Initial Rating Agency Presentation

Initial Rating Agency Presentation Table of Contents

Company Overviews 1 Legislative Framework 2 Regulatory Framework 3 Transaction Overview 4 Regulatory Schedule 5 Working Group List 6 Next Steps 7

Regarding Texas Legislative and Regulatory Framework for Issuing Transition Bonds

October 26th-27th 1999

2 Texas Securitization Overview Company Overviews

Central Power and Light Reliant Energy HL&P TXU Electric Company Description: Central Power and Light Company Reliant Energy, Incorporated is a TXU Electric Company (“TXU”) is (“CPL”) is an investor-owned electric diversified international energy engaged in the generation, purchase, utility engaging in generating, services company providing electric transmission, distribution and sale of purchasing, transmitting, distributing utility services through its electric utility electric energy. and selling electricity. CPL was division Reliant Energy HL&P. Reliant TXU is a wholly owned subsidiary of incorporated in 1916. Energy HL&P has operated as an Texas Utilities Company, which was electric utility since 1906. CPL is a wholly owned subsidiary of incorporated in 1945. Central and South West Corporation. Long-Term Senior Ratings (Secured/ Unsecured): Duff & Phelps: A/A- A/A- A-/BBB+ Fitch IBCA: -/- A-/BBB+ A-/BBB+ Moody’s: A3/Baa1 A3/Baa1 A3/Baa1 Standard & Poor’s: A/A- A-/BBB+ BBB+/BBB Service Territory: An approximately 44,000 square mile An approximately 5,000 square mile An approximately 53,000 square mile area of South Texas. The largest cities area, including the City of Houston and area in north central, eastern, and in CPL’s service territory are Corpus surrounding areas on the Texas Gulf western Texas serving about one-third Christi, Laredo and McAllen. Coast. of the population of Texas in cities such as Dallas, Fort Worth, Arlington, Irving and Plano. Customers: > 642,000 > 1,600,000 > 2,500,000 Billed Revenue by Customer Class (1998) ($000): Residential: $527,081 37.5% $1,786,662 42.3% $2,853,684 44.0% Commercial: 377,492 26.8 1,108,328 26.3 1,861,258 28.7 Industrial: 309,543 22.0 1,286,511 30.5 981,502 15.1 Other: 192,001 13 .7 38,574 0 .9 791,646 12 .2 Total: $1,406,117 100.0% $4,220,075 100.0% $6,488,089 100.0%

3 Texas Securitization Overview Company Overviews

Central Power and Light Reliant Energy HL&P TXU Electric Expected Initial Transition Bond [$1.32 Billion] [$1.10 Billion] [$1.65 Billion] Issuance Size:

4 Texas Securitization Overview Legislative Framework

The Electric Utility Restructuring Act (the “Act”)

 Signed 6/21/99 by Gov. Bush (effective 9/1/99); passed 5/21/99 in House (142-4) and 5/27/99 in Senate (unanimous)

 Freeze Period: Retail rates frozen at 9/1/99 levels through 12/31/01 (Sec. 39.052) — In the event of force majeure (nonfuel revenues decrease by more than 10%), retail base rates may be increased upon PUCT consent

 Price to Beat Period: 1/1/02 – 1/1/07 (Sec. 39.202) — 6% rate reduction from bundled rates in effect on 1/1/99 (with the fuel component updated as of 12/31/01) for residential and small commercial customers (less than 1,000 kW) — Price to Beat rates frozen until the earlier of 1/1/05 (36 months) or when 40% of either residential or small commercial customers are served by a retail electric provider (a “REP”) that is not affiliated with the utility — After either of the thresholds above are met, the affiliated REP may offer a price that is either higher or lower, but it must continue to offer the Price to Beat

 Unbundling as of 1/1/02 into a transmission and/or distribution utility, a REP and a generation company (Sec. 39.051)

 Customer Choice as of 1/1/02, with pilot projects beginning 6/1/01 (Sec. 39.101)

 Billing Services will be rendered by REPs upon inception of customer choice (Sec. 39.107)

 Metering Services — Commercial and industrial customers may be metered by an entity other than the T&D utility as of 1/1/04 (Sec. 39.107) — Residential customers may be metered by an entity other than the T&D utility on the later of 9/1/05 or when 40% of residential customers receive power from a non-affiliated REP

 True-up proceeding after 1/10/04 for all stranded costs and regulatory assets; however, the true-up cannot impact outstanding transition bonds (Sec. 39.262)

5 Texas Securitization Overview Legislative Framework

Statutory Securitization Provisions

 Permits issuance of transition bonds (“TBs”) to securitize “qualified costs” (75% of estimated stranded costs and 100% of regulatory assets), subject to meeting statutory tests (Secs. 39.301 and 39.303) — Current applications for financing orders (and the related issuance of TBs) relate only to generation-related regulatory assets — Stranded costs (and any remaining generation-related regulatory assets) may be securitized through subsequent financing orders and issuances of TBs

 Provides framework for issuance and approval of an irrevocable financing order (Sec. 39.303) — Maximum 90 day review period by the Public Utility Commission of Texas (the “PUCT”) — Transition charges cannot be assessed for a period longer than 15 years — Appeal period limited to 15 days after financing order is signed by the PUCT and must be filed in Travis County district court — In accordance with the Act, the PUCT must make various findings confirming that the issuance of TBs will create ratepayer benefits

 Establishes right to create transferable “transition property” (Sec. 39.304)

 Establishes right to charge, collect and receive nonbypassable transition charges, or “TCs” (Secs. 39.301, 39.305, 39.306)

 Allows periodic adjustments of TCs, at least annually (Sec. 39.307)

 Bankruptcy “true sale” language (Sec. 39.308)

 Security interest provisions (Sec. 39.309)

 State pledge (Sec. 39.310) (Note: No referendum or voter initiative procedure exists in Texas)  Proceeds must be used to reduce regulatory assets and stranded costs through refinancing or retirement of utility debt and equity (Sec. 39.301)

6 Texas Securitization Overview Regulatory Framework

Draft Financing Order Provisions

 Allows creation of transition property, a transferable property right

 Contains billing and collection standards for REPs (after January 1, 2002) — Each REP must pay certain amounts billed to it by the servicer within a predetermined time period — REPs must maintain certain creditworthiness standards and/or be required to maintain a deposit — REPs obligated to provide the servicer timely access to all information necessary for the servicer to bill TCs — Remedial action may be taken within an agreed number of days should a REP default in its obligations

 Permits successor servicers

 Describes preliminary bond structure and payment terms, which may be subject to change prior to pricing

 Establishes true-up mechanics and procedures

 Approves allocation of TCs among customer classes

 Customers are obligated to pay TCs if they self-generate, with limited exceptions

 Provides for an issuance advice letter filed pursuant to the financing order confirming, among other items, the final terms of the TBs and the fact that the statutory tests have been met

 Provides for a tariff filed pursuant to the financing order evidencing the right of the special purpose entity to charge, collect and receive TCs

7 Texas Securitization Overview Transaction Overview

 Transition Bond Issuance:

Transition Transition Property Bonds Utility Utility Investors (Seller) SPE $ Net Proceeds $ Proceeds

 Ongoing Flows Prior to Competition (Issuance Date through December 31, 2001):

Principal Transition Transition and Interest Charges Utility Charges Indenture Payments Customers Investors (Servicer) Trustee

 Ongoing Flows After Competition (After January 1, 2002 and during pilot projects):

REPs Transition Charges

Principal Transition and Interest Transition Utility Charges Indenture Payments Charges Investors (Servicer) Trustee

Transition Customers Charges (Potentially, if REP defaults)

8 Texas Securitization Overview Regulatory Schedule

PUCT Regulatory Schedule Central Power and Light/TXU Electric(a) Reliant Energy HL&P(b)

Financing Order Application Filed October 18, 1999 November 16, 1999 Discovery and Intervention Deadline November 19, 1999 December 1999 Intervenor Testimony November 24, 1999 December 1999 Office of Regulatory Affairs Testimony November 29, 1999 December 1999 Objections to Testimony Heard December 3, 1999 Rebuttal Testimony December 3, 1999 January 2000 PUCT Hearings December 6-8, 1999 January 2000 Initial Briefs December 21, 1999 Reply Briefs January 4, 2000 PUCT Open Meeting to Discuss Briefs January 7, 2000 January 2000 PUCT Open Meeting to Rule on Application January 12, 2000 Financing Order Issued January 14, 2000 February 14, 2000 Financing Order Appeal Deadline January 31, 2000 February 29, 2000 Financing Order Final and Not Subject to February 1, 2000 March 1, 2000 Appeal

(a) Approved by PUCT on 10/25/99. 9 (b) Tentative schedule. Texas Securitization Overview Working Group List

Central Power & Light Reliant Energy HL&P TXU Electric

Company Wendy Hargus Charles Griffey Marc Moseley Contacts: Treasurer VP, Regulatory Planning and Vice President Analysis Greg Wilks Paul McKaig Project Manager- Kristie Colvin Corporate Policy Manager Corporate Finance Director, Financial Planning

Linda Geiger Assistant Treasurer

Company Sidley & Austin Baker & Botts L.L.P. Worsham, Forsythe & Counsel(s): Broyles & Pratt Wooldridge L.L.P. Thelen Reid & Priest

Lead Goldman, Sachs & Co. Merrill Lynch & Co. Morgan Stanley Dean Witter Underwriter: Curtis Probst Geoffrey Witt Robert Hoffman Vice President Managing Director Vice President (212) 902-6595 (212) 449-0356 (212) 761-2657 (212) 902-4024 (fax) (212) 449-9015 (fax) (212) 761-0782 (fax)

Steven Schoen Grant Jones Jack Kattan Vice President Vice President Associate (212) 902-3067 (212) 449-2220 (212) 761-1850 (212) 902-4024 (fax) (212) 449-9015 (fax) (212) 761-0782 (fax)

Underwriter Milbank, Tweed, Hadley & Vinson & Elkins L.L.P. Winthrop, Stimson, Putnam & s’ McCloy Skadden, Arps, Slate, Meagher Roberts Counsel(s): & Flom

10 Texas Securitization Overview Next Steps(a)

Transaction Milestone Timing

File Application for Financing Order October-November 1999

Distribute Transaction Documentation October-November 1999

File SEC Registration Statement November-December 1999

On-Site Rating Agency Due Diligence November-December 1999

Receive IRS Private Letter Ruling December-February 2000

Receive Ratings February-March 2000

Execute Transaction February-April 2000

(a) Tentative schedules. Subject to further change and modification. 11