From TUC (Texas Utility Commision) 11/98 10-Q Report to the SEC. This is the entire current Y2k Section.

YEAR 2000 ISSUES

Overview

Many existing computer programs use only the last two digits to identify a year in the date field. Thus, they would not recognize a year that begins with 20 instead of 19. If not corrected, many computer applications could fail or produce erroneous data on or about the year 2000.

The Company began its efforts to address Year 2000 (Y2K) issues in 1996 by focusing on its US information technology mainframe-based application systems (IT Corporate Applications). In early 1997, an infrastructure project to address the Company's information technology related equipment, operating systems and desktop software was begun (IT Infrastructure). In late 1997, a project was begun to address Y2K issues throughout the Company related to embedded systems, such as process controls for energy production and delivery, and business unit owned applications (Non-IT Equipment and Applications).

Applications and equipment in each of these three major initiatives have been inventoried and categorized based on their criticality to the Company's business operations. Assessments of the potential impact due to Y2K issues are being performed. This process involves the solicitation of vendor feedback, comparing information with other energy companies, and in many cases internal verification by testing. The majority of assessment work has occurred and the rest is scheduled to be completed by the end of 1998. The remediation and replacement work on the majority of IT Corporate Applications and IT Infrastructure is scheduled to be completed by the end of 1998. A majority of the assessment work on embedded systems has been completed. Remediation work is scheduled to be completed by September of 1999. A number of tests on operational equipment has been performed. The Company will continue to test this equipment throughout the remainder of 1998 and into the spring of 1999.

Readiness

The IT Corporate Applications assessment, testing and remediation activities are fully active. Twenty-seven percent of applications have been tested and certified as Y2K compliant. Sixty percent of applications are scheduled to be certified by the end of 1998. The remaining applications are scheduled to be certified by March 31, 1999. The Company has established a certification protocol to be followed for remediation of software applications. That protocol includes testing procedures to be followed before remediated applications are returned to production.

The IT Infrastructure project involves assessing the compliance of standard computer hardware, network systems including gateways, hubs and routers, telecommunications equipment, operating systems and IT standard software products. Equipment is being individually tested using software products and applicable test procedures. Network system tests are scheduled to be performed prior to the end of 1998. Most of the IT Infrastructure is scheduled to be Y2K ready by the end of 1998. Certain vendor supplied program products will not have Y2K ready versions available until the first quarter of 1999. These product upgrades will be tested and implemented as soon as they are available.

Non-IT Equipment and Applications involve the hardware and software products that reside in individual business units. These products include the embedded systems that are used in the production, energy delivery, and other processes of the Company. Inventories have been conducted to identify these embedded systems in the individual business units. Initial assessments are essentially complete. More detailed assessments involving equipment and 39 software validation testing are scheduled throughout the spring of 1999. Remediation activities are underway. Although much of the work is expected to be completed by the end of 1998, equipment outage schedules necessitate that some remediation activities will not be completed until September 1999.

The Company is analyzing the potential impact on its operations relating to third parties. Over 2000 suppliers and service providers have been contacted to determine the status of their Y2K efforts. Approximately sixty percent of these vendors have responded. They are being prioritized and the programs and status of the most significant among them will be analyzed in detail. Companies that are considered to be critical are telecommunications and gas suppliers. This analysis is expected to be completed by the end of 1998.

Costs

The costs associated with the Company's Y2K effort for its US energy businesses are currently estimated to be approximately $36 million. These costs reflect new, incremental costs and the reallocation of resources in pre-existing maintenance budgets. The costs related to the three major initiatives are estimated to be as follows: IT Corporate Applications - $14.1 million, IT Infrastructure - $7.2 million and Non IT-Equipment and Applications - $14.2 million. These costs are being expensed as incurred over the period 1996 to 2000, and it is estimated that a total of $13.6 million has already been expended. There can be no assurance that these estimated costs will not increase as the Company's Y2K program continues.

Strategic initiatives were begun in two areas prior to beginning work on the Y2K issue, and the costs for these initiatives are not included in the estimate above. The Company's energy management system for the Company's transmission grid and the Company's principal financial and accounting systems are being replaced. Each of these projects will eliminate potential Y2Kdeficiencies; however, that was not a significant consideration at the time replacement decisions were made.

LCC continues to work on its Y2K project. IT applications affected by Y2K issues will be replaced by systems with dramatically increased functionality. The cost of this effort is estimated to be $4.1 million, which is being expended during 1998 and 1999. As of September 30, 1998, estimated costs expended were approximately $1.5 million. Assessment work on LCC embedded systems was completed in the second quarter of 1998. The cost of remediation work related to those systems is an additional $.6 million. While the majority of LCC's remediation activities are scheduled to be complete by year end 1998, some will extend into 1999.

In Australia, Eastern Energy initiated a Y2K project in the third quarter of 1997. All hardware, software and embedded technology have been identified and preliminary risk assessment completed. Y2K testing and remediation will be completed for the majority of systems and assets by December 1998. All Y2K activities are expected to be completed by June 1999. The estimated costs of the project including embedded systems is $3.3 million. Most of the cost is expected to be incurred by June 1999. As of September 30, 1998, estimated costs expended were approximately $284 thousand. All critical suppliers have been contacted and their Y2K readiness has been assessed. Contingency plans are being developed for suppliers determined to have unacceptable Y2K risk. In addition, Eastern Energy is also participating in the Victorian Electric Supply Industry Y2K Forum to address the concerns of electricity supply and transmission reliability. In the UK, Eastern Group has been engaged in a Y2K project since August 1996. The project is addressing the business applications and equipment, power generation and power distribution facilities of Eastern Group. Inventories were completed in February 1998. Testing is scheduled for completion in June 1999. Remediation work in all areas is expected to be complete in August 1999. Contingency plans and business continuity plans that already exist are being reviewed and updated in preparation for Y2K failure scenarios. Eastern Group has contacted its suppliers to determine the potential risk of their products and services. The current cost estimate for the project is $33 million. Most of the cost is expected to be incurred by August 1999. As of September 30, 1998, estimated costs expended were approximately $2 million ($1 million prior to acquisition). Eastern Group is co-operating with other utility companies as active members of the Utilities Group of the UK Y2K Interest Group. 40 Risk Issues

With respect to internal risks, the Company's current assessment of the most reasonable likely worst case scenario is that impacts on either service or financial performance will not be materially adverse. The Company believes, based on the results of testing that has already occurred on a large portion of operating equipment, that if any disruption to service occurs, it will be isolated and of short-term duration. The Company continues to collaborate with other major energy suppliers through the joint Electric Power Research Institute's embedded systems project. The North American Electric Reliability Council (NERC) has conducted an initial assessment of the electric infrastructure, in which the Company participated. The NERC status report, issued in September 1998, indicates that the impact of Y2K on electrical systems may be less than first anticipated and that, with continued work and coordinated contingency planning, operating risks can be effectively mitigated. NERC will perform scenario analyses of potential risks to the electric infrastructure. Until this work is complete, the Company cannot assess a worst case scenario relating to external forces.

As the Company's Y2K program proceeds, the Company will continue to assess its internal and external risks, not all of which are within its control; and it will consider the most reasonably likely worst case scenario. There can be no assurance that all material Y2K risks within the Company's control will have been adequately identified and corrected before the end of 1999. In addition, the Company can make no assurances regarding the Y2K readiness of systems and parties outside its control, nor can it currently assess the effect of any non-readiness by such systems or parties.

Contingency Plans

The Company utilizes detailed emergency response and disaster recovery plans to ensure high reliability of service to customers. These plans are currently available and are utilized routinely for abnormal service conditions. These plans are being reviewed to incorporate required actions specific to the Y2K issue. The resulting contingency plan will address both Company activities and actions necessary to mitigate the impact of third party disruptions. These contingency plans will be coordinated with those of the regional independent system operator and NERC. This contingency planning is scheduled to be completed by June 1999.

-- Anonymous, December 02, 1998