TXU (NYSE:TXU) stock has something that's awfully hard to find in the utilities sector these days -- momentum. Darn tootin'. All fired-up by the appointment of Douglas Wilder as CEO, restructuring plans, and solid first-quarter figures to boot, the Dallas-based energy company's stock price has shot up by 35% in just two short months. Shares are currently trading near its 52-week high of $37.31.

But hold your horses. Ignoring the company's price momentum, what kind of fundamentals is TXU packing?

The first-quarter results look pretty good. Profits more than quadrupled to $177 million, or $0.50 a share, as revenue grew by 8.4% from the same time last year. Much of that profit comes thanks to rising natural gas prices.

Yup, the sell-off of its Australian power plants and intrastate pipeline assets trims TXU's unwieldy debt load. But it also leaves TXU fully exposed to the Lone Star state, a risky ole electricity market. Remember Fools, in Texas (the most fully deregulated state), natural gas prices set the price of electricity. So, as long as natural gas prices are high, great -- TXU's margins will remain strong. But when natural gas prices fall, boy, oh boy, then there's trouble.

TXU reckons that sell-offs and debt reduction will add $0.47 a share to its year-end 2004 earnings. But by my reckoning, sell-offs won't be enough. To hit that earnings target, TXU still must convince state regulator, the Public Utility Commission of Texas, to approve raising electricity rates to offset the rising cost of natural gas feedstock for electricity power plants. As yesterday's Wall Street Journal highlights, TXU is so confident that it has the regulator's ear that it's built the price increase into its 2004 earnings guidance.

But don't bet on the price hike just yet. Getting the regulator to budge isn't certain, and will require more than a bit of political jiggery-pokery.

Sure, TXU's share price has momentum. The trouble is, it's cooking on gas.

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Fool contributor Ben McClure does not own any shares of companies mentioned in this article.