand of Docket No. 9300 had been stayed through December 31, 1999. In April 2000, TXU Electric requested that the District Court enter an order remanding Docket No. 9300 to the PUC. On June 9, 2000, the District Court's order of remand was filed with the PUC, and the PUC has assigned the remand proceeding Docket No. 22652. Hearings are currently scheduled for December 2001, and a final decision is expected in 2002. DOCKET NO. 21527 -- On June 6, 2001, the Supreme Court of Texas issued a ruling in connection with the appeal by TXU Electric of the September 7, 2000 judgment of the Travis County, Texas District Court. The District Court judgment was issued pursuant to an appeal by TXU Electric of a financing order of the PUC rejecting TXU Electric's request for authorization to issue $1.65 billion of transition bonds secured by payments designed to enable TXU Electric to securitize generation-related regulatory assets and other qualified costs in accordance with the 1999 Restructuring Legislation. The PUC's order had authorized the issuance of only $363 million in transition bonds. TXU Electric believes this favorable ruling should allow it to securitize $1.3 billion or more of its generation-related regulatory assets and other qualified costs. The Supreme Court ruled in favor of TXU Electric's contention that the PUC must consider regulatory assets in the aggregate, rather than individually, in determining the amount of securitization. In addition, the Supreme Court affirmed the District Court's ruling 7 that the PUC's statements concerning the future impact of securitization of loss on reacquired debt constituted an advisory and premature finding. The Supreme Court also affirmed the District Court's judgment which reversed that part of the PUC's order that utilized a longer regulated asset life for purposes of present-valuing the benefits of securitization saying that the statute contemplates a "far shorter recovery period for regulatory assets." The Supreme Court's order, unless modified in response to pending motions for rehearing, remands the case to the PUC for determination of the final amount of permitted securitization. TXU Electric is unable to predict what this amount will be or when the PUC will act, but TXU Electric is prepared to move quickly to issue transition bonds once a final financing order is issued by the PUC. In a related matter, also on June 6, 2001 in a case in which the constitutionality under the Texas Constitution of the securitization provisions of the 1999 Restructuring Legislation had been challenged in connection with a securitization request made by Central Power and Light Company, the Texas Supreme Court affirmed a judgment of the Travis County, Texas District Court denying this appeal and finding that the securitization provisions are constitutional. PROJECT NO. 23806 -- On July 31, 2001, the staff of the PUC notified TXU Electric and the PUC that it disagreed with TXU Electric's computation of the level of earnings in excess of the earnings cap for calendar year 2000. The PUC staff disagrees with TXU Electric's adjustment that removed $298 million of deferred federal income tax liability associated with under-recovered fuel. DOCKET NO. 22880/DOCKET NO. 23153 -- Because natural gas prices exceeded those in the base fuel factor, on August 4, 2000, TXU Electric filed a request with the PUC in Docket No. 22880 to surcharge the cumulative under-collection of fuel cost revenues that existed as of June 30, 2000, together with interest through November 2000, in the amount of $167 million, and to increase its current fuel factors by 27.6%. On August 31, 2000, the Administrative Law Judge entered an Interim Order, implementing an agreement of the parties, providing for an interim increase in fuel factors of 13.8%, effective September 6, 2000, and a surcharge of TXU Electric's cumulative under-recovery of fuel cost revenues that existed as of July 31, 2000, together with interest through November 2000, in the amount of $315 million to be collected over the fourteen-month period beginning November 2000. On October 13, 2000, TXU Electric filed a Supplemental Application with the PUC requesting its initial 27.6% fuel factor increase instead of the interim increase. On January 11, 2001, the PUC approved the requested fuel factor increase, effective that date. Also on October 13, 2000, TXU Electric filed a request with the PUC in Docket No. 23153 for a surcharge to recover a $231 million under-collection of fuel cost revenues for the months of August and September 2000. The proposed surcharge was to be collected from January 2001 through December 2001. Docket No. 23153 was subsequently consolidated into Docket No. 22880. On January 11, 2001, the PUC approved TXU Electric's requests in Docket No. 22880 and Docket No. 23153. The PUC also approved the surcharge request filed in Docket No. 23153, effective January 11, 2001 through December 31, 2001. DOCKET NO. 23640 -- In February 2001, TXU Electric filed with the PUC a request for a surcharge to recover under-collected fuel cost revenues of $351 million for the months of October 2000 through December 2000, plus estimated under-recoveries of $238 million for the period January 2001 through March 2001 and to increase its current fuel factor by 26.4% over the increase approved in Docket 22880. On March 19, 2001, the Administrative Law Judge struck TXU Electric's request to surcharge the estimated under-recoveries for the January 2001 through March 2001 period. On May 8, 2001, the PUC approved the amount of the surcharge for October 2000 through December 2000, but ruled that surcharging the under-recovery incurred during that period will be deferred for consideration until TXU Electric's true-up proceeding in 2004. The PUC also affirmed the action of the Administrative Law Judge and refused to consider the surcharge for the months of January 2001 through March 2001. On May 24, 2001, the PUC issued a final order approving TXU Electric's proposed fuel factor request with one change that slightly increased the level of the fuel factor. TXU Electric began applying the new fuel factor on bills rendered after May 24, 2001. 8 5. CONTINGENCIES FINANCIAL GUARANTEES -- TXU Electric has entered into contracts with public agencies to purchase cooling water for use in the generation of electric energy and has agreed, in effect, to guarantee the principal, $22 million at June 30, 2001, and interest on bonds issued to finance the reservoirs from which the water is supplied. The bonds mature at various dates through 2011 and have interest rates ranging from 5-1/2% to 7%. TXU Electric is required to make periodic payments equal to the principal and interest, including amounts assumed by a third party and reimbursed to TXU Electric, of $4 million annually for the years 2001 through 2003, $7 million for 2004 and $1 million for 2005. In addition, TXU Electric is obligated to pay certain variable costs of operating and maintaining the reservoirs. TXU Electric has assigned to a municipality all contract rights and obligations of TXU Electric in connection with $42 million principal amount of bonds outstanding at June 30, 2001, that had been issued for similar purposes and previously guaranteed by TXU Electric. TXU Electric is, however, contingently liable in the unlikely event of default by the municipality. GENERAL -- TXU Electric is involved in various legal and administrative proceedings, the ultimate resolution of which, in the opinion of management, should not have a material effect upon its financial position, results of operations or cash flows. 6. SUPPLEMENTARY FINANCIAL INFORMATION ACCOUNTS RECEIVABLE -- At June 30, 2001 and December 31, 2000, accounts receivable are stated net of uncollectible accounts of $10 million and $7 million, respectively. SALE OF RECEIVABLES -- At June 30, 2001, TXU Electric had facilities to sell to financial institutions, on an ongoing basis, undivided interests in up to an aggregate of $500 million of customer accounts receivable. At June 30, 2001, $500 million of interests in customer receivables had been sold. On July 30, 2001, that arrangement was terminated and TXU Electric entered into a facility with a bankruptcy remote subsidiary of TXU Gas Company, Receivables Company, which purchases customer receivables from TXU Gas Company and TXU Electric and sells undivided interests in receivables of up to $600 million to financial institutions. TXU Gas Company is a wholly-owned subsidiary of TXU Corp. and an affiliate of TXU Electric. 9 INVENTORIES BY MAJOR CATEGORY --
JUNE 30, 2001 DECEMBER 31, (UNAUDITED) 2000 ----------- ----------- Materials and supplies...................................................... $148 $147 Fuel stock.................................................................. 64 70 ---- ---- Total inventories..................................................... $212 $217 ==== ====
PROPERTY, PLANT AND EQUIPMENT --
JUNE 30, 2001 DECEMBER 31, (UNAUDITED) 2000 ----------- ----------- In service Production.............................................................. $15,669 $15,658 Transmission............................................................ 1,768 1,760 Distribution............................................................ 5,850 5,723 General................................................................. 510 506 ------- ------- Total............................................................... 23,797 23,647 Less accumulated depreciation........................................... 8,240 7,958 ------- ------- Net of accumulated depreciation..................................... 15,557 15,689 Construction work in progress............................................... 504 271 Nuclear fuel (net of accumulated amortization: 2001 -- $750; 2000 -- $716).. 156 178 Held for future use......................................................... 22 22 Reserve for regulatory disallowances........................................ (836) (836) ------- ------- Net property, plant and equipment..................................... $15,403 $15,324 ======= =======
10 INDEPENDENT ACCOUNTANTS' REPORT TXU Electric Company: We have reviewed the accompanying condensed consolidated balance sheet of TXU Electric Company and subsidiaries (TXU Electric) as of June 30, 2001, and the related condensed statements of consolidated income and comprehensive income for the three-month and six-month periods ended June 30, 2001 and 2000 and of consolidated cash flows for the six-month periods ended June 30, 2001 and 2000. These financial statements are the responsibility of TXU Electric's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of TXU Electric as of December 31, 2000, and the related statements of consolidated income, comprehensive income, cash flows and shareholders' equity for the year then ended (not presented herein); and in our report dated February 1, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Dallas, Texas August 9, 2001 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SIGNIFICANT HIGHLIGHTS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 2001 2000 2001 2000 ------- ------- ------- ------- Revenues (millions): Base rate........................... $ 1,134 $ 1,145 $ 2,112 $ 2,081 Transmission service................ 45 41 89 84 Fuel................................ 728 580 1,512 938 Earnings in excess of earnings cap.. (10) (100) (23) (100) Other............................... 33 18 68 32 ------- ------- ------- ------- Total operating revenues.... $ 1,930 $ 1,684 $ 3,758 $ 3,035 ------- ------- ------- ------- Electric energy sales (gigawatt-hours).. 25,592 25,245 49,799 47,560 Degree days (% of normal): Cooling............................. 110% 115% 106% 121% Heating............................. 41% 79% 105% 64%
THREE MONTHS ENDED JUNE 30, 2001 TXU Electric Company (TXU Electric) had net income of $228 million for the three months ended June 30, 2001 compared with net income of $188 million for the three months ended June 30, 2000. The improvement reflects customer growth and lower earnings in excess of the regulatory earnings cap which more than offset increased operation and maintenance expense and higher taxes other than income. Operating revenues increased by $246 million from the 2000 period to the 2001 period primarily due to a $148 million increase in fuel revenues resulting from higher fuel cost and energy sales and a $90 million reduction in the amount of earnings in excess of the regulatory earnings cap recorded in the 2001 period compared to the 2000 period. The change in mitigation is due to the impact of higher revenue related taxes and the timing of other operating expenses. Energy purchased for resale and fuel consumed increased by $122 million in the 2001 period compared to the 2000 period primarily due to increased purchased power and natural gas costs. Operation and maintenance expense was $48 million higher in the second quarter of 2001 compared to the second quarter of 2000 reflecting expected increased generation maintenance, higher transmission costs and costs related to transitioning to deregulation in the electricity markets in Texas commencing January 1, 2002. Annual total operation and maintenance expense is expected to be within levels allowed in connection with establishing the regulatory earnings cap. Taxes other than income increased by $21 million from the 2000 period to the 2001 period due to higher state and local gross receipts taxes as a result of higher revenues. 12 SIX MONTHS ENDED JUNE 30, 2001 TXU Electric had net income of $388 million for the six months ended June 30, 2001 compared with net income of $336 million for the six months ended June 30, 2000. The improvement reflects increased revenues and margin which more than offset increased operation and maintenance expense and higher taxes other than income. Operating revenues increased by $723 million from the 2000 period to the 2001 period primarily due to a $574 million increase in fuel revenues resulting from higher fuel cost and energy sales and a $77 million reduction in the amount of earnings in excess of the regulatory earnings cap recorded in the 2001 period compared to the 2000 period. The change in mitigation is due to the impact of higher revenue related taxes and the timing of other operating expenses. Energy purchased for resale and fuel consumed increased by $545 million in the current period over the same period of the prior year primarily due to increased purchased power costs and generation costs for gas and oil. Operation and maintenance expense was $70 million higher in the first six months of 2001 compared to the first six months of 2000 reflecting expected increased generation maintenance, higher transmission costs and costs related to transitioning to deregulation of the electricity markets in Texas commencing January 1, 2002. Annual total operation and maintenance expense is expected to be within levels allowed in connection with establishing the regulatory earnings cap. Taxes other than income increased by $34 million from the 2000 period to the 2001 period due to higher state and local gross receipts taxes and higher regulatory assessments as a result of higher revenues. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Cash flows provided by operating activities before changes in operating assets and liabilities for the six months ended June 30, 2001 were $755 million compared with $804 million for the same period last year. Changes in operating assets and liabilities used $254 million in the first six months of 2001 compared to providing $81 million in the first six months of 2000. Payment of accounts payable required $122 million in the first six months of 2001 and the increase in under-recovered fuel revenues used an additional $97 million. Cash flows of $82 million were used in financing activities in the first six months of 2001 compared with cash flows used of $508 million in the first six months of 2000. Financing activities in the first six months of 2001 included advances from TXU Corp. of $385 million, the net reduction of $31 million in long-term debt and the repurchase of $420 million of common stock from TXU Corp. Cash flows used in investing activities for the first six months of 2001 totaled $431 million versus $366 million for the same period in 2000. Capital expenditures were $409 million and $318 million for the first six months of 2001 and 2000, respectively. Legislation was passed during the 1999 session of the Texas Legislature to restructure the electric utility industry in Texas (1999 Restructuring Legislation). The 1999 Restructuring Legislation provided for a Pilot Project (Pilot) to begin limited competition on June 1, 2001. It allowed up to five percent of retail electric customers of electric utilities transitioning to competition to choose to participate in the Pilot and select a competing retail electric provider. Customers were not required to participate in the Pilot but were able to elect to participate through an application process established by the Public Utility Commission of Texas. The Pilot started on July 31, 2001 after several delays and is scheduled to run until the end of 2001. 13 At June 30, 2001, TXU Electric had no borrowings outstanding under the US Credit Agreements described in Note 4 of TXU Electric's 2000 Form 10-K. Letters of credit outstanding under the US Credit Agreements totaled $251 million for TXU Electric. The US Credit Agreements primarily support commercial paper borrowings of TXU Corp. On July 2, 2001, TXU Electric issued $400 million aggregate principal amount of Floating Rate First Mortgage Bonds due June 15, 2003. The initial interest rate, based on LIBOR plus a spread, is 4.39% and will be reset quarterly. Proceeds from the issuance were used for general corporate purposes. FINANCING ARRANGEMENTS -- TXU Electric may issue and sell additional debt and equity securities as needed, including the possible future issuance and sale of up to $25 million of Cumulative Preferred Stock and up to an aggregate of $924 million of additional Cumulative Preferred Stock, First Mortgage Bonds, debt securities and/or preferred securities of subsidiary trusts, all of which are currently registered with the Securities and Exchange Commission pursuant to Rule 415 under the Securities Act of 1933. REGULATION AND RATES Although TXU Electric cannot predict future regulatory or legislative actions or any changes in economic and securities market conditions, no changes are expected in trends or commitments, other than those discussed in the TXU Electric 2000 Form 10-K, the TXU Electric March 31, 2001 Form 10-Q and this Form 10-Q, which might significantly alter TXU Electric's financial position, results of operations or cash flows. See Note 4 to Financial Statements. CHANGES IN ACCOUNTING STANDARDS CHANGES IN ACCOUNTING STANDARDS -- See Note 2 to Financial Statements for discussion of changes in accounting standards. FORWARD-LOOKING STATEMENTS This report and other presentations made by TXU Electric contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Although TXU Electric believes that in making any such statement its expectations are based on reasonable assumptions, any such statement involves uncertainties and is qualified in its entirety by reference to factors contained in the Forward-Looking Statements section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in TXU Electric's 2000 Form 10-K, as well as general industry trends; implementation of the 1999 Restructuring Legislation and other legislation; power costs and availability; changes in business strategy, development plans or vendor relationships; availability of qualified personnel; changes in, or the failure or inability to comply with, governmental regulations, including, without limitation, environmental regulations; changes in tax laws; and access to adequate transmission facilities to meet changing demands, among others, that could cause the actual results of TXU Electric to differ materially from those projected in such forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and TXU Electric undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for TXU Electric to predict all of such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required hereunder is not significantly different from the information as set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in the TXU Electric 2000 Form 10-K and is therefore not presented herein. Changes in the fair value of TXU Electric's cash flow hedges for interest rate swaps, that were discussed in the TXU Electric 2000 Form 10-K, are recorded as a component of Comprehensive Income as a result of implementation of SFAS No. 133. Other than as described therein, since December 31, 2000 there has been basically no change in the contractual terms and notional amounts of interest rate contracts as disclosed in the TXU Electric 2000 Form 10-K. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed as a part of Part II are: 4(a) Sixty-second Supplemental Indenture, dated as of July 1, 2001, to a Mortgage and Deed of Trust, dated December 1, 1983, between TXU Electric and The Bank of New York. 15 Letter from independent accountants as to unaudited interim financial information. 99 Condensed Statements of Consolidated Income -- Twelve Months Ended June 30, 2001 and 2000. (b) Reports on Form 8-K filed since March 31, 2001:
DATE OF REPORT ITEM REPORTED -------------- ------------- April 27, 2001 Item 5. Other Events. June 12, 2001 Item 5. Other Events and Regulation FD disclosure.
15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. TXU ELECTRIC COMPANY By /s/ BIGGS C. PORTER -------------------------------- Biggs C. Porter Vice President, Principal Accounting Officer Date: August 10, 2001 16 EX-4.(A) 3 a2056644zex-4_a.txt EXHIBIT 4(A) ================================================================================ Exhibit 4(a) TXU ELECTRIC COMPANY (FORMERLY TEXAS UTILITIES ELECTRIC COMPANY) TO THE BANK OF NEW YORK, (FORMERLY IRVING TRUST COMPANY) TRUSTEE UNDER THE TEXAS UTILITIES ELECTRIC COMPANY MORTGAGE AND DEED OF TRUST, DATED AS OF DECEMBER 1, 1983 ---------------------- SIXTY-SECOND SUPPLEMENTAL INDENTURE PROVIDING AMONG OTHER THINGS FOR FIRST MORTGAGE BONDS, FLOATING RATE SERIES C DUE JUNE 15, 2003 ---------------------- DATED AS OF JULY 1, 2001 ================================================================================ THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS SIXTY-SECOND SUPPLEMENTAL INDENTURE ---------------------- INDENTURE, dated as of July 1, 2001, between TXU ELECTRIC COMPANY (formerly Texas Utilities Electric Company), a corporation of the State of Texas, whose address is Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201 (hereinafter sometimes called the Company), and THE BANK OF NEW YORK (formerly Irving Trust Company), a corporation of the State of New York, whose address is 101 Barclay Street, New York, New York 10286 (hereinafter sometimes called the Trustee), Trustee under the Mortgage and Deed of Trust, dated as of December 1, 1983 (hereinafter called the Original Indenture, the Original Indenture and any and all indentures and instruments supplemental thereto being hereinafter sometimes collectively called the Mortgage), which Original Indenture was executed and delivered by said Texas Utilities Electric Company to secure the payment of bonds issued or to be issued under and in accordance with the provisions of the Mortgage, reference to which Mortgage is made, this Indenture (hereinafter called the Sixty-second Supplemental Indenture) being supplemental thereto; WHEREAS, said Original Indenture was recorded or filed as required in the State of Texas; and WHEREAS, the Company executed and delivered to the Trustee the following supplemental indentures:
DESIGNATION DATED AS OF ----------- ----------- First Supplemental Indenture................................................. April 1, 1984 Second Supplemental Indenture................................................ September 1, 1984 Third Supplemental Indenture................................................. April 1, 1985 Fourth Supplemental Indenture................................................ August 1, 1985 Fifth Supplemental Indenture................................................. September 1, 1985 Sixth Supplemental Indenture................................................. December 1, 1985 Seventh Supplemental Indenture............................................... March 1, 1986 Eighth Supplemental Indenture................................................ May 1, 1986 Ninth Supplemental Indenture................................................. October 1, 1986 Tenth Supplemental Indenture................................................. December 1, 1986 Eleventh Supplemental Indenture.............................................. December 1, 1986 Twelfth Supplemental Indenture............................................... February 1, 1987 Thirteenth Supplemental Indenture............................................ March 1, 1987 Fourteenth Supplemental Indenture............................................ April 1, 1987 Fifteenth Supplemental Indenture............................................. July 1, 1987 Sixteenth Supplemental Indenture............................................. September 1, 1987 2 DESIGNATION DATED AS OF ----------- ----------- Seventeenth Supplemental Indenture........................................... October 1, 1987 Eighteenth Supplemental Indenture............................................ March 1, 1988 Nineteenth Supplemental Indenture............................................ May 1, 1988 Twentieth Supplemental Indenture............................................. September 1, 1988 Twenty-first Supplemental Indenture.......................................... November 1, 1988 Twenty-second Supplemental Indenture......................................... January 1, 1989 Twenty-third Supplemental Indenture.......................................... August 1, 1989 Twenty-fourth Supplemental Indenture......................................... November 1, 1989 Twenty-fifth Supplemental Indenture.......................................... December 1, 1989 Twenty-sixth Supplemental Indenture.......................................... February 1, 1990 Twenty-seventh Supplemental Indenture........................................ September 1, 1990 Twenty-eighth Supplemental Indenture......................................... October 1, 1990 Twenty-ninth Supplemental Indenture.......................................... October 1, 1990 Thirtieth Supplemental Indenture............................................. March 1, 1991 Thirty-first Supplemental Indenture.......................................... May 1, 1991 Thirty-second Supplemental Indenture......................................... July 1, 1991 Thirty-third Supplemental Indenture.......................................... February 1, 1992 Thirty-fourth Supplemental Indenture......................................... April 1, 1992 Thirty-fifth Supplemental Indenture.......................................... April 1, 1992 Thirty-sixth Supplemental Indenture.......................................... June 1, 1992 Thirty-seventh Supplemental Indenture........................................ June 1, 1992 Thirty-eighth Supplemental Indenture......................................... August 1, 1992 Thirty-ninth Supplemental Indenture.......................................... October 1, 1992 Fortieth Supplemental Indenture.............................................. November 1, 1992 Forty-first Supplemental Indenture........................................... December 1, 1992 Forty-second Supplemental Indenture.......................................... March 1, 1993 Forty-third Supplemental Indenture........................................... April 1, 1993 Forty-fourth Supplemental Indenture.......................................... April 1, 1993 Forty-fifth Supplemental Indenture........................................... May 1, 1993 Forty-sixth Supplemental Indenture........................................... July 1, 1993 Forty-seventh Supplemental Indenture......................................... October 1, 1993 Forty-eighth Supplemental Indenture.......................................... November 1, 1993 Forty-ninth Supplemental Indenture........................................... May 1, 1994 Fiftieth Supplemental Indenture.............................................. May 1, 1994 Fifty-first Supplemental Indenture........................................... August 1, 1994 Fifty-second Supplemental Indenture.......................................... April 1, 1995 Fifty-third Supplemental Indenture........................................... June 1, 1995 Fifty-fourth Supplemental Indenture.......................................... October 1, 1995 Fifty-fifth Supplemental Indenture........................................... March 1, 1996 Fifty-sixth Supplemental Indenture........................................... September 1, 1996 Fifty-seventh Supplemental Indenture......................................... February 1, 1997 Fifty-eighth Supplemental Indenture.......................................... July 1, 1997 Fifth-ninth Supplemental Indenture........................................... March 1, 1999 3 DESIGNATION DATED AS OF ----------- ----------- Sixtieth Supplemental Indenture.............................................. December 1, 2000 Sixty-first Supplemental Indenture........................................... February 1, 2001
which supplemental indentures were or are to be recorded or filed as required in the State of Texas; and WHEREAS, by the Original Indenture, the Company covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as may be necessary or proper to carry out more effectually the purposes of the Mortgage and to make subject to the Lien of the Mortgage any property thereafter acquired and intended to be subject to the Lien thereof; and WHEREAS, in addition to the property described in the Original Indenture, the Company has acquired certain other property, rights and interests in property; and WHEREAS, the Company has heretofore issued as of June 30, 2001, in accordance with the provisions of the Original Indenture, as heretofore supplemented, the following series of First Mortgage and Collateral Trust Bonds and First Mortgage Bonds:
Principal Amount Principal Amount Series Issued Outstanding ------ ---------------- ---------------- 12% Series due March 1, 1985 ..................................... $ 1,000,000 None 13 5/8% Series due April 1, 2014 ................................. 100,000,000 None 13 1/2% Series due September 1, 2014 ............................. 150,000,000 None 12 7/8 % Series due April 1, 2015 ................................ 150,000,000 None 12% Series due August 1, 2015 .................................... 100,000,000 None 12% Series due September 1, 2015 ................................. 75,000,000 None 11 1/8% Series due December 1, 2015 .............................. 150,000,000 None 9 3/8% Series due March 1, 2016 .................................. 200,000,000 None 9 3/4% Series due May 1, 2016..................................... 200,000,000 None Pollution Control Series C........................................ 70,000,000 None Pollution Control Series D........................................ 200,000,000 None 9 1/2% Series due December 1, 2016................................ 300,000,000 None 9 1/4% Series due February 1, 2017................................ 250,000,000 None Pollution Control Series E........................................ 100,000,000 None 10 1/2% Series due April 1, 2017.................................. 250,000,000 None 9 1/2% Series due July 1, 1997.................................... 150,000,000 None 10 1/2% Series due July 1, 2017................................... 150,000,000 None Pollution Control Series F........................................ 55,000,000 None Pollution Control Series G........................................ 12,000,000 None Pollution Control Series H........................................ 112,000,000 None Pollution Control Series I........................................ 100,000,000 None 4 Principal Amount Principal Amount Series Issued Outstanding ------ ---------------- ---------------- 10 3/8% Series due May 1, 1998.................................... 150,000,000 None 11 3/8% Series due May 1, 2018.................................... 150,000,000 None Secured Medium-Term Notes, Series A .............................. 300,000,000 None 10.44% Series due November 1, 2008 ............................... 150,000,000 None Pollution Control Series J ....................................... $ 100,000,000 None 9 1/2% Series due August 1, 1999 ................................. 200,000,000 None 10% Series due August 1, 2019 .................................... 100,000,000 None 9 7/8% Series due November 1, 2019 ............................... 150,000,000 None Secured Medium-Term Notes, Series B............................... 150,000,000 $ 69,200,000 Pollution Control Series K........................................ 50,000,000 None Pollution Control Series L........................................ 40,000,000 None 10 5/8% Series due September 1, 2020.............................. 250,000,000 None Secured Medium-Term Notes, Series C............................... 150,000,000 None 8 1/4% Pollution Control Series due October 1, 2020 .............. 11,000,000 None 7 7/8% Pollution Control Series due March 1, 2021 ................ 100,000,000 None 9 3/4% Series due May 1, 2021..................................... 300,000,000 127,747,000 Pollution Control Series M due June 1, 2021....................... 86,250,000 None Pollution Control Series N due June 1, 2021....................... 57,500,000 None Pollution Control Series O due June 1, 2021....................... 57,500,000 None Pollution Control Series P due June 1, 2021 ...................... 115,000,000 None 8 1/8% Series due February 1, 2002 ............................... 150,000,000 150,000,000 8 7/8 % Series due February 1, 2022 .............................. 175,000,000 112,200,000 8 1/4% Series due April 1, 2004 .................................. 100,000,000 100,000,000 9% Series due April 1, 2022 ...................................... 100,000,000 None 6 3/4% Pollution Control Series due April 1, 2022 ................ 50,000,000 50,000,000 7 1/8% Series due June 1, 1997 ................................... 150,000,000 None 8% Series due June 1, 2002 ....................................... 147,000,000 147,000,000 6 5/8% Pollution Control Series due June 1, 2022 ................. 33,000,000 33,000,000 6 3/8% Series due August 1, 1997 ................................. 175,000,000 None 7 3/8% Series due August 1, 2001 ................................. 150,000,000 145,000,000 8 1/2% Series due August 1, 2024 ................................. 175,000,000 115,400,000 6.70% Pollution Control Series due October 1, 2022 ............... 16,935,000 16,935,000 6.55 % Pollution Control Series due October 1, 2022 .............. 40,000,000 40,000,000 7 3/8% Series due November 1, 1999 ............................... 100,000,000 None 8 3/4% Series due November 1, 2023 ............................... 200,000,000 102,550,000 6 1/2% Pollution Control Series due December 1, 2027 ............. 46,660,000 46,660,000 6 3/4% Series due March 1, 2003 .................................. 200,000,000 194,475,000 7 7/8% Series due March 1, 2023................................... 300,000,000 223,770,000 6.05% Pollution Control Series due April 1, 2025.................. 90,000,000 90,000,000 6.10 % Pollution Control Series due April 1, 2028 ................ 50,000,000 50,000,000 5 7/8% Series due April 1, 1998 .................................. 175,000,000 None 6 3/4% Series due April 1, 2003 .................................. 100,000,000 95,000,000 5 Principal Amount Principal Amount Series Issued Outstanding ------ ---------------- ---------------- 7 7/8% Series due April 1, 2024................................... 225,000,000 132,743,000 Pollution Control Series due June 1, 2023......................... 115,000,000 78,987,750 5 3/4% Series due July 1, 1998.................................... 150,000,000 None 6 3/4% Series due July 1, 2005.................................... 100,000,000 92,000,000 7 5/8% Series due July 1, 2025.................................... $ 250,000,000 $214,750,000 5 1/2% Series due October 1, 1998................................. 125,000,000 None 6 1/4% Series due October 1, 2004................................. 125,000,000 120,595,000 7 3/8% Series due October 1, 2025................................. 300,000,000 178,000,000 5 1/2% Pollution Control Series due May 1, 2022................... 50,000,000 50,000,000 5.55% Pollution Control Series due May 1, 2022 ................... 75,000,000 75,000,000 5.85% Pollution Control Series due May 1, 2022 ................... 33,465,000 33,465,000 Floating Rate Series due May 1, 1999 ............................. 300,000,000 None Pollution Control Series Q due May 1, 2029........................ 45,045,500 None Pollution Control Series R due May 1, 2029 ....................... 45,045,500 None 0% Series due 1994................................................ 1,013,831,000 None Pollution Control Series S due April 1, 2030...................... 58,270,500 58,270,500 Pollution Control Series T due April 1, 2030...................... 18,400,000 18,400,000 Pollution Control Series U........................................ 136,108,250 None Pollution Control Series V........................................ 136,108,250 None Pollution Control Series W........................................ 13,857,500 13,857,500 Pollution Control Series X........................................ 21,246,250 21,246,250 Secured Medium-Term Notes, Series D .............................. 201,150,000 60,000,000 Pollution Control Series Y........................................ 28,819,000 28,819,000 Pollution Control Series Z........................................ 66,642,500 66,642,500 Pollution Control Series AA....................................... 28,750,000 28,750,000 Pollution Control Series AB....................................... 28,750,000 28,750,000 Pollution Control Series AC....................................... 70,397,250 70,397,250 Pollution Control Series AD....................................... 57,500,000 57,500,000 Pollution Control Series AE....................................... 57,500,000 57,500,000 Pollution Control Series AF....................................... 36,000,750 36,000,750 Pollution Control Series AG....................................... 28,801,750 28,801,750 Pollution Control Series AH....................................... 33,079,750 33,079,250 Pollution Control Series AI....................................... 59,253,750 59,253,750 Pollution Control Series AJ....................................... 13,800,000 13,800,000 Pollution Control Series AK....................................... 250,163,335 None Floating Rate Series A due December 20, 2002...................... 150,000,000 150,000,000 Floating Rate Series B due December 20, 2002...................... 425,000,000 425,000,000 Collateral Series A............................................... 3,839,650,000 None
which bonds are also hereinafter sometimes called bonds of the First through One Hundred First Series, respectively; and 6 WHEREAS, Section 2.01 of the Original Indenture provides that the form of each series of bonds (other than the First Series) issued thereunder and of the coupons to be attached to coupon bonds of such series shall be established by Resolution of the Board of Directors of the Company, and that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof, and may also have such omissions or modifications or contain such provisions not prohibited by the provisions of the Mortgage as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Mortgage; and WHEREAS, Section 22.04 of the Original Indenture provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Mortgage, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted, or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations, restrictions or provisions for the benefit of any one or more series of bonds issued thereunder, or the Company may cure any ambiguity contained therein, or in any supplemental indenture, or may establish the terms and provisions of any series of bonds other than the First Series, by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to be recorded in all of the states in which any property at the time subject to the Lien of the Mortgage shall be situated; and WHEREAS, the Company now desires to create a new series of bonds and to add to its covenants and agreements contained in the Mortgage certain other covenants and agreements to be observed by it and to alter and amend in certain respects the covenants and provisions contained in the Mortgage; and WHEREAS, the execution and delivery by the Company of this Sixty-second Supplemental Indenture, and the terms of the bonds of the One Hundred Second Series, hereinafter referred to, have been duly authorized by the Board of Directors of the Company by appropriate resolutions of said Board of Directors; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That the Company, in consideration of the premises and of Ten Dollars to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in order to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Mortgage, according to their tenor and effect and the performance of all the provisions of the Mortgage (including any instruments supplemental thereto and any modification made as in the Mortgage provided) and of said bonds, hath granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, hypothecated, affected, pledged, set over and confirmed and granted a security interest in and by these presents doth grant, bargain, sell, release, convey, assign, transfer, mortgage, hypothecate, affect, pledge, set over and confirm and grant a security interest in (subject, however, to Excepted Encumbrances as defined in Section 1.06 of the Original Indenture) unto The Bank of New York, Trustee under the Mortgage, and to its successor 7 or successors in said trust, and to said Trustee and its successors and assigns forever, all properties of the Company, real, personal and mixed, of the kind or nature specifically mentioned in the Original Indenture, as heretofore supplemented, or of any other kind or nature acquired by the Company on or after the date of the execution and delivery of the Original Indenture (except any herein or in the Original Indenture expressly excepted), now owned or, subject to the provisions of Section 18.03 of the Original Indenture, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including (without in anywise limiting or impairing by the enumeration of the same, the scope and intent of the foregoing or of any general description contained in this Sixtieth Supplemental Indenture) all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to real estate or the occupancy of the same; all power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, waterways, dams, dam sites, aqueducts, and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all power houses, gas plants, street lighting systems, standards and other equipment incidental thereto; all telephone, radio and television systems, air-conditioning systems and equipment incidental thereto, water wheels, water works, water systems, steam heat and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracks, ice or refrigeration plants and equipment, offices, buildings and other structures and the equipment thereof; all machinery, engines, boilers, dynamos, turbines, electric, gas and other machines, prime movers, regulators, meters, transformers, generators (including, but not limited to, engine driven generators and turbo-generator units), motors, electrical, gas and mechanical appliances, conduits, cables, water, steam heat, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, towers, overhead conductors and devices, underground conduits, underground conductors and devices, wires, cables, tools, implements, apparatus, storage battery equipment, and all other fixtures and personalty; all municipal and other franchises, consents or permits; all lines for the transmission and distribution of electric current, gas, steam heat or water for any purpose including towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith and (except as herein or in the Original Indenture expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in connection with any property hereinbefore or in the Original Indenture described. TOGETHER WITH all and singular the tenements, hereditaments, prescriptions, servitudes and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 13.01 of the Original Indenture) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof. IT IS HEREBY AGREED by the Company that, subject to the provisions of Section 18.03 of the Original Indenture, all the property, rights and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Original Indenture expressly excepted, shall be and are as fully 8 granted and conveyed hereby and as fully embraced within the Lien of the Original Indenture and the Lien hereof as if such property, rights and franchises were now owned by the Company and were specifically described herein and conveyed hereby. PROVIDED that the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, hypothecated, affected, pledged, set over or confirmed hereunder, nor is a security interest therein hereby or by the Original Indenture, as heretofore supplemented, granted or intended to be granted, and the same are hereby expressly excepted from the Lien and operation of the Original Indenture, as heretofore supplemented, and from the Lien and operation of this Sixty-second Supplemental Indenture, viz.: (1) cash, shares of stock, bonds, notes and other obligations and other securities not hereinbefore or hereafter specifically pledged, paid, deposited, delivered or held under the Mortgage or covenanted so to be; (2) merchandise, equipment, apparatus, materials or supplies held for the purpose of sale or other disposition in the usual course of business or for the purpose of repairing or replacing (in whole or in part) any rolling stock, buses, motor coaches, automobiles or other vehicles or aircraft or boats, ships, or other vessels and any fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; rolling stock, buses, motor coaches, automobiles and other vehicles and all aircraft; boats, ships and other vessels; all timber, minerals, mineral rights and royalties; (3) bills, notes and other instruments and accounts receivable, judgments, demands, general intangibles and choses in action, and all contracts, leases and operating agreements not specifically pledged hereunder or under the Mortgage or covenanted so to be; (4) the last day of the term of any lease or leasehold which may hereafter become subject to the Lien of the Mortgage; (5) electric energy, gas, water, steam, ice, and other materials or products generated, manufactured, produced, or purchased by the Company for sale, distribution or use in the ordinary course of its business; (6) any natural gas wells or natural gas leases or natural gas transportation lines or other works or property used primarily and principally in the production of natural gas or its transportation, primarily for the purpose of sale to natural gas customers or to a natural gas distribution or pipeline company, up to the point of connection with any distribution system; and (7) the Company's franchise to be a corporation; provided, however, that the property and rights expressly excepted from the Lien and operation of the Original Indenture and this Sixty-second Supplemental Indenture in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that the Trustee or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XV of the Original Indenture by reason of the occurrence of a Default. TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, hypothecated, affected, pledged, set over or confirmed or in which a security interest has been granted by the Company as aforesaid, or intended so to be (subject, however, to Excepted Encumbrances as defined in Section 1.06 of the Original Indenture), unto The Bank of New York, Trustee, and its successors and assigns forever. IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Original Indenture, as heretofore supplemented, this Sixty-second Supplemental Indenture being 9 supplemental to the Original Indenture. AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Original Indenture, as heretofore supplemented, shall affect and apply to the property hereinbefore described and conveyed and to the estate, rights, obligations and duties of the Company and the Trustee and the beneficiaries of the trust with respect to said property, and to the Trustee and its successors as Trustee of said property, in the same manner and with the same effect as if said property had been owned by the Company at the time of the execution of the Original Indenture, and had been specifically and at length described in and conveyed to said Trustee by the Original Indenture as a part of the property therein stated to be conveyed. The Company further covenants and agrees to and with the Trustee and its successors in said trust under the Mortgage, as follows: ARTICLE I. ONE HUNDRED SECOND SERIES OF BONDS SECTION 1.1 There shall be a series of bonds designated "Floating Rate Series C due June 15, 2003" (herein sometimes referred to as the One Hundred Second Series), each of which shall also bear the descriptive title "First Mortgage Bond", and the form thereof, which shall be established by Resolution of the Board of Directors of the Company, shall contain suitable provisions with respect to the matters hereinafter in this Section specified. Bonds of the One Hundred Second Series shall mature on June 15, 2003 and shall be issued as fully registered bonds in denominations of One Hundred Thousand Dollars and in any integral multiples of Ten Thousand Dollars in excess thereof (the exercise of such option to be evidenced by the execution and delivery thereof); they shall bear interest at the per annum interest rate (Interest Rate) determined by the Calculation Agent on each Interest Determination Date, as such terms are defined below, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year (each an Interest Payment Date), commencing September 15, 2001; the principal of and interest on each said bond to be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts. Bonds of the One Hundred Second Series shall be dated as in Section 2.03 of the Original Indenture provided. The Interest Rate shall not exceed the maximum rate permitted by law. The Calculation Agent for bonds of the One Hundred Second Series shall be The Bank of New York, or its successor as Calculation Agent. At any time, the Company may designate a successor Calculation Agent, who may be any person or entity who is eligible to be a successor Trustee or co-trustee under the Mortgage or who is independent as such term is defined in the Mortgage. "Interest Determination Date" for each Interest Period for bonds of the One Hundred Second Series shall be the second London Business Day immediately preceding the first day of such Interest Period. 10 "Interest Period" for bonds of the One Hundred Second Series shall mean a period commencing on an Interest Payment Date and ending on the calendar day preceding the next succeeding Interest Payment Date; provided that the first Interest Period shall commence on July 2, 2001. "LIBOR" for any Interest Determination Date will be the rate for Three Month Deposits, as that rate appears on Telerate Page 3750, or a successor reporter of such rates selected by the Calculation Agent and acceptable to the Company, at approximately 11:00 a.m., London time, on the Interest Determination Date (Reported Rate); provided, however, that in certain circumstances described below, LIBOR will be determined in an alternative manner. "London Business Day" for bonds of the One Hundred Second Series shall mean any day on which dealings in deposits in U.S. dollars are transacted, or, with respect to any future date, are expected to be transacted, in the London interbank market. "Representative Amount" for purposes of calculating the Interest Rate for bonds of the One Hundred Second Series shall mean an amount determined by the Calculation Agent to be representative of single transactions at such time. "Telerate Page 3750" means the display designated as Page 3750 on Bridge Telerate, Inc. or any successor service for the purpose of displaying London interbank rates of major banks for U.S. dollar deposits. "Three Month Deposits" for purposes of calculating the Interest Rate for bonds of the One Hundred Second Series shall mean deposits in U.S. dollars having a maturity of three months for a period commencing on the second London Business Day immediately following the Interest Determination Date. The Interest Rate for bonds of the One Hundred Second Series for each Interest Period will be equal to three month LIBOR on the Interest Determination Date for that Interest Period plus .60% If the following circumstances exist on any Interest Determination Date, the Calculation Agent will determine LIBOR for the bonds of the One Hundred Second Series as follows: (A) In the event no Reported Rate appears on Telerate Page 3750 as of approximately 11:00 a.m., London time, on an Interest Determination Date, the Calculation Agent will request the principal London offices of each of four major banks in the London interbank market selected by the Calculation Agent (after consultation with the Company) to provide a quotation of the rate at which Three Month Deposits in Representative Amounts are offered by it to prime banks in the London interbank market, as of approximately 11:00 a.m., London time, on that Interest Determination Date. If at least two rate quotations are provided, LIBOR will be the arithmetic mean of the rate quotations obtained by the Calculation Agent. 11 (B) In the event no Reported Rate appears on Telerate Page 3750 and the Calculation Agent obtains fewer than two rate quotations, LIBOR will be the arithmetic mean of the rates quoted at approximately 11:00 a.m., New York City time, on that Interest Determination Date, by three major banks in New York City, selected by the Calculation Agent (after consultation with the Company), for Three Month Deposits in Representative Amounts to leading European banks, commencing on the second London Business Day immediately following that Interest Determination Date; provided, however, that if fewer than three banks selected by the Calculation Agent are quoting those rates, LIBOR for the applicable Interest Period will be the same as LIBOR in effect for the immediately preceding Interest Period. The determination of the Calculation Agent of the Interest Rate for a particular Interest Period, absent willful default, bad faith or manifest error will be binding and conclusive upon the registered owners of bonds of the One Hundred Second Series, the Company and the Trustee. Interest on the bonds of the One Hundred Second Series shall be calculated by multiplying the actual number of days for which interest is payable in the relevant Interest Period by the Interest Rate divided by 360. All dollar amounts resulting from such calculation shall be rounded, if necessary, to the nearest cent, with one-half cent rounded upward. The Company shall cause the Calculation Agent to agree to notify the Trustee of the Interest Rate for each Interest Period promptly upon the determination of such Interest Rate. Notwithstanding the foregoing, so long as there is no existing default in the payment of interest on the bonds of the One Hundred Second Series, the person in whose name any bond of the One Hundred Second Series is registered at the close of business on any Record Date (as hereinafter defined) with respect to any Interest Payment Date shall be entitled to receive the interest payable on such Interest Payment Date. "Record Date" for bonds of the One Hundred Second Series shall mean (a) the business day next preceding the corresponding Interest Payment Date as long as the applicable bonds of the One Hundred Second Series are held by a securities depository or its nominee and (b) the fifteenth calendar day preceding the corresponding Interest Payment Date if the applicable bonds of the One Hundred Second Series are not held by a securities depository or its nominee. The bonds of the One Hundred Second Series will be initially issued pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), in global form registered in the name of Cede & Co. (as nominee for The Depository Trust Company ("DTC"), New York, New York). The bonds of the One Hundred Second Series in global form shall bear the depository legend in substantially the form set forth in Exhibit A hereto. The bonds of the One Hundred Second Series shall contain restrictions on transfer, substantially as described in the form thereof set forth in Exhibit A hereto. Each bond of the One Hundred Second Series, whether in a global form or in a 12 certificated form, shall bear the non-registration legend in substantially the form set forth in such form, unless otherwise agreed by the Company, such agreement to be confirmed in writing to the Trustee. Nothing in the Mortgage, the bonds of the One Hundred Second Series or this certificate shall be construed to require the Company to register any of the bonds of the One Hundred Second Series under the Securities Act, unless otherwise expressly agreed by the Company, confirmed in writing to the Trustee, or to make any transfer of such bonds of the One Hundred Second Series in violation of applicable law. It is contemplated that beneficial interests in the bonds of the One Hundred Second Series owned by qualified institutional buyers (as defined in Rule 144A under the Securities Act)("QIBs") or sold to QIBs in reliance upon Rule 144A under the Securities Act will be represented by one or more separate certificates in global form registered in the name of Cede & Co., as registered owner and as nominee for DTC; beneficial interests in the bonds of the One Hundred Second Series sold to foreign purchasers pursuant to Regulation S under the Securities Act will be evidenced by one or more separate certificates in global form (each a "Regulation S Global Certificate") and will be registered in the name of Cede & Co., as registered owner and as nominee for DTC for the accounts of Euroclear and Cedel Bank; prior to the 40th day after the date of initial issuance of the bonds of the One Hundred Second Series, beneficial interests in a Regulation S Global Certificate may be held only through Euroclear or Cedel Bank; bonds of the One Hundred Second Series acquired by Institutional Accredited Investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) ("IAIs") and other eligible transferees, who are not QIBs and who are not foreign purchasers pursuant to Regulation S under the Securities Act, will be in certificated form. The Trustee, the Security Registrar and the Company will have no responsibility or liability for any aspect of transfers of beneficial interests in the bonds of the One Hundred Second Series, any records of DTC of beneficial interests or any transactions between DTC and its participants or between any such participants and any other beneficial owners or for monitoring, supervising or reviewing of any thereof. In connection with any transfer of bonds of the One Hundred Second Series, the Trustee, the Security Registrar and the Company shall be under no duty to inquire into, may conclusively presume the correctness of, and shall be fully protected in relying upon the certificates and other information (in the forms attached hereto as Exhibit A, for use in connection with the transfer of the bonds of the One Hundred Second Series in certificated form, or Exhibit B, for use in connection with the transfer of beneficial interests in one certificate in global form to another certificate in global form or to a bond of the One Hundred Second Series in certificated form, or otherwise) received from the Holders and any transferees of any bonds of the One Hundred Second Series regarding the validity, legality and due authorization of any such transfer, the eligibility of the transferee to receive such bond of the One Hundred Second Series and any other facts and circumstances related to such transfer. Bonds of the One Hundred Second Series will have such other terms and provisions as set forth in the form thereof, attached hereto as Exhibit A, and shall be issued in substantially such form. (I) Any interest on any bond of the One Hundred Second Series which is payable but is not punctually paid or duly provided for, on any Interest Payment Date (herein called 13 "Defaulted Interest"), shall forthwith cease to be payable to the registered owner on the relevant Record Date solely by virtue of such owner having been such owner; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in subsection A or B below: A. The Company may elect to make payment of any Defaulted Interest on the bonds of the One Hundred Second Series to the persons in whose names such bonds are registered at the close of business on a Special Record Date (as hereinafter defined) for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each bond of the One Hundred Second Series and the date of the proposed payment (which date shall be such as will enable the Trustee to comply with the next sentence hereof), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this subsection provided and not to be deemed part of the Mortgaged and Pledged Property. Thereupon the Trustee shall fix a date (herein referred to as a "Special Record Date") for the payment of such Defaulted Interest which date shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each registered owner of a bond of the One Hundred Second Series at such owner's address as it appears in the bond register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion in the name and at the expense of the Company, cause a similar notice to be published at least once in one Daily Newspaper of general circulation in the Borough of Manhattan, The City of New York, New York and in one Daily Newspaper of general circulation in the City of Dallas, Texas, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names the bonds of the One Hundred Second Series are registered on such Special Record Date and shall no longer be payable pursuant to the following subsection B. B. The Company may make payment of any Defaulted Interest on the bonds of the One Hundred Second Series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such bonds may be listed and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this subsection, such payment shall be deemed practicable by the Trustee. 14 Subject to the foregoing provisions of this Section, each bond of the One Hundred Second Series delivered under the Mortgage upon transfer of or in exchange for or in lieu of any other bond shall carry all the rights to interest accrued and unpaid, and to accrue, which were carried by such other bond and each such bond shall bear interest from such date, that neither gain nor loss in interest shall result from such transfer, exchange or substitution. (II) Bonds of the One Hundred Second Series shall not be redeemable prior to December 15, 2001. On or after December 15, 2001, bonds of the One Hundred Second Series shall be redeemable, at the option of the Company, in whole but not in part on the 15th day of any March, June, September or December prior to maturity, upon notice, as provided in Section 12.02 of the Original Indenture, mailed at least thirty (30) days prior to the date fixed for redemption, at a redemption price of 100% of the principal amount of the bonds to be redeemed together with accrued interest to the date fixed for redemption. (III) At the option of the registered owner, any bonds of the One Hundred Second Series, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, New York, shall be exchangeable for a like aggregate principal amount of bonds of the same series of other authorized denominations. Bonds of the One Hundred Second Series shall be transferable, upon the surrender thereof for cancellation, together with a written instrument of transfer in form approved by the registrar duly executed by the registered owner or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York, New York. Upon any exchange or transfer of bonds of the One Hundred Second Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge, as provided in Section 2.05 of the Original Indenture, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of bonds of the One Hundred Second Series. ARTICLE II. MISCELLANEOUS PROVISIONS SECTION 2.1 Subject to the amendments provided for in this Sixty-second Supplemental Indenture, the terms defined in the Original Indenture, as heretofore supplemented, shall for all purposes of this Sixty-second Supplemental Indenture have the meanings specified in the Original Indenture, as heretofore supplemented. SECTION 2.2 The holders of bonds of the One Hundred Second Series consent that the Company may, but shall not be obligated to fix a record date for the purpose of determining the holders of bonds of the One Hundred Second entitled to consent to any amendment, supplement or waiver. If a record date is fixed, those persons who were holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons 15 continue to be holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. SECTION 2.3 The Trustee hereby accepts the trusts herein declared, provided, created or supplemented and agrees to perform the same upon the terms and conditions herein and in the Original Indenture, as heretofore supplemented, set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Sixty-second Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIX of the Original Indenture shall apply to and form part of this Sixty-second Supplemental Indenture with the same force and effect as if the same were herein set forth in full with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Sixty-second Supplemental Indenture. SECTION 2.4 Whenever in this Sixty-second Supplemental Indenture either of the parties hereto is named or referred to, this shall, subject to the provisions of Articles XVIII and XIX of the Original Indenture, be deemed to include the successors and assigns of such party, and all the covenants and agreements in this Sixty-second Supplemental Indenture contained, by or on behalf of the Company, or by or on behalf of the Trustee, shall, subject as aforesaid, bind and inure to the respective benefits of the respective successors and assigns of such parties, whether so expressed or not. SECTION 2.5 Nothing in this Sixty-second Supplemental Indenture expressed or implied, is intended, or shall be construed to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons Outstanding under the Mortgage, any right, remedy or claim under or by reason of this Sixty-second Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Sixty-second Supplemental Indenture contained, by or on behalf of the Company, shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and coupons Outstanding under the Mortgage. SECTION 2.6 This Sixty-second Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 16 IN WITNESS WHEREOF, TXU ELECTRIC COMPANY has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by its Chairman of the Board and Chief Executive, President or one of its Vice Presidents, and its corporate seal to be attested by its Secretary or one of its Assistant Secretaries for and in its behalf, and THE BANK OF NEW YORK has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or Assistant Vice Presidents and its corporate seal to be attested by one of its Vice Presidents, Assistant Vice Presidents, Assistant Secretaries or Assistant Treasurers, all as of the day and year first above written. TXU ELECTRIC COMPANY By /s/ Kirk R. Oliver ---------------------------------- Kirk R. Oliver Vice President Attest: /s/ John Stephens, Jr. - ------------------------------ John Stephens, Jr. Assistant Secretary Executed, sealed and delivered by TXU ELECTRIC COMPANY in the presence of: /s/ Laura Conn - ------------------------------ - ------------------------------ 17 THE BANK OF NEW YORK, Trustee By /s/ Walter N. Gitlin --------------------------- Walter N. Gitlin Vice President Attest: /s/ Mary K. LaGumina - ------------------------------ Mary K. LaGumina Vice President Executed, sealed and delivered by THE BANK OF NEW YORK in the presence of: Michael C. Daly - ------------------------------ Essie Elcock - ------------------------------ 18 STATE OF TEXAS ) ) SS.: COUNTY OF DALLAS ) Before me, a Notary Public in and for said State, on this day personally appeared Kirk R. Oliver, known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be a Vice President of TXU ELECTRIC COMPANY, a Texas corporation, and acknowledged to me that said person executed said instrument for the purposes and consideration therein expressed, and as the act of said corporation. Given under my hand and seal of office this 2nd day of July, 2001. /s/ Julia Laxson ------------------------------ JULIA LAXSON Notary Public, State of Texas My Commission Expires February 26, 2005 19 STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) Before me, a Notary Public in and for said State, on this day personally appeared WALTER N. GITLIN, known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be a Vice President of THE BANK OF NEW YORK, a New York corporation, and acknowledged to me that said person executed said instrument for the purposes and consideration therein expressed, and as the act of said corporation. Given under my hand and seal of office this 2nd day of July, 2001. /s/ William J. Cassels --------------------------------------- WILLIAM J. CASSELS Notary Public, State of New York No. 01CA5027729 Qualified in Bronx County Certificate filed in New York County Commission Expires May 16, 2002 20 EXHIBIT A [depository legend] Unless this Certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. [non-registration legend] "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) IN A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), OR (5) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a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a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF, OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER, REGULATION S UNDER THE SECURITIES ACT." [FORM OF SERIES C BOND] First Mortgage Bond, Floating Rate Series C due June 15, 2003 CUSIP No._____________ No.____________ TXU ELECTRIC COMPANY, a corporation of the State of Texas (hereinafter called the Company), for value received, hereby promises to pay to or registered assigns, at the office or agency of the Company in the Borough of Manhattan, The City of New York, New York, _________________________ DOLLARS on June 15, 2003, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts, and to pay to the registered owner hereof interest thereon, from July 2, 2001, if the date of this bond is prior to September 15, 2001, or if the date of this bond is on or after September 15, 2001, from the September 15, June 15, December 15, or March 15 immediately preceding the date of this bond to which interest has been paid (unless the date hereof is an interest payment date to which interest has been paid, in which case from the date hereof), at a rate per annum which will be determined quarterly as provided in the Sixty-second Supplemental Indenture dated as of July 1, 2001, hereinafter referred to, such interest to be payable on March 15, June 15, September 15 and December 15 in each year (each an interest payment date), commencing on the interest payment date next succeeding the date of authentication of this bond, in each case in like coin or currency at such office or agency on the interest payment date, until the Company's obligation with respect to the payment of such principal shall have been discharged. If the Company shall default in the payment of interest due on any interest payment date, then interest shall be payable from the next preceding interest payment date to which interest has been paid, or, if no such interest has been paid on the bonds, from July 2, 2001. The interest so payable on any interest payment date will, subject to certain exceptions provided in the Mortgage hereinafter referred to, be paid to the person in whose name this bond is registered at the close of business on (1) the business day next preceding such interest payment date if this bond is in book-entry only form or (2) the fifteenth calendar day preceding such interest payment date as the case may be, if this bond is in certificated form (hereinafter called record dates), provided that, interest payable on the maturity date will be payable to the person to whom the principal hereof shall be payable. At the option of the Company, interest may be payable by check mailed on or prior to such interest payment date to the address of the person entitled thereto as such address shall appear on the register of the Company or by wire transfer to an account designated by the persons entitled thereto, provided that so long as this bond is in book-entry only form, all payments of principal and interest on this bond will be made in immediately available funds. The Company shall not be required to make transfers or exchanges of this bond while this bond is in certificated form for a period of fifteen days next preceding an interest payment date. Each Holder shall be deemed to understand that the offer and sale of the Securities of this series have not been registered under the Securities Act and that the Securities of this series may not be offered or sold except as permitted in the following sentence. Each Holder shall be deemed to agree, on its own behalf and on behalf of any accounts for which it is acting as hereinafter stated, that if such Holder sells any Securities of this series, such Holder will do so only (A) to the Company, (B) to a person whom it reasonably believes is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (C) to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that, prior to such transfer, furnishes to the Trustee a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Securities of this series, (D) in an offshore transaction in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (F) pursuant to an effective registration statement under the Securities Act, and each Holder is further deemed to agree to provide to any person purchasing any of the Securities of this series from it a notice advising such purchaser that resales of the Securities of this series are restricted as stated herein. Each Holder shall be deemed to understand that, on any proposed resale of any Securities of this series pursuant to the exemption from registration under Rule 144 under the Securities Act, any Holder making any such proposed resale will be required to furnish to the Trustee and Company such certifications, legal opinions and other information as the Trustee and Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions in the form annexed hereto. This bond is one of an issue of bonds of the Company issuable in series and is one of a series known as its First Mortgage Bonds, Floating Rate Series C due June 15, 2003, all bonds of all series issued and to be issued under and equally secured by a Mortgage and Deed of Trust (herein, together with any indenture supplemental thereto, including the Sixty-second Supplemental Indenture dated as of July 1, 2001, called the Mortgage), dated as of December 1, 1983, executed by the Company to Irving Trust Company (now The Bank of New York), Trustee. Reference is made to the Mortgage for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds and of the Trustee in respect thereof, the duties and immunities of the Trustee and the terms and conditions upon which the bonds are and are to be secured, the circumstances under which additional bonds may be issued and the definition of certain terms hereinafter used. With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or the rights of the holders of the bonds and/or coupons and/or the terms and provisions of the Mortgage may be modified or altered by such affirmative vote or votes of the holders of bonds then Outstanding as are specified in the Mortgage; provided that, without the consent of the holder hereof, no such modification or alteration shall, among other things, impair or affect the right of the holder to receive payment of the principal of this bond, on or after the due date expressed herein, or permit the creation of any lien equal or prior to the Lien of the Mortgage or deprive the holder of the benefit of a lien on the Mortgaged and Pledged Property or impair or affect the right to receive payment of interest on this bond on or after the respective due dates expressed herein, without the consent of the holder of the right to such interest. The principal hereof may be declared or may become due prior to the maturity date hereinbefore named on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a Default as in the Mortgage provided. This bond is transferable as prescribed in the Mortgage by the registered owner hereof in person, or by such owner's duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York, New York, upon surrender of this bond, and upon payment, if the Company shall require it, of the transfer charges provided for in the Mortgage, and thereupon, a new fully registered bond of the same series for a like principal amount will be issued to the transferee in exchange herefor as provided in the Mortgage. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner hereof for the purpose of receiving payment and for all other purposes and neither the Company nor the Trustee shall be affected by any notice to the contrary. In the manner prescribed in the Mortgage, any bonds of this series, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, New York, together with a written instrument of transfer, wherever required by the Company, duly executed by the registered owner or by such owner's duly authorized attorney, are exchangeable for a like aggregate principal amount of fully registered bonds of the same series of other authorized denominations. The bonds of this series shall be redeemable as provided in the Sixty-second Supplemental Indenture, dated as of July 1, 2001. As provided in the Mortgage, the Company shall not be required to make transfers or exchanges of bonds of any series for a period of fifteen days next preceding any interest payment date for bonds of said series, or next preceding any designation of bonds of said series to be redeemed, and the Company shall not be required to make transfers or exchanges of any bonds designated in whole or in part for redemption. No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer or director of the Company or of any predecessor or successor corporation, as such, either directly or through the Company or any predecessor or successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, stockholders, officers and directors being released by the holder or owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Mortgage. This bond shall not become obligatory until The Bank of New York, the Trustee under the Mortgage, or its successor thereunder, shall have signed the form of authentication certificate endorsed hereon. This bond shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that the law of any other jurisdiction shall be mandatorily applicable. IN WITNESS WHEREOF, TXU ELECTRIC COMPANY has caused this bond to be signed in its corporate name by its Chairman of the Board, Chief Executive, President or one of its Vice Presidents by such officer's signature or a facsimile thereof, and its corporate seal to be impressed or imprinted hereon and attested by its Secretary or one of its Assistant Secretaries by such officer's signature or a facsimile thereof. TXU ELECTRIC COMPANY By -------------------------------------- Vice President ATTEST: - -------------------------------- Assistant Secretary TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the bonds, of the series herein designated, described or provided for in the within-mentioned Mortgage. DATED: ------------------- THE BANK OF NEW YORK, Trustee By -------------------------------------- Authorized Officer [CERTIFICATE OF TRANSFER] FIRST MORTGAGE BONDS FLOATING RATE SERIES C DUE JUNE 15, 2003 FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE Name and address of assignee must be printed or typewritten. the within Security of the Company and does hereby irrevocably constitute and appoint ________________________________________________________________________ to transfer the said Security on the books of the within-named Company, with full power of substitution in the premises. The undersigned certifies that said Security is being resold, pledged or otherwise transferred as follows: (check one) |_| to the Company; |_| to a Person whom the undersigned reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") purchasing for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or other transfer is being made in reliance on Rule 144A; |_| in an offshore transaction in accordance with Rule 904 of Regulation S under the Securities Act; |_| to an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring this Security for investment purposes and not for distribution; (attach a copy of an Accredited Investor Certificate in the form annexed signed by an authorized officer of the transferee) |_| as otherwise permitted by the non-registration legend appearing on this Security; or |_| as otherwise agreed by the Company, confirmed in writing to the Trustee, as follows: [describe] Dated: Signature: ----------------------- --------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement, or any change whatever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirement of the registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. [FORM OF ACCREDITED INVESTOR CERTIFICATE] [Transferor Name and Address] Ladies and Gentlemen: In connection with our proposed purchase of First Mortgage Bonds Floating Rate Series C due June 15, 2003 (the "Bonds") issued by TXU Electric Company ("Issuer"), we confirm that: 1. We have received a copy of the Offering Memorandum (the "Offering Memorandum") relating to the Bonds and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agree to the matters stated under the caption NOTICE TO INVESTORS in such Offering Memorandum, and the restrictions on duplication or circulation of, or disclosure relating to, such Offering Memorandum. 2. We understand that any subsequent transfer of the Bonds is subject to certain restrictions and conditions set forth in the Indenture relating to Bonds (the "Indenture") and that any subsequent transfer of the Bonds is subject to certain restrictions and conditions set forth under NOTICE TO INVESTORS in the Offering Memorandum and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Bonds except in compliance with such restrictions and conditions and the Securities Act of 1933, as amended ("Securities Act"). 3. We understand that the offer and sale of the Bonds have not been registered under the Securities Act, and that the Bonds may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we sell any Bonds, we will do so only (A) to the Company, (B) to a person whom we reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes to the Trustee (as defined in the Indenture) a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Bonds (substantially in the form of this letter), (D) in an offshore transaction in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (F) in accordance with another applicable exemption from the registration requirements of the Securities Act, and we further agree to provide to any person purchasing any of the Bonds from us a notice advising such purchaser that resales of the Bonds are restricted as stated herein. 4. We understand that, on any proposed resale of any Senior Note, we will be required to furnish to the Trustee and Issuer such certifications, legal opinions and other information as the Trustee and Issuer may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Bonds purchased by us will bear a legend to the foregoing effect. 5. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Bonds, and we and any accounts for which are acting are each able to bear the economic risk of our or its investment. 6. We are acquiring the Bonds purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You, the Issuer and the Trustee are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: --------------------------- Name: Title: EXHIBIT B [CERTIFICATE OF TRANSFER] TXU ELECTRIC COMPANY FIRST MORTGAGE BONDS FLOATING RATE SERIES C DUE JUNE 15, 2003 FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE Name and address of assignee must be printed or typewritten. $ - -------------------------------------------------------------------------------- principal amount of beneficial interest in the referenced Security of the Company and does hereby irrevocably constitute and appoint to transfer the said beneficial interest in such Security, with full power of substitution in the premises. The undersigned certifies that said beneficial interest in said Security is being resold, pledged or otherwise transferred as follows: (check one) |_| to the Company; |_| to a Person whom the undersigned reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") purchasing for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or other transfer is being made in reliance on Rule 144A; |_| in an offshore transaction in accordance with Rule 904 of Regulation S under the Securities Act; |_| to an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring this Security for investment purposes and not for distribution; (attach a copy of an Accredited Investor Certificate in the form annexed signed by an authorized officer of the transferee) |_| as otherwise permitted by the non-registration legend appearing on this Security; or |_| as otherwise agreed by the Company, confirmed in writing to the Trustee, as follows: [describe] Dated: Signature: ---------------------- ----------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement, or any change whatever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirement of the registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. [FORM OF ACCREDITED INVESTOR CERTIFICATE] [Transferor Name and Address] Ladies and Gentlemen: In connection with our proposed purchase of First Mortgage Bonds Floating Rate Series C due June 15, 2003 (the "Bonds") issued by TXU Electric Company ("Issuer"), we confirm that: 1. We have received a copy of the Offering Memorandum (the "Offering Memorandum") relating to the Bonds and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agree to the matters stated under the caption NOTICE TO INVESTORS in such Offering Memorandum, and the restrictions on duplication or circulation of, or disclosure relating to, such Offering Memorandum. 2. We understand that any subsequent transfer of the Bonds is subject to certain restrictions and conditions set forth in the Indenture relating to Bonds (the "Indenture") and that any subsequent transfer of the Bonds is subject to certain restrictions and conditions set forth under NOTICE TO INVESTORS in the Offering Memorandum and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Bonds except in compliance with such restrictions and conditions and the Securities Act of 1933, as amended ("Securities Act"). 3. We understand that the offer and sale of the Bonds have not been registered under the Securities Act, and that the Bonds may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we sell any Bonds, we will do so only (A) to the Company, (B) to a person whom we reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes to the Trustee (as defined in the Indenture) a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Bonds (substantially in the form of this letter), (D) in an offshore transaction in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (F) in accordance with another applicable exemption from the registration requirements of the Securities Act, and we further agree to provide to any person purchasing any of the Bonds from us a notice advising such purchaser that resales of the Bonds are restricted as stated herein. 4. We understand that, on any proposed resale of any Bonds, we will be required to furnish to the Trustee and Issuer such certifications, legal opinions and other information as the Trustee and Issuer may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Bonds purchased by us will bear a legend to the foregoing effect. 5. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Bonds, and we and any accounts for which are acting are each able to bear the economic risk of our or its investment. 6. We are acquiring the Bonds purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You, the Issuer and the Trustee are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: ---------------------------- Name: Title: EX-15 4 a2056644zex-15.txt EXHIBIT 15 EXHIBIT 15 TXU Electric Company: We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited condensed consolidated interim financial information of TXU Electric Company and subsidiaries (TXU Electric) for the period ended June 30, 2001, as indicated in our report dated August 9, 2001, because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in TXU Electric's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, is incorporated by reference in Registration Statements No. 33-69554, 333-53296, 333-53296-01, 333-53296-02 and 333-53296-03 on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Dallas, Texas August 9, 2001 EX-99 5 a2056644zex-99.txt EXHIBIT 99 EXHIBIT 99 TXU ELECTRIC COMPANY AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
TWELVE MONTHS ENDED JUNE 30, ------------------- 2001 2000 ---- ---- MILLIONS OF DOLLARS Operating revenues....................................................... $8,127 $6,454 ------ ------ Operating expenses Energy purchased for resale and fuel consumed....................... 3,655 2,273 Operation and maintenance........................................... 1,499 1,355 Depreciation and amortization....................................... 614 590 Income taxes........................................................ 410 405 Taxes other than income............................................. 584 545 ------ ------ Total operating expenses...................................... 6,762 5,168 ------ ------ Operating income......................................................... 1,365 1,286 Other income (deductions) Allowance for equity funds used during construction................. 7 9 Other income (deductions) -- net.................................... 14 (1) Income tax expense.................................................. (6) (5) ------ ------ Total other income (deductions)............................... 15 3 ------ ------ Income before interest and other charges................................. 1,380 1,289 ------ ------ Interest income.......................................................... 1 2 Interest expense and other charges Interest............................................................ 377 384 Distributions on TXU Electric Company obligated, mandatorily redeemable, preferred securities of subsidiary trusts holding solely junior subordinated debentures of TXU Electric Company.... 69 68 Allowance for borrowed funds used during construction and capitalized interest............................................. (12) (8) ------ ------ Total interest expense and other charges..................... 434 444 ------ ------ Net income .............................................................. 947 847 Preferred stock dividends................................................ 10 10 ------ ------ Net income available for common stock.................................... $ 937 $ 837 ====== ======
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