<PAGE>
As filed with the Securities and Exchange Commission on July 3, 1997
REGISTRATION STATEMENT NO. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________________
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST PG&E-1
(Issuer of Securities)
PG&E FUNDING LLC
(Depositor of the Trust described herein)
(Exact Name of Registrant as Specified in Its Certificate of Formation)
DELAWARE APPLIED FOR
(State or Other Jurisdiction (I.R.S. Employer
of Organization) Identification Number)
PG&E FUNDING LLC
245 MARKET STREET
ROOM 424
SAN FRANCISCO, CA 94105
(415) 973-7000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
LESLIE EVERETT
CORPORATE SECRETARY
PG&E FUNDING LLC
245 MARKET STREET
ROOM 424
SAN FRANCISCO, CA 94105
(415) 973-7000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
<TABLE>
<S> <C> <C>
DEAN E. CRIDDLE ERIC D. TASHMAN GREGORY M. SHAW
MARK R. LEVIE CATHY M. KAPLAN CRAVATH, SWAINE & MOORE
ORRICK, HERRINGTON BROWN & WOOD LLP Worldwide Plaza
& SUTCLIFFE LLP 555 California Street, 825 Eighth Avenue
Old Federal Reserve 50th Floor New York, New York 10019
Bank Building San Francisco,
400 Sansome Street California 94104
San Francisco, California 94111
</TABLE>
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462/(b)/ under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462/(c)/
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Amount to be Proposed Maximum Proposed Maximum Amount of
Title of Securities to be Registered Registered/(2)/ Aggregate Price Per Unit Aggregate Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rate Reduction Certificates $1,000,000 100%/(1)/ $1,000,000/(1)/ $303.03
- -----------------------------------------------------------------------------------------------------------------------------------
Notes $1,000,000 /(2)/ /(2)/ None
==================================================================================================================================
</TABLE>
/(1)/ Estimated solely for the purpose of calculating the registration fee.
/(2)/ No additional consideration will be paid by the purchasers of the Rate
Reduction Certificates for the Notes which secure the Rate Reduction
Certificates.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus Supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of the
securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
such jurisdiction.
[FORM OF PROSPECTUS SUPPLEMENT]
SUBJECT TO COMPLETION DATED ____, 199_
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _______, 1997)
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST PG&E-1
RATE REDUCTION CERTIFICATES, SERIES 199_-_
[$________ CLASS ___ ____ % CERTIFICATES
$________ CLASS ___ ____ % CERTIFICATES
$________ CLASS ___ ____ % CERTIFICATES
$________ CLASS ___ ____ % CERTIFICATES
$________ CLASS ___ ____ % CERTIFICATES]
PACIFIC GAS AND ELECTRIC COMPANY
SELLER AND SERVICER
The California Infrastructure and Economic Development Bank Special Purpose
Trust PG&E-1 Rate Reduction Certificates, Series 199_-_ (the "OFFERED
CERTIFICATES"), offered hereby will consist of the following ______ Classes:
_______. Each Class of Offered Certificates represents an undivided interest in
the related class of PG&E Funding LLC Notes, Series 199_-_ (the "UNDERLYING
NOTES"), issued by PG&E Funding LLC, a Delaware special purpose limited
liability company (the "NOTE ISSUER"). Each Underlying Note will be secured
primarily by the Transition Property owned by the Note Issuer, as described
under "Description of the Transition Property" herein and in the Prospectus.
The Underlying Notes, together with other Series of notes issued from time to
time by the Note Issuer under the Note Indenture (together with the Underlying
Notes, the "NOTES"), are owned by the California Infrastructure and Economic
Development Bank Special Purpose Trust PG&E-1 (the "Trust"). (Continued on
following page.)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE OFFERED CERTIFICATES, AND THERE
IS NO ASSURANCE THAT ONE WILL DEVELOP.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH UNDER THE CAPTION "RISK FACTORS," WHICH BEGINS ON PAGE __ IN THE
PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRUST(1)(2)
- ----------------------------------------------------------------
<S> <C> <C> <C>
Per Class [___] % % %
Certificate........
- ----------------------------------------------------------------
Per Class [___] % % %
Certificate........
- ----------------------------------------------------------------
Total............... $ $ $
- ----------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, at the applicable Certificate Interest Rate
from ________ __, 199_.
(2) Before deduction of expenses estimated to be $__________.
____________________
The Offered Certificates are offered by the Underwriters when, as and if
issued by the Trust and accepted by the Underwriters and subject to the
Underwriters' right to reject orders in whole or in part. It is expected that
the Offered Certificates will be delivered on or about ______________, 199__, in
book-entry form through the facilities of The Depository Trust Company[, Cedel
Bank, societe anonyme, and the Euroclear System].
____________________
[Underwriter]
The date of this Prospectus Supplement is _____, 199_
<PAGE>
Interest on each Class of Offered Certificates at the applicable Certificate
Interest Rate will be distributable quarterly on or about the 25th day of
January, April, July and October or, if any such day is not a Certificate
Business Day, the next succeeding Certificate Business Day (each, a
"DISTRIBUTION DATE") commencing _________, 199_. INTEREST AND PRINCIPAL ON ANY
CLASS OF OFFERED CERTIFICATES WILL BE DISTRIBUTABLE ONLY TO THE EXTENT OF
PAYMENTS RECEIVED BY THE TRUST ON THE RELATED CLASS OF UNDERLYING NOTES. See
"Description of the Notes" herein.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS. PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT
BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT
CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT SHALL CONTROL.
THE TRANSITION PROPERTY OWNED BY THE NOTE ISSUER AND ANY OTHER ASSETS OF THE
NOTE ISSUER ARE THE SOLE SOURCE OF DISTRIBUTIONS ON THE OFFERED CERTIFICATES.
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK, ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR THE SELLER OR ANY OF ITS AFFILIATES. NONE OF THE OFFERED
CERTIFICATES, THE UNDERLYING NOTES OR THE UNDERLYING TRANSITION PROPERTY WILL BE
GUARANTEED OR INSURED BY THE STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK, THE
TRUST OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE SELLER OR
ITS AFFILIATES. NONE OF SUCH ENTITIES WILL HAVE ANY OBLIGATIONS IN RESPECT OF
THE OFFERED CERTIFICATES, EXCEPT AS EXPRESSLY SET FORTH HEREIN AND IN THE
PROSPECTUS.
NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF
CALIFORNIA OR ANY POLITICAL SUBDIVISION OR AGENCY OF THE STATE OF CALIFORNIA IS
PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, PURCHASE PRICE OF,
OR INTEREST ON, THE UNDERLYING NOTES, THE OFFERED CERTIFICATES OR THE TRANSITION
PROPERTY NOR IS THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IN
ANY MANNER OBLIGATED TO MAKE ANY APPROPRIATION FOR THE PAYMENT THEREOF.
Prospective investors should refer to the "Index of Principal Definitions"
herein and in the Prospectus for the location of the definitions of capitalized
terms that appear in this Prospectus.
S-2
<PAGE>
REPORTS TO HOLDERS
Unless and until the Offered Certificates are no longer issued in book-
entry form, the Servicer will provide to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Offered
Certificates and, upon request, to Participants of DTC, periodic reports
concerning the Offered Certificates. See "Description of the Certificates--
Reports to Certificateholders" herein. Such reports may be made available to the
holders of interests in the Offered Certificates (the "CERTIFICATEHOLDERS") upon
request to their Participants. Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
The financial information provided to Certificateholders will not be examined
and reported upon, nor will an opinion thereon be provided by, any independent
public accountant.
The Note Issuer will file with the Securities and Exchange Commission (the
"COMMISSION") such periodic reports as are required by the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), and the rules, regulations or
orders of the Commission thereunder. Copies of the Registration Statement and
exhibits thereto may be obtained at the locations specified in the Prospectus
under "Available Information" at prescribed rates. Information filed with the
Commission can also be inspected at the Commission's site on the World Wide Web
at http:\\www.sec.gov. The Note Issuer may discontinue filing periodic reports
under the Exchange Act at the beginning of the fiscal year following the
issuance of the Offered Certificates if there are fewer than 300 holders of such
Offered Certificates.
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS SUPPLEMENT OR IN DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, THE WORDS "EXPECTS," "INTENDS," "ANTICIPATES,"
"ESTIMATES" AND ANALOGOUS EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS AS DEFINED IN THE SECURITIES ACT OF 1933, AS AMENDED. ANY SUCH
STATEMENTS, WHICH MAY INCLUDE STATEMENTS CONTAINED IN "RISK FACTORS,"
"DESCRIPTION OF THE TRANSITION PROPERTY," "CERTAIN YIELD AND MATURITY
CONSIDERATIONS," "THE SELLER AND THE SERVICER" AND "SERVICING" HEREIN AND IN THE
PROSPECTUS, INHERENTLY ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH
RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS
CONDITIONS, COMPETITION, CHANGES IN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS,
REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, LITIGATION
AND VARIOUS OTHER EVENTS, CONDITIONS AND CIRCUMSTANCES, MANY OF WHICH ARE BEYOND
THE CONTROL OF THE NOTE ISSUER AND THE TRUST AND THE SERVICER, THE SELLER, THE
NOTE TRUSTEE, THE CERTIFICATE TRUSTEE AND THE INFRASTRUCTURE BANK. THESE
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS
SUPPLEMENT. THE NOTE ISSUER AND THE TRUST EXPRESSLY DISCLAIM ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING
STATEMENT CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE NOTE ISSUER'S OR THE
TRUST'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR
CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
S-3
<PAGE>
TRANSACTION OVERVIEW
The following summary is qualified by reference to the detailed information
appearing elsewhere herein and in the Prospectus.
OFFERED CERTIFICATES. The Offered Certificates represent the indirect
right to receive distributions of payments made in respect of certain
nonbypassable charges assessed in the regular utility bills of residential and
small commercial customers located in the historical service territory of the
Seller. These charges are designed to be sufficient to pay principal of and
interest on the Certificates, all related fees and expenses and the
Overcollateralization Amount described herein. These charges will be subject to
adjustment over the term of the Offered Certificates to enhance the likelihood
of timely recovery of such amounts and to reflect other factors affecting the
ultimate recovery of such amounts including changes in the amount of electricity
sold to such customers.
OTHER SERIES OF NOTES AND CERTIFICATES. The Trust is authorized to issue
other Series of Certificates in addition to the Series comprised of the Offered
Certificates[, and has issued _____ other Series in an aggregate initial
principal amount of $________ prior to the issuance of the Offered
Certificates]. On each Payment Date, the Note Issuer will allocate amounts
received with respect to the FTA Charges, after payment of interest on the Notes
and related fees and expenses, pro rata (by principal amount) among the
outstanding Series of Notes. Distributions with respect to each Class of
Certificates will be solely from amounts received in payments on the related
Class of Notes. The outstanding principal amount of all Series of Notes should,
at any time, equal the outstanding principal amount of all Series of
Certificates.
STATUTORY BACKGROUND. The nonbypassable charges were authorized by the
State of California pursuant to A.B. 1890, Chapter 854, California Statutes of
1996 (as amended, the "STATUTE") which permits the California investor-owned
utilities (collectively, the "UTILITIES"), including PG&E, to finance the
recovery of a portion of their respective "Transition Costs" through the
issuance of the Certificates, in conjunction with a reduction in electricity
rates for residential and small commercial customers. Transition Costs consist
generally of the costs of generation-related assets and obligations that may
become uneconomic as a result of a competitive generation market, together with
certain other costs associated therewith.
TRUST. The Trust has been established by the Infrastructure Bank, the
Certificate Trustee and the Delaware Trustee. The assets of the Trust consist
of the Notes, which are secured primarily by the Transition Property. The
Certificates of any Series will be issued by the Trust and sold to underwriters
by the Trust. The Notes will be issued to the Trust by the Note Issuer in
exchange for the proceeds of the sale of the Certificates. The Seller will sell
the Transition Property to the Note Issuer in exchange for the proceeds of the
Notes. The Transition Property sold to the Note Issuer in connection with any
Series of Certificates is a separate property right created upon the entry of
the Financing Order by the CPUC and effectiveness of the related Issuance Advice
Letter.
S-4
<PAGE>
PROSPECTUS SUMMARY
The summary is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used but not defined in this Prospectus Summary have the
meanings ascribed to such terms elsewhere in this Prospectus Supplement or, to
the extent not defined herein, have the meanings assigned to such terms in the
Prospectus. The Index of Principal Definitions included in this Prospectus
Supplement sets forth the pages on which the definitions of certain principal
terms appear.
The Offered Certificates The California Infrastructure and Economic Development
Bank Special Purpose Trust PG&E-1 Rate Reduction
Certificates, Series 199_-_ (the "OFFERED
CERTIFICATES"). The Certificates are comprised of the
following _____ classes (each, a "CLASS"): _____. As of
the Series Issuance Date for the Offered Certificates,
the aggregate principal balance thereof (the "ORIGINAL
CERTIFICATE PRINCIPAL BALANCE") will be $___________.
Each Class of Offered Certificates will have a
principal balance (the "CLASS PRINCIPAL BALANCE") equal
to the initial amount of principal allocable to such
Class, reduced by principal distributed to such Class
in accordance with the terms of the Trust Agreement.
See "Description of the Certificates" herein and in the
Prospectus.
None of the Offered Certificates, the Underlying Notes
or the underlying Transition Property will be
guaranteed or insured by any governmental agency or
instrumentality or by the Seller or any of its
affiliates. Neither the full faith or credit nor taxing
power of the State of California is pledged to the
payment of principal of or interest on the Offered
Certificates.
Seller and Servicer Pacific Gas and Electric Company, a California
corporation ("PG&E" or, in its capacity as seller of
the Transition Property, the "SELLER" or, in its
capacity as servicer, the "SERVICER"). For a more
complete discussion of PG&E and its roles as Seller and
Servicer, see "The Seller and Servicer" herein and in
the Prospectus.
Issuer of Certificates "California Infrastructure and Economic Development
Bank Special Purpose Trust PG&E-1" (the "TRUST")
established by the California Infrastructure and
Economic Development Bank (the "INFRASTRUCTURE BANK").
For a more complete discussion of the Trust, see "The
Trust" in the Prospectus, and for a more complete
discussion of the Infrastructure Bank, see "The
Infrastructure Bank" in the Prospectus.
Certificate Trustee ____________, a _________ (the "CERTIFICATE TRUSTEE").
Delaware Trustee ____________, a _________ (the "DELAWARE TRUSTEE").
Note Issuer PG&E Funding LLC, a Delaware special purpose limited
liability company whose single member is PG&E (the
"NOTE ISSUER").
S-5
<PAGE>
The principal executive office of the Note Issuer is
located at 245 Market Street, Room 424, San Francisco,
California 94105, and its telephone number is (415)
973-7000.
The Underlying Notes PG&E Funding LLC Notes, Series 199_-_ (the "UNDERLYING
NOTES"), issued by the Note Issuer. The Underlying
Notes are comprised of ______ classes (each, a
"CLASS"). As of the Series Issuance Date for the
Underlying Notes, the aggregate principal balance
thereof (the "ORIGINAL NOTE PRINCIPAL BALANCE") will be
$___________. Each Class of Underlying Notes secures
the payment of the corresponding Class of Offered
Certificates and will have the same Class Principal
Balance as the corresponding Class of Offered
Certificates. See "Description of the Notes" herein and
in the Prospectus.
Note Trustee ____________, a _________ (the "NOTE TRUSTEE").
Transition Property As more fully described under "Description of the
Transition Property" herein and in the Prospectus, the
property right created under the PU Code including,
without limitation, the right, title and interest of an
electrical corporation or its transferee (i) in and to
the FTA Charge, as adjusted from time to time, (ii) to
be paid the FTA Payments, and (iii) to obtain
adjustments to the FTA Charge as provided in the PU
Code.
FTA Charge As more fully described under "Description of the
Transition Property" herein and in the Prospectus, the
amount permitted to be recovered from the Customers
which is necessary to provide for the amortization of
all Certificates in accordance with the applicable
Expected Amortization Schedules, together with all
costs and expenses related thereto and the
Overcollateralization Amount.
Distribution Dates Each January 25, April 25, July 25 and October 25 (or,
if any such date is not a Certificate Business Day, the
next succeeding Certificate Business Day), commencing
_________, 1998, the dates on which distributions will
be made to holders of Offered Certificates (each, a
"DISTRIBUTION DATE"). Each Distribution Date with
respect to the Certificates will also be a date on
which payments are made with respect to the Notes
(each, a "PAYMENT DATE").
Record Date With respect to any Distribution Date, the last day of
the preceding calendar month (each, a "RECORD DATE").
Final Distribution Date The Scheduled Final Distribution Date for each Class of
the Offered Certificates, which is the date when all
principal and interest on such Class of Offered
Certificates is expected to be distributed in full,
based on certain assumptions described herein, and the
Termination Date for each Class of Offered Certificates
are specified herein under "Description of the
Certificates."
S-6
<PAGE>
Failure to pay principal of and interest on any Class
of Offered Certificates in full by the related
Termination Date shall constitute an Event of Default,
and the Certificate Trustee may and, upon the written
direction of the holders of a majority in principal
amount of all Certificates of all Series then
outstanding, shall declare the unpaid principal amount
of all the Notes of all Series then outstanding to be
due and payable. See "Description of the Certificates-
-Certificate Events of Default; Rights Upon Certificate
Event of Default" and "Ratings" in the Prospectus.
Issuance of New Series The Trust may issue new Series of Certificates from
time to time. A new Series may be issued only upon
satisfaction of the conditions described under
"Description of the Certificates--Conditions of
Issuance of Additional Series" herein.
Interest On each Distribution Date, the Certificate Trustee
shall distribute pro rata to the Certificateholders of
each Class as of the related Record Date interest in an
amount equal to one-fourth of the product of (a) the
applicable Certificate Interest Rate and (b) the
applicable Class Principal Balance as of the close of
business on the preceding Distribution Date after
giving effect to all payments of principal made to the
Certificateholders on such preceding Distribution Date;
provided, however, that with respect to the initial
Distribution Date, interest on each outstanding Class
Principal Balance will accrue from and including the
Series Issuance Date to, but excluding, the following
Distribution Date. Interest will be calculated on the
basis of a 360-day year of twelve 30-day months.
Interest on any Class of Offered Certificates will be
payable only to the extent interest has been paid on
the related Class of Underlying Notes. See Description
of the Certificates--Distributions of Interest" herein
and "Description of the Certificates--Interest and
Principal" in the Prospectus.
Principal On each Distribution Date, the Certificate Trustee
shall distribute to the Certificateholders as of the
related Record Date amounts distributable as principal,
in the following order and priority: [TO BE DETERMINED
UPON ISSUANCE]. The principal amounts payable with
respect to any Class of Offered Certificates will be
payable only to the extent of payments of principal
made on the related Class of Underlying Notes. See
Description of the Certificates--Distributions of
Principal" herein and "Description of the
Certificates--Interest and Principal" in the
Prospectus.
Optional Redemption The Note Issuer may redeem the Underlying Notes
relating to the Offered Certificates, and accordingly
cause the Trust to redeem the Offered Certificates, at
any time on or after the Payment
S-7
<PAGE>
Date on which the Outstanding Note Principal Balance
has been reduced to five percent of the Original Note
Principal Balance. See "Description of the
Certificates--Optional Redemption" herein.
Credit Enhancement The Offered Certificates will benefit from the
following forms of credit enhancement:
Overcollateralization. In order to enhance the
likelihood that distributions on each Class of the
Offered Certificates will be made in full by their
respective Final Scheduled Distribution Dates, the
Financing Order and the Issuance Advice Letter
relating to the Offered Certificates permit the Seller
to recover $_______ through FTA Payments in excess of
the amount expected to be required to pay interest on
and principal of all outstanding Classes of Offered
Certificates and related fees and expenses. Such
excess is the Overcollateralization Amount related to
the Offered Certificates. See "Description of the
Notes--Overcollateralization Amount" herein and in the
Prospectus.
Other. See "Description of the Certificates--Other
Credit Enhancement" herein and in the Prospectus.
Collections; Allocations;
Distributions On each Distribution Date, amounts on deposit in the
Collection Account will be applied in the manner
described under "Description of the Notes--
Allocations; Payments" in the Prospectus.
Servicing Compensation The Servicer will be entitled to receive a Servicing
Fee with respect to the Offered Certificates for each
Collection Period in an amount equal to the sum of
[ ] percent per annum of the Original Note
Principal Balance (the "SERVICING FEE"). The Servicing
Fee will be paid prior to the distribution of any
amounts in respect of interest on and principal of the
Underlying Notes. The Servicer will be entitled to
retain as additional compensation net investment
income on FTA Collections prior to remittance thereof
to the Collection Account and the portion of late
fees, if any, paid by Customers relating to the
Offered Certificates. See "Servicing--Servicing
Compensation" herein and in the Prospectus.
No Servicer Advances The Servicer will not make any advances of interest or
principal on the Underlying Notes.
Yield Considerations The yield on each Class of Offered Certificates will
be affected by, among other things, the amount and
timing of receipt of FTA Collections. Since the FTA
Charge will consist of a charge per kilowatt hour of
usage by Customers, the aggregate amount of FTA
Collections and the amount and timing of principal
amortization on the Certificates will depend, in part,
on actual usage of electricity by Customers and the
amount
S-8
<PAGE>
of delinquencies and charge-offs. Although the amount
of the FTA Charge will adjust from time to time based
in part on the actual rate of FTA Collections, no
assurances are given that the Servicer will be able to
forecast actual energy usage and obtain adjustments to
the FTA Charge that would cause FTA Collections to be
received at any particular rate. See "Certain Yield and
Maturity Considerations" and "Description of the
Transition Property--Adjustments to the FTA Charge"
herein and in the Prospectus.
A higher rate of FTA Collections than anticipated is
likely to have an adverse effect on the yield of any
Class of Offered Certificates that is purchased at a
premium and a lower rate of FTA Collections than
anticipated is likely to have an adverse effect on the
yield of any Class of Offered Certificates that is
purchased at a discount from its principal amount.
Denominations Each Class of Offered Certificates will be issued in
minimum initial denominations of [$1,000] and in
integral multiples thereof.
Registration of the
Certificates The [Offered] [Class ______] Certificates will
initially be represented by one or more certificates
registered in the name of Cede & Co. ("CEDE")
("BOOK-ENTRY CERTIFICATES"), the nominee of The
Depository Trust Company ("DTC"), and available only in
the form of book-entries on the records of DTC, its
Participants and its Indirect Participants. For a more
complete discussion of the Book-Entry Certificates, see
"Risk Factors" and "Description of the Certificates--
Book-Entry Registration" in the Prospectus.
Ratings It is a condition of issuance of the Offered
Certificates that the Class ____ Certificates be rated
"____" by _______, "____" by _______ and "____" by
_______ (each of _______, ________ and _________, a
"RATING AGENCY") and that the Class _____ Certificates
be rated "____" by _______, "____" by _______ and
"____" by _______.
A security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or
withdrawal at any time. No person is obligated to
maintain any rating on any Offered Certificate and,
accordingly, there can be no assurance that the ratings
assigned to any Class of Offered Certificates upon
initial issuance thereof will not be revised or
withdrawn by a Rating Agency at any time thereafter. If
a rating of any Class of Offered Certificates is
revised or withdrawn, the liquidity of such Class of
Offered Certificates may be adversely affected. In
general, the ratings address credit risk and do not
represent any assessment of the rate of FTA
Collections. See "Risk Factors--Yield Considerations"
and "Ratings" in the Prospectus.
S-9
<PAGE>
Tax Status of the
Certificates The Offered Certificates will be treated as
representing ownership of debt for federal income tax
purposes. Interest on the Offered Certificates will be
included in gross income for federal income tax
purposes. See "Certain Federal Income Tax Consequences"
in the Prospectus.
Interest on the Offered Certificates will be exempt
from California personal income tax, but not exempt
from the California franchise tax applicable to banks
and corporations. See "State and Local Taxation" in the
Prospectus.
ERISA Considerations Subject to the considerations described in "ERISA
Considerations" herein and in the Prospectus, the
Offered Certificates are eligible for purchase with
"plan assets" of any Plan (as defined below) ("PLAN
ASSETS"). A fiduciary or other person contemplating
purchasing the Offered Certificates on behalf of or
with Plan Assets of any employee benefit plan or other
plan or arrangement (including but not limited to an
insurance company general account) that is subject to
Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "CODE")
(collectively, "PLANS"), should carefully review with
its legal advisors whether the purchase or holding of
the Offered Certificates could give rise to a
transaction prohibited or not otherwise permissible
under ERISA or Section 4975 of the Code.
S-10
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The California Infrastructure and Economic Development Bank Special Purpose
Trust PG&E-1 Rate Reduction Certificates, Series 199_-_ (the "OFFERED
CERTIFICATES") together with the Certificates of other Series issued by the
Trust (collectively, the "CERTIFICATES"), will be issued by the Trust pursuant
to the Trust Agreement and the Series 199_-_ Supplement thereto. Pursuant to the
Trust Agreement, the Infrastructure Bank and the Certificate Trustee may execute
further series supplements in order to issue additional Series of Certificates.
This summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the terms and provisions of the Trust Agreement.
GENERAL
The Offered Certificates will be issued on the Series Issuance Date. The
Offered Certificates will be comprised of the following _____ Classes:
<TABLE>
<CAPTION>
Certificate
Scheduled Final Interest
Class Distribution Date Termination Date Rate
- ----- ----------------- ---------------- ----
<S> <C> <C> <C>
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
</TABLE>
DISTRIBUTIONS OF INTEREST
Interest on each Class of the Offered Certificates will accrue from the
Series Issuance Date at the rates indicated above (each, a "CERTIFICATE INTEREST
RATE", in each case distributable quarterly on January 25, April 25, July 25 and
October 25 (or, if any such date is not a Certificate Business Day, the next
succeeding Certificate Business Day) each year (each, a "DISTRIBUTION DATE"),
commencing _________.
On each Distribution Date, the Certificate Trustee will distribute pro rata
to the Certificateholders of each Class as of the related Record Date interest
to the extent paid on such date with respect to the Class of Underlying Notes
with the same alphabetical [and numeric] designation, as described below under
"Description of the Notes--Distributions of Interest."
DISTRIBUTIONS OF PRINCIPAL
On each Distribution Date, the Certificate Trustee will distribute pro rata
to the Certificateholders of each Class as of the related Record Date principal
to the extent paid on such date with respect to the Class of Underlying Notes
with the same alphabetical [and numeric] designation, as described below under
"Description of the Notes--Distributions of Principal."
The entire unpaid principal amount of the Offered Certificates will be due
and distributable on the date on which a Certificate Event of Default has
occurred and is continuing, if the Certificate Trustee or holders of a majority
in principal amount of the Offered Certificates of all Series then outstanding
have declared the Certificates to be immediately due and payable. See
"Description of the Certificates--Certificate Events of Default; Rights Upon
Certificate Event of Default" in the Prospectus.
OPTIONAL REDEMPTION
The Trust shall redeem the Offered Certificates if the Note Issuer elects
to redeem the Underlying Notes, which the Note Issuer may elect to do at any
time
S-11
<PAGE>
on or after the Payment Date on which the Outstanding Note Principal Balance has
been reduced to five percent of the Original Note Principal Balance. Such
Payment Date will correspond to the Distribution Date on which the Outstanding
Certificate Principal Balance has been reduced to five percent of the Original
Certificate Principal Balance. Notice of such redemption will be given by the
Trust to each holder of Certificates to be redeemed by first-class mail, postage
prepaid, mailed not less than five days nor more than 25 days prior to the date
of redemption.
DESCRIPTION OF THE NOTES
GENERAL
The PG&E Funding LLC Notes, Series 199_-_ (the "UNDERLYING NOTES"), will be
issued by the Note Issuer to the Trust on ______________ (the "SERIES ISSUANCE
DATE"), pursuant to the Note Indenture and the Series 199_-_ Supplement thereto.
Pursuant to the Note Indenture, the Note Issuer and the Note Trustee may execute
further series supplements in order to issue additional Series of Notes. This
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the terms and provisions of the Note Indenture.
The Underlying Notes, together with the Notes of other Series issued by the
Note Issuer (collectively, the "NOTES"), will be issued pursuant to the Note
Indenture. The Underlying Notes will be comprised of the following ______
Classes:
<TABLE>
<CAPTION>
Note
Scheduled Interest
Class Maturity Date Final Maturity Date Rate
- ----- ------------- ------------------- ----
<S> <C> <C> <C>
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
___ ________, 200 (___ years) ______, 200 (___ years) __.__%
</TABLE>
SECURITY
To secure the payment of principal of and interest on the Notes, the Note
Issuer has granted to the Note Trustee, as holder of the Notes (the
"NOTEHOLDER"), a security interest in all of the Note Issuer's right, title and
interest in and to the Note Collateral. The Note Collateral is described more
specifically under "Description of the Notes--Security" in the Prospectus.
INTEREST
Interest on each Class of the Underlying Notes will accrue from the Series
Issuance Date at the rates indicated above (each, a "Note Interest Rate"), in
each case payable quarterly on January 25, April 25, July 25 and October 25 (or,
if any such date is not a Certificate Business Day, the next succeeding
Certificate Business Day) each year (each, a "PAYMENT DATE"), commencing
_________, to the persons in whose names the Underlying Notes are registered at
the close of business on the related Record Date.
On each Payment Date, Noteholders of each Class will be entitled to receive
an amount equal to one-fourth of the product of (a) the applicable Note Interest
Rate and (b) the applicable Class Principal Balance as of the close of business
on the preceding Distribution Date after giving effect to all payments of
principal made to the Noteholders on such preceding Distribution Date; provided,
however, that with respect to the initial Distribution Date, interest on each
outstanding Class Principal Balance will accrue from and including the Series
Issuance Date to but excluding the
S-12
<PAGE>
following Distribution Date. Interest will be calculated on the basis of a 360-
day year of twelve 30-day months. See "Description of the Notes--Interest and
Principal" in the Prospectus.
PRINCIPAL
On each Payment Date, each Class of the Underlying Notes will be entitled
to receive payments of principal as follows: [TO BE PREPARED AT ISSUANCE].
Principal will be payable at the Corporate Trust Office of the Note Trustee in
the City of _______, or at the office or agency of the Note Issuer maintained
for such purposes in the Borough of Manhattan, the City of New York.
The following Expected Amortization Schedule sets forth the expected
outstanding percentage of the initial Class Principal Balance for each Class of
the Underlying Notes at each Payment Date from the Series Issuance Date to the
Scheduled Maturity Date for such Class. In preparing the following table, it
has been assumed that (i) the Offered Certificates are purchased on the Series
Issuance Date, (ii) payments on the Offered Certificates are made on the ____
day of each month, commencing _______________, 199_, (iii) the initial Class
____ Principal Balance is $_____ and the initial Class ____ Principal Balance is
$______, (iv) all FTA Collections are received in accordance with the Seller's
forecasts, (v) the Note Issuer does not redeem the Underlying Notes and ( )
[other assumptions].
EXPECTED AMORTIZATION SCHEDULE
Percentage of Initial Class
Payment Principal Balance Outstanding
-----------------------------
Date Class Class Class Class Class
- ---- ------- ------- ------- ------- -------
Initial Percentage
_____, 199_
_____, 199_
_____, 199_
[Etc.]
There can be no assurance that the Class Principal Balances of the
Underlying Notes and the related Offered Certificates will be reduced at the
rates indicated in the foregoing table, and the actual reductions in such Class
Principal Balances may be faster or slower than those indicated in the chart.
See "Risk Factors" in the Prospectus for a discussion of various factors which
may, individually or in the aggregate, affect the rate of reductions of the
Class Principal Balances of the Underlying Notes and the Offered Certificates.
The entire unpaid principal amount of the Underlying Notes will be due and
payable on the date on which a Note Event of Default has occurred and is
continuing, if the Note Trustee or holders of a majority in principal amount of
the Notes of all Series then outstanding have declared the Underlying Notes to
be immediately due and payable. See "Description of the Notes--Note Events of
Default; Rights Upon Note Event of Default" in the Prospectus.
OPTIONAL REDEMPTION
The Note Issuer may redeem, at its option, the Underlying Notes, and
accordingly cause the Trust to redeem the Offered Certificates, at any time on
or after the Payment Date on which the Outstanding Note Principal Balance has
been reduced to five percent of the Original Note Principal Balance. Notice of
such redemption will be given by the Note Issuer to each holder of Underlying
Notes by first-class mail, postage prepaid, mailed not less than five days nor
more than 25 days prior to the date of redemption.
S-13
<PAGE>
OVERCOLLATERALIZATION AMOUNT
In order to enhance the likelihood that distributions on each Class of the
Offered Certificates will be made in full by their respective Scheduled Final
Distribution Dates, the Financing Order and the Issuance Advice Letter relating
to the Offered Certificates permit the recovery of $_______ through FTA Payments
in excess of the amount expected to be required to pay interest on and principal
of all outstanding Classes of Offered Certificates and related fees and
expenses. Such excess is the Overcollateralization Amount related to the
Offered Certificates and will not bear interest. For a further discussion of
the Overcollateralization Amount, see "Description of the Notes--
Overcollateralization Amount" in the Prospectus.
OTHER CREDIT ENHANCEMENT
[TO BE PREPARED AT ISSUANCE]
ALLOCATIONS; PAYMENTS
On each Payment Date, the Note Trustee will at the direction of the
Servicer apply all amounts on deposit in the Collection Account with respect to
the prior Collection Period in the manner described under "Description of the
Notes--Allocations; Payments" in the Prospectus.
The Certificate Trustee will then apply all amounts paid by the Note
Trustee on the related Payment Date with respect to the Underlying Notes in the
following priority:
[TO BE PREPARED AT ISSUANCE]
DESCRIPTION OF THE TRANSITION PROPERTY
FINANCING ORDER AND ADVICE LETTERS
The Financing Order requires the Seller to submit an Issuance Advice Letter
to the CPUC with respect to each Series of Certificates issued. The first
Issuance Advice Letter [, which was filed in connection with the Offered
Certificates,] established the FTA Charge pursuant to which nonbypassable
charges will be billed to Customers in an amount sufficient to recover, within
the time period specified in the Issuance Advice Letter, FTA Charges designated
in the Issuance Advice Letter based on factors including, but not limited to,
the actual electricity usage of each such Customer and the rate of delinquencies
and charge-offs. [Subsequent Issuance Advice Letters have modified the FTA
Charge to support the issuance of ______ additional Series of Certificates,
including the Offered Certificates.]
The Issuance Advice Letter which was filed in connection with the Offered
Certificates establishes the following FTA Charges for each of the periods shown
below:
RESIDENTIAL CUSTOMERS
Calendar Year FTA Charge Per Kilowatt Hour
------------- ----------------------------
S-14
<PAGE>
SMALL COMMERCIAL CUSTOMERS
Calendar Year FTA Charge Per Kilowatt Hour
------------- ----------------------------
As of the date hereof, the FTA Charge will amount to approximately $____
per month for an average residential customer, and approximately $____ per month
for an average small commercial customer. The average monthly bill, excluding
local taxes, during 1996 was ______ for a PG&E residential customer and _____
for a PG&E small commercial customer.
ADJUSTMENTS TO THE FTA CHARGE
In order to enhance the likelihood that the FTA Collections are neither
more nor less than the amount necessary to amortize the Certificates in
accordance with the Expected Amortization Schedule, the Servicing Agreement and
the Financing Order require the Servicer to seek periodic adjustments to the FTA
Charge based on actual FTA Collections and updated assumptions by the Servicer
as to, among other factors, the electricity usage by Customers and the rate of
delinquencies and charge-offs. The date as of which any calculation is
performed which forms the basis for a requested adjustment to the FTA Charge is
referred to as a "CALCULATION DATE." The adjustments to the FTA Charge will
continue until all interest and principal on all Series of Notes and
corresponding Series of Certificates have been paid or distributed in full.
[The following table reflects information regarding the changes to the FTA
Charge which have been requested through Advice Letters since the Financing
Order was issued:
<TABLE>
<CAPTION>
Requested Adjustment Resulting
Adjustment to FTA Charge Aggregate
Calcu- to FTA Charge Granted by CPUC FTA Charge Effective
lation per per per Date of
Date Kilowatt Hour Kilowatt Hour Kilowatt Hour Adjustment
- -------- ------------- --------------- ------------- ----------
<S> <C> <C> <C> <C>
[TO BE PREPARED UPON ISSUANCE]
</TABLE>
]
See "Description of the Transition Property--Adjustments to the FTA
Charge."
CERTAIN YIELD AND MATURITY CONSIDERATIONS
The rate of principal distributions on the Offered Certificates, the
aggregate amount of each interest distribution on the Offered Certificates and
the yield to maturity of the Offered Certificates are related to the amount and
timing of FTA Collections.
In addition, the Note Issuer may, at its option, redeem the Underlying
Notes, and thus effect the early retirement of the Offered Certificates, on any
Distribution Date [(but in no event earlier than the Distribution Date occurring
__________)] following the first date on which the outstanding principal balance
of the Underlying Notes (as of any date, the "OUTSTANDING NOTE PRINCIPAL
BALANCE") is less than five percent of the Original Note Principal Balance. See
"Description of the Certificates--Optional Redemption" herein.
A higher rate of FTA Collections than anticipated is likely to have an
adverse effect on the yield of any Class of Offered Certificates that is
purchased at a premium and a lower rate of FTA Collections than anticipated is
S-15
<PAGE>
likely to have an adverse effect on the yield of any Class of Offered
Certificates that is purchased at a discount from its principal amount. The
effect on an investor's yield due to FTA Collections occurring at a rate that is
faster (or slower) than the rate anticipated by the investor in the period
immediately following the issuance of the Offered Certificates will not be
offset entirely by a subsequent like reduction (or increase) in the rate of FTA
Collections. The weighted average life of the Offered Certificates will also be
affected by the amount and timing of defaults by Customers.
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life
of the Offered Certificates will be influenced by, among other factors, the rate
at which FTA Collections are received.
THE SELLER AND SERVICER
The following is information which supplements that provided under the
heading "The Seller and Servicer" in the Prospectus. For a more complete
discussion of the Seller and Servicer, see "The Seller and Servicer" in the
Prospectus.
Pacific Gas and Electric Company reported net income of $_________ on
revenues of $_________ for the [quarter][year] ended ________, 199_, as compared
with net income of $_________ on revenues of $_________ for the [quarter][year]
ended ________, 199_.
SERVICING
GENERAL
The Servicer, as agent for the Note Issuer, will manage, service and
administer, and make collections in respect of, the Transition Property pursuant
to the Servicing Agreement between the Servicer and the Note Issuer. For a
detailed discussion of the Servicer's procedures, the manner in which payments
from Customers are remitted to the Collection Account, and related matters, see
"Servicing" in the Prospectus.
NO SERVICER ADVANCES
The Servicer will not make any advances of interest or principal on the
Underlying Notes.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to the sum of ___ percent per annum of the
Original Note Principal Balance, together with net investment income on the
portion of FTA Collections prior to remittance thereof to the Collection Account
and the portion of late fees, if any, paid by Customers related to the Offered
Certificates. The Servicing Fee (together with any portion of the Servicing Fee
that remains unpaid from prior Distribution Dates) will be paid solely to the
extent funds are available therefor as described under "Description of the
Notes--Allocations; Payments" herein. The Servicing Fee will be paid prior to
the distribution of any amounts in respect of interest on and principal of the
Underlying Notes.
S-16
<PAGE>
AGGREGATORS AND ALTERNATIVE ENERGY SUPPLIERS
As part of the deregulation of the California electric industry described
in the Prospectus, there will be an unbundling of generation, transmission,
distribution and billing services. A recent decision of the CPUC allows
alternative energy service providers ("ESPS") to elect to present a consolidated
bill to their retail customers, including the FTA Charge. Any ESP who elects
consolidated billing will be responsible for paying the Servicer monthly amounts
payable by customers of the ESP, including monthly FTA Payments. Neither the
Seller nor the Servicer will pay any shortfalls resulting from the failure of
any ESPs to forward FTA Payments to PG&E, as Servicer, which may result in
delays in distributions to Certificateholders.
STATEMENTS BY SERVICER
For each Remittance Date and each Distribution Date, the Servicer will
provide the statements and reports described under "Servicing--Statements by
Servicer" in the Prospectus.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and/or Section 4975 of the Code impose certain requirements on employee benefit
plans and certain other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and certain collective investment funds or
insurance company general or separate accounts in which such plans, accounts or
arrangements are invested, that are subject to the fiduciary responsibility and
prohibited transaction provisions of ERISA and/or Section 4975 of the Code
(collectively, "PLANS"), and on persons who are fiduciaries with respect to
Plans, in connection with the investment of assets that are treated as "plan
assets" of any Plan for purposes of applying Title I of ERISA and Section 4975
of the Code ("PLAN ASSETS"). ERISA imposes on Plan fiduciaries certain general
fiduciary requirements, including those of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. Generally, any person who has
discretionary authority or control respecting the management or disposition of
Plan Assets, and any person who provides investment advice with respect to Plan
Assets for a fee or other consideration, is a fiduciary with respect to such
Plan Assets.
Subject to the considerations described below, the Offered Certificates are
eligible for purchase with Plan Assets or any Plan.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons who have certain specified relationships to a
Plan or its Plan Assets ("parties in interest" under ERISA and "disqualified
persons" under the Code (collectively, "PARTIES IN INTEREST")), unless a
statutory or administrative exemption is available. Parties in Interest and Plan
fiduciaries that participate in a prohibited transaction may be subject to
penalties imposed under ERISA and/or excise taxes imposed pursuant to Section
4975 of the Code, unless a statutory or administrative exemption is available.
These prohibited transaction rules generally are set forth in Section 406 of
ERISA and Section 4975 of the Code.
Any fiduciary or other Plan investor considering whether to purchase the
Offered Certificates of any Class on behalf of or with Plan Assets of any Plan
should determine whether such purchase is consistent with its fiduciary duties
and whether such purchase would constitute or result in a non-exempt prohibited
transaction under ERISA and/or Section 4975 of the Code because any of PG&E, the
Certificate Trustee, the Underwriters or their respective affiliates may be
deemed to be benefiting from the issuance of the Offered
S-17
<PAGE>
Certificates and is a Party in Interest with respect to the investing Plan. In
particular, the Offered Certificates may not be purchased with Plan Assets of
any Plan if any of PG&E, the Certificate Trustee, the Underwriters or their
respective affiliates (a) has investment or administrative discretion with
respect to the Plan Assets used to effect such purchase; (b) has authority or
responsibility to give, or regularly gives, investment advice with respect to
such Plan Assets, for a fee and pursuant to an agreement or understanding that
such advice (1) will serve as a primary basis for investment decisions with
respect to such Plan Assets, and (2) will be based on the particular investment
needs of such Plan; or (c) is an employer maintaining or contributing to such
Plan. Each purchaser of the Offered Certificates will be deemed to have
represented and warranted that its purchase of the Offered Certificates or any
interest therein does not violate the foregoing limitations.
PLAN ASSET REGULATION
Because the Offered Certificates are likely to be treated as "equity
interests" in the Trust under a regulation (the "PLAN ASSET REGULATION") issued
by the U.S. Department of Labor (the "DOL"), which provides that beneficial
interests in a trust are equity interests, purchasing the Offered Certificates
with Plan Assets may cause the assets of the Trust to be deemed Plan Assets of
the investing Plan which, in turn, would subject the Trust and its assets to the
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code. A violation of the prohibited
transaction rules could occur if the Offered Certificates are purchased with
Plan Assets of any Plan and any of PG&E, the Certificate Trustee, the
Underwriters or their respective affiliates is a Party in Interest with respect
to such Plan, unless a statutory or administrative exemption is available or an
exception applies under the Plan Asset Regulation. However, the possibility
that prohibited transactions may occur by reason of the operation of the Trust
is substantially less than in other pass-through trusts because each Class of
Offered Certificates represents an interest in the corresponding Class of
Underlying Notes and only minimal administrative activity is expected to occur
at the Trust level. Moreover, an exception may apply under the Plan Asset
Regulation with respect to Class [__] Offered Certificates offered hereby.
Before purchasing any Class of Offered Certificates of this Series,
including the Class [__] Offered Certificates, a fiduciary or other Plan
investor should consider whether a prohibited transaction might arise by reason
of any such relationship between the investing Plan and any of PG&E, the
Certificate Trustee, the Underwriters or their respective affiliates and consult
its legal advisors regarding the purchase in light of the considerations
described herein and in the Prospectus. The DOL has issued six class exemptions
that may afford exemptive relief for otherwise prohibited transactions arising
from the purchase or holding of the Offered Certificates, i.e., DOL Prohibited
Transaction Exemptions 96-23 (Class Exemption for Plan Asset Transactions
Determined by In-House Investment Managers), 95-60 (Class Exemption for Certain
Transactions Involving Insurance Company General Accounts), 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds),
90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts), 84-14 (Class Exemption for Plan Asset Transactions
Determined by Independent Qualified Professional Asset Managers), and 75-1 (Part
III) (Class Exemption for Certain Underwriting Transactions). A purchaser of
the Offered Certificates should be aware, however, that even if the conditions
specified in one or more of the above exemptions are met, the scope of the
relief provided by the exemption might not cover all acts which might be
construed as prohibited transactions, particularly if the "publicly-offered
securities" exception is not available under the Plan Asset Regulation.
S-18
<PAGE>
In light of the foregoing, fiduciaries or other Plan investors considering
whether to purchase the Offered Certificates with Plan Assets of any Plan should
consult their own legal advisors regarding whether the Trust assets would be
considered Plan Assets of Plan investors, the consequences that would apply if
the Trust's assets were considered Plan Assets, and the availability of
exemptive relief from the prohibited transaction rules or an exception under the
Plan Asset Regulation. Fiduciaries and other Plan investors should also
consider the fiduciary standards under ERISA or other applicable law in the
context of the Plan's particular circumstances before authorizing an investment
of a Plan Assets in the Offered Certificates. Among other factors, such persons
should consider whether the investment (a) satisfies the diversification
requirement of ERISA or other applicable law, (b) is in accordance with the
Plan's governing instruments, and (c) is prudent in light of the "Risk Factors"
and other factors discussed herein and in the Prospectus.
For further information see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Trust has agreed to sell to each of the Underwriters named below
(the "UNDERWRITERS"), and each of the Underwriters, for whom _____________ are
acting as representatives, has severally agreed to purchase, the respective
principal amounts of the Offered Certificates set forth opposite its name below.
<TABLE>
<CAPTION>
Principal
Amount of
Name Certificates
- ---- ------------
<S> <C>
[Underwriter] . . . . . . . . . . . . . . . . . . . . .$
[Underwriter] . . . . . . . . . . . . . . . . . . . . .$
[Underwriter] . . . . . . . . . . . . . . . . . . . . .$___________
Total . . . . . . . . . . . . . . . . . . . . . .$
===========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and to pay for all of the Offered
Certificates offered hereby, if any are taken.
The Underwriters propose to offer the Offered Certificates in part directly
to retail purchasers at the initial public offering price set forth on the cover
page of this Prospectus Supplement, and in part to certain securities dealers at
such price less a concession not in excess of _____ percent of the principal
amount of the Offered Certificates. The Underwriters may allow and such dealers
may reallow a concession not in excess of _____ percent of the principal amount
of the Offered Certificates to certain brokers and dealers. After the Offered
Certificates are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Offered Certificates are a new issue of securities with no established
trading market. [The Certificates will not be listed on any securities
exchange.] The Trust has been advised by the Underwriters that they intend to
make a market in the Offered Certificates but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Offered Certificates.
The Note Issuer and the Trust have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
S-19
<PAGE>
RATINGS
It is a condition of issuance of the Offered Certificates that the Class
____ Certificates be rated "____" by _______, "____" by _______ and "____" by
_______ (each of _______, ________ and _________, a "RATING AGENCY") and that
the Class _____ Certificates be rated "____" by _______, "____" by _______ and
"____" by _______.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any Offered
Certificate, and, accordingly, there can be no assurance that the ratings
assigned to any Class of Offered Certificates upon initial issuance will not be
revised or withdrawn by a Rating Agency at any time thereafter. If a rating of
any Class of Offered Certificates is revised or withdrawn, the liquidity of such
Class of Offered Certificates may be adversely affected. In general, ratings
address credit risk and do not represent any assessment of the rate of FTA
Payments.
LEGAL MATTERS
Certain legal matters relating to the Underlying Notes and certain federal
income tax consequences of the issuance of the Underlying Notes will be passed
upon by Orrick, Herrington & Sutcliffe LLP, San Francisco, California, counsel
to the Seller. Certain legal matters relating to the Offered Certificates and
certain federal income tax consequences of the issuance of the Offered
Certificates will be passed upon by Brown & Wood LLP, counsel to the Trust.
Certain legal matters relating to the Offered Certificates will be passed upon
by Cravath, Swaine & Moore, New York, New York, counsel to the Underwriters.
S-20
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
------------------------------
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Principal Definitions"
in the Prospectus.
<TABLE>
<S> <C>
A-1 Notes............................................................................. S-2
Book-Entry Certificates............................................................... S-9
Calculation Date...................................................................... S-15
Cede.................................................................................. S-9
Certificate Interest Rate............................................................. S-11
Certificate Trustee................................................................... S-5
Certificateholders.................................................................... S-3
Certificates.......................................................................... S-11
Class............................................................................ S-5, S-6
Class Principal Balance............................................................... S-5
Distribution Date........................................................... S-2, S-6, S-11
DTC.............................................................................. S-3, S-9
Exchange Act.......................................................................... S-3
Infrastructure Bank................................................................... S-5
Note Issuer...................................................................... S-1, S-5
Note Trustee.......................................................................... S-6
Noteholder............................................................................ S-12
Notes................................................................................. S-12
Offered Certificates........................................................ S-1, S-5, S-11
Original Certificate Principal Balance................................................ S-5
Original Note Principal Balance....................................................... S-6
Outstanding Note Principal Balance.................................................... S-15
Payment Date..................................................................... S-6, S-12
PG&E.................................................................................. S-5
Rating Agency.....................................................................S-9, S-20
Record Date........................................................................... S-6
Seller................................................................................ S-5
Series Issuance Date.................................................................. S-12
Servicer.............................................................................. S-5
Servicing Fee......................................................................... S-8
Statute............................................................................... S-4
Trust................................................................................. S-5
Underlying Notes............................................................ S-1, S-6, S-12
Underwriters.......................................................................... S-19
Utilities............................................................................. S-4
</TABLE>
S-21
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
SELLER, THE NOTE ISSUER, THE TRUST, THE INFRASTRUCTURE BANK, THE UNDERWRITER OR
ANY DEALER, SALESPERSON OR OTHER PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION.
___________________
TABLE OF CONTENTS
PROSPECTUS SUPPLBEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORTS TO HOLDERS..................................................... S-3
FORWARD-LOOKING STATEMENTS............................................. S-3
TRANSACTION OVERVIEW................................................... S-4
PROSPECTUS SUMMARY..................................................... S-5
DESCRIPTION OF THE CERTIFICATES........................................ S-11
DESCRIPTION OF THE NOTES............................................... S-12
DESCRIPTION OF THE TRANSITION PROPERTY................................. S-14
CERTAIN YIELD AND MATURITY CONSIDERATIONS.............................. S-15
THE SELLER AND SERVICER................................................ S-16
SERVICING.............................................................. S-16
ERISA CONSIDERATIONS................................................... S-17
UNDERWRITING........................................................... S-19
RATINGS................................................................ S-20
LEGAL MATTERS.......................................................... S-20
INDEX OF PRINCIPAL DEFINITIONS......................................... S-21
</TABLE>
PROSPECTUS
TRANSACTION OVERVIEW...................................................
PROSPECTUS SUMMARY.....................................................
RISK FACTORS...........................................................
ENERGY DEREGULATION AND NEW CALIFORNIA
MARKET STRUCTURE.....................................................
DESCRIPTION OF THE TRANSITION PROPERTY.................................
CERTAIN YIELD AND MATURITY
CONSIDERATIONS.......................................................
THE TRUST..............................................................
THE INFRASTRUCTURE BANK................................................
THE NOTE ISSUER........................................................
THE SELLER AND SERVICER................................................
SERVICING..............................................................
DESCRIPTION OF THE NOTES...............................................
DESCRIPTION OF THE CERTIFICATES........................................
FEDERAL INCOME TAX CONSEQUENCES........................................
STATE AND LOCAL TAXATION...............................................
ERISA CONSIDERATIONS...................................................
USE OF PROCEEDS........................................................
PLAN OF DISTRIBUTION...................................................
RATINGS................................................................
LEGAL MATTERS..........................................................
INDEX OF PRINCIPAL DEFINITIONS.........................................
CALIFORNIA
INFRASTRUCTURE AND
ECONOMIC DEVELOPMENT
BANK SPECIAL PURPOSE
TRUST PG&E-1
$_______________
RATE REDUCTION CERTIFICATES
SERIES 199_-__
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
[NAME OF UNDERWRITER(S)]
_______, 199__
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of the securities in
any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of such
jurisdiction.
SUBJECT TO COMPLETION DATED JULY ____, 1997
PROSPECTUS
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST PG&E-1
RATE REDUCTION CERTIFICATES
ISSUABLE IN SERIES
_____________
PG&E Funding LLC
Issuer of the Notes
_____________
Pacific Gas and Electric Company
Seller and Servicer
The California Infrastructure and Economic Development Bank Special Purpose
Trust PG&E-1 Rate Reduction Certificates (the "CERTIFICATES") offered hereby may
be sold from time to time in series (each, a "SERIES"), each of which may be
comprised of one or more classes (each, a "CLASS"), as described in the related
Prospectus Supplement. Each Series of Certificates will be issued by the
California Infrastructure and Economic Development Bank Special Purpose Trust
PG&E-1 (the "TRUST") established by the California Infrastructure and Economic
Development Bank (the "INFRASTRUCTURE BANK").
The assets of the Trust will consist solely of the PG&E Funding LLC Notes (the
"NOTES") issued by PG&E Funding LLC, a Delaware special purpose limited
liability company (the "NOTE ISSUER"), and the proceeds thereof. The sole
member of the Note Issuer is Pacific Gas and Electric Company, a California
corporation ("PG&E"). The Notes will be secured primarily by the Transition
Property, as described under "Prospectus Summary--Transition Property" and
"Description of the Transition Property" herein.
PG&E will sell the Transition Property (in such capacity, the "SELLER") to the
Note Issuer pursuant to the Transition Property Purchase and Sale Agreement
between the Seller and the Note Issuer. See "Description of the Transition
Property--Sale and Assignment of Transition Property" herein. The Seller will
also service the Transition Property (in its capacity as servicer, the
"SERVICER") pursuant to the Transition Property Servicing Agreement between the
Servicer and the Note Issuer. See "Servicing" herein.
The Note Issuer will issue Notes from time to time in series to the Trust, and
the Trust will issue to investors separate Series of Certificates from time to
time upon terms determined at the time of sale and described in the related
Prospectus Supplement. Each Series of Notes (each, a "SERIES") may be issuable
in one or more classes (each, a "CLASS"). A Series may include Classes which
differ as to the interest rate, timing, sequential order and amount of
distributions of principal or interest or both or otherwise. The Note Issuer
generally will use all payments made with respect to Transition Property to pay
certain expenses described herein, interest due on the Notes and principal
payable on the Notes, allocated among the Series and Classes of Notes based on
the priorities described herein and in the related Prospectus Supplement. All
principal not previously paid, if any, on any Note is due and payable on the
Final Maturity Date of such Note. Each Class of Certificates will correspond to
a Class of Notes and will represent undivided interests in such underlying Class
of Notes and the proceeds thereof. As such, each Class of Certificates will
entitle the holders thereof to receive the payments received by the Trust in
respect of the corresponding Class of Notes. The funds received by the Trust
from the payments on each Class of Notes will be the only source of
distributions on the Certificates of the corresponding Class. While the specific
terms of any Series of Certificates (and the Classes, if any, thereof) will be
described in
<PAGE>
the related Prospectus Supplement, the terms of such Series and any Classes
thereof will not be subject to prior review by, or consent of, the holders of
the Certificates of any previously issued Series.
Offers of the Certificates of a Series may be made through one or more different
methods, including offerings through underwriters, as described under "Plan of
Distribution" herein and "Underwriting" in the related Prospectus Supplement.
There will have been no secondary market for the Certificates of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Series of Certificates will develop or, if one does develop, that it
will continue. It is not anticipated that any of the Certificates will be listed
on any securities exchange.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH UNDER THE CAPTION "RISK FACTORS," WHICH BEGINS ON PAGE _______ HEREIN.
THE TRANSITION PROPERTY OWNED BY THE NOTE ISSUER AND ANY OTHER ASSETS OF THE
NOTE ISSUER WILL BE THE SOLE SOURCE OF PAYMENTS ON THE NOTES. PAYMENTS ON THE
NOTES RECEIVED BY THE TRUST ARE THE SOLE SOURCE OF DISTRIBUTIONS ON THE
CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
THE STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK OR THE SELLER. NONE OF THE
CERTIFICATES, THE NOTES OR THE UNDERLYING TRANSITION PROPERTY WILL BE GUARANTEED
OR INSURED BY THE STATE OF CALIFORNIA, THE INFRASTRUCTURE BANK, THE TRUST OR ANY
OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE SELLER OR ITS AFFILIATES.
NONE OF SUCH ENTITIES WILL HAVE ANY OBLIGATIONS IN RESPECT OF THE CERTIFICATES,
THE NOTES OR THE TRANSITION PROPERTY, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN
THE RELATED PROSPECTUS SUPPLEMENT.
NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF
CALIFORNIA OR ANY AGENCY OR INSTRUMENTALITY THEREOF IS PLEDGED TO THE
DISTRIBUTIONS OF PRINCIPAL OF, OR INTEREST ON, THE CERTIFICATES OR THE NOTES OR
TO THE PAYMENTS IN RESPECT OF THE TRANSITION PROPERTY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES OFFERED HEREBY
UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
Prospective investors should refer to the "Index of Principal Definitions"
herein for the location of the definitions of capitalized terms that appear in
this Prospectus.
__________ __, 1997
2
<PAGE>
No dealer, salesperson, or any other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or the related Prospectus Supplement and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Seller, the Note Issuer, the Trust, the Infrastructure Bank or any
dealer, salesperson, or any other person. Neither the delivery of this
Prospectus or the related Prospectus Supplement nor any sale made hereunder or
thereunder shall under any circumstances create an implication that there has
been no change in the information herein or therein since the date hereof. This
Prospectus and the related Prospectus Supplement do not constitute an offer to
sell or a solicitation of an offer to buy any security in any jurisdiction in
which it is unlawful to make such offer or solicitation.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED SERIES OF CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Note Issuer has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement (as amended, the "REGISTRATION
STATEMENT") under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
with respect to the Certificates and the Notes. This Prospectus, which forms a
part of the Registration Statement, and any Prospectus Supplement do not contain
all of the information contained in the Registration Statement and the exhibits
thereto. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance reference
is made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference. For further information, reference is made to
the Registration Statement and the exhibits thereto, which are available for
inspection without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices located as follows: Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of the Registration Statement and exhibits thereto may be obtained at the
above locations at prescribed rates. Information filed with the Commission can
also be inspected at the Commission's site on the World Wide Web at
http:\\www.sec.gov.
The Note Issuer will file with the Commission such periodic reports with
respect to each Series of Certificates as are required by the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules,
regulations or orders of the Commission thereunder. The Note Issuer may
discontinue filing periodic reports under the Exchange Act at the beginning of
the fiscal year following the issuance of the Certificates of any Series if
there are fewer than 300 holders of such Certificates.
REPORTS TO HOLDERS
Unless and until the Certificates are no longer issued in book-entry form,
the Servicer will provide to Cede & Co., as nominee of The Depository Trust
Company ("DTC") and registered holder of the Certificates and, upon request, to
Participants of DTC, periodic reports concerning the Certificates. See
"Description of the Certificates--Reports to Certificateholders" herein. Such
reports may be made available to the holders of interests in the Certificates
(the "CERTIFICATEHOLDERS") upon request to their Participants. Such reports will
not constitute financial statements prepared in accordance with generally
3
<PAGE>
accepted accounting principles. The financial information provided to
Certificateholders will not be examined and reported upon, nor will an opinion
thereon be provided, by any independent public accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Note Issuer pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering made hereby shall
be deemed to be incorporated by reference in this Prospectus and to be part
hereof. Any statement contained herein or in a Prospectus Supplement, or in a
document incorporated or deemed to be incorporated by reference herein or
therein shall be deemed to be modified or superseded for purposes of this
Prospectus and any Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
any Prospectus Supplement.
The Note Issuer will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any of or all the documents incorporated herein by reference
(other than exhibits to such documents). Requests for such copies should be
directed to the Note Issuer at Mail Code N10A, P.O. Box 770000, San Francisco,
CA 94177 or by telephone at (415) 973-7000.
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS AND ANY RELATED "PROSPECTUS
SUMMARY," PROSPECTUS SUPPLEMENT OR IN DOCUMENTS INCORPORATED HEREIN BY
REFERENCE, THE WORDS "EXPECTS," "INTENDS," "ANTICIPATES," "ESTIMATES" AND
ANALOGOUS EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS AS
DEFINED IN THE SECURITIES ACT. ANY SUCH STATEMENTS, WHICH MAY INCLUDE STATEMENTS
CONTAINED IN THIS PROSPECTUS AND ANY RELATED "PROSPECTUS SUMMARY," "RISK
FACTORS," "DESCRIPTION OF THE TRANSITION PROPERTY," "CERTAIN YIELD AND MATURITY
CONSIDERATIONS," "THE SELLER AND SERVICER" AND "SERVICING" HEREIN AND IN
SECTIONS INDICATED IN THE RELATED PROSPECTUS SUPPLEMENT, INHERENTLY ARE SUBJECT
TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE,
AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS, COMPETITION, CHANGES IN
POLITICAL, SOCIAL AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE
WITH GOVERNMENTAL REGULATIONS, LITIGATION AND VARIOUS OTHER EVENTS, CONDITIONS
AND CIRCUMSTANCES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE NOTE ISSUER AND
THE TRUST AND THE SERVICER, THE SELLER, THE NOTE TRUSTEE, THE CERTIFICATE
TRUSTEE AND THE INFRASTRUCTURE BANK. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY
AS OF THE DATE OF THIS PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THE
NOTE ISSUER AND THE TRUST EXPRESSLY DISCLAIM ANY OBLIGATION OR UNDERTAKING TO
RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE NOTE ISSUER'S OR THE TRUST'S
EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR
CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
4
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
FORWARD-LOOKING STATEMENTS........................................ 4
TRANSACTION OVERVIEW.............................................. 7
PROSPECTUS SUMMARY................................................ 8
RISK FACTORS...................................................... 19
Transition Property.......................................... 19
Servicing.................................................... 20
Risks Related to the Electric Industry Generally............. 21
Bankruptcy; Creditors' Rights................................ 22
Bankruptcy of Infrastructure Bank............................ 23
The Certificates............................................. 24
ENERGY DEREGULATION AND NEW CALIFORNIA MARKET STRUCTURE........... 25
DESCRIPTION OF THE TRANSITION PROPERTY............................ 26
General 26
Financing Order and Advice Letters........................... 27
Transition Property.......................................... 28
Nonbypassable FTA Charge..................................... 28
Adjustments to the FTA Charge................................ 28
Sale and Assignment of Transition Property................... 29
Seller Representations and Warranties........................ 30
........................................................... 31
CERTAIN YIELD AND MATURITY CONSIDERATIONS......................... 31
THE TRUST......................................................... 31
THE INFRASTRUCTURE BANK........................................... 32
THE NOTE ISSUER................................................... 32
THE SELLER AND SERVICER........................................... 33
General...................................................... 33
PG&E Customer Base and Electric Energy Consumption........... 33
Forecasting Consumption...................................... 33
Forecast Variance............................................ 34
Credit Policy; Billing; Collections; Restoration of Service.. 35
Delinquency and Loss Experience.............................. 36
Customers.................................................... 36
SERVICING......................................................... 37
Servicing Procedures......................................... 37
Servicing Standards and Covenants............................ 37
Remittances to Collection Account............................ 38
No Servicer Advances......................................... 38
Servicing Compensation....................................... 38
Aggregators and Other Suppliers.............................. 38
Servicer Representations and Warranties...................... 39
Statements by Servicer....................................... 39
Evidence as to Compliance.................................... 39
Certain Matters Regarding the Servicer....................... 40
Servicer Defaults............................................ 40
Rights Upon Servicer Default................................. 41
Waiver of Past Defaults...................................... 41
Amendment.................................................... 41
Termination.................................................. 42
DESCRIPTION OF THE NOTES.......................................... 42
General...................................................... 42
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Security..................................................... 43
Interest and Principal....................................... 43
Optional Redemption.......................................... 43
Overcollateralization Amount................................. 43
Other Credit Enhancement..................................... 44
Collection Account........................................... 45
Allocations; Payments........................................ 45
Actions by Noteholders....................................... 46
Note Events of Default; Rights Upon Note Event of Default.... 47
Certain Covenants of the Note Issuer......................... 48
Reports to Noteholders....................................... 50
Annual Compliance Statement.................................. 51
DESCRIPTION OF THE CERTIFICATES................................... 51
General...................................................... 51
Payments and Distributions................................... 51
Voting of the Notes.......................................... 53
Events of Default............................................ 53
Optional Redemption.......................................... 55
Reports to Certificateholders................................ 55
Amendments................................................... 55
List of Certificateholders................................... 56
Registration and Transfer of the Certificates................ 56
Book-Entry Registration...................................... 57
Definitive Certificates...................................... 60
Conditions of Issuance of Additional Series.................. 61
FEDERAL INCOME TAX CONSEQUENCES................................... 61
General...................................................... 61
Treatment of the Certificates as Debt........................ 62
Taxation of Interest Income of U.S. Certificateholders....... 62
Sale or Exchange of Certificates............................. 63
Non-U.S. Certificateholders.................................. 64
Information Reporting and Backup Withholding................. 64
STATE AND LOCAL TAXATION.......................................... 65
California Taxation.......................................... 65
Other States................................................. 65
ERISA CONSIDERATIONS.............................................. 65
USE OF PROCEEDS................................................... 66
PLAN OF DISTRIBUTION.............................................. 66
RATINGS........................................................... 67
LEGAL MATTERS..................................................... 67
INDEX OF PRINCIPAL DEFINITIONS.................................... 68
</TABLE>
6
<PAGE>
TRANSACTION OVERVIEW
The following summary is qualified by reference to the detailed information
appearing elsewhere herein and by reference to the information with respect to
each Series of Certificates contained in the related Prospectus Supplement to be
prepared and delivered in connection with the offering of such Series of
Certificates.
CERTIFICATES. The Certificates of each Class represent an undivided
interest in the related Class of Notes and the proceeds thereof. The Trust's
assets are comprised of the Notes issued by the Note Issuer (the "NOTES"). The
Notes are secured by the Note Issuer's right to receive payments made in respect
of certain nonbypassable charges included in the regular utility bills of
residential and small commercial consumers located in the historical service
territory of the Seller. These charges are designed to be sufficient to pay
principal and interest on the Certificates, all related fees and expenses and
the Overcollateralization Amount described herein. These charges will be subject
to adjustment over the term of each Series of Certificates to enhance the
likelihood of timely recovery of such amounts.
STATUTORY BACKGROUND. The nonbypassable charges were authorized by the
State of California pursuant to Assembly Bill 1890, Chapter 854, California
Statutes of 1996 (as amended, the "STATUTE"), which permits the California
investor-owned utilities (collectively, the "UTILITIES"), including PG&E, to
finance the recovery of a portion of their respective "Transition Costs" through
the issuance of the Certificates, in conjunction with a reduction in electricity
rates for residential and small commercial customers. Transition Costs consist
generally of the costs of generation-related assets and obligations that may
become uneconomic as a result of a competitive generation market, together with
certain other costs associated therewith.
TRUST. The Trust is being established by the Infrastructure Bank, the
Delaware Trustee and the Certificate Trustee. The assets of the Trust consist of
the Notes, which are secured primarily by the Transition Property. The
Certificates of any Class will be issued by the Trust and sold to underwriters
named in the related Prospectus Supplement by the Trust. The Notes will be
issued to the Trust by the Note Issuer in exchange for the proceeds of the sale
of the Certificates. The Seller will sell the Transition Property to the Note
Issuer in exchange for the proceeds of the Notes. The Transition Property sold
to the Note Issuer in connection with any Series of Certificates is a separate
property right created upon the entry of the Financing Order and effectiveness
of the related Issuance Advice Letter by the CPUC. A schematic of the structure
of the transaction is shown below.
[CHART]
7
<PAGE>
PROSPECTUS SUMMARY
The following Prospectus Summary is qualified in its entirety by reference
to the detailed information appearing elsewhere in this Prospectus and by
reference to the information with respect to each Series of Certificates
contained in the related Prospectus Supplement. Capitalized terms used but not
defined in this Prospectus Summary have the meanings ascribed to such terms
elsewhere in this Prospectus. The Index of Principal Definitions included in
this Prospectus sets forth the pages on which the definitions of certain
principal terms appear.
Seller and Servicer Pacific Gas and Electric Company, a California
corporation ("PG&E"). PG&E will sell the Transition
Property (in its capacity as seller, the "SELLER") to
PG&E Funding LLC, a Delaware limited liability company
of which the Seller is the sole member (the "NOTE
ISSUER"), pursuant to a Transition Property Purchase
and Sale Agreement between the Seller and the Note
Issuer (the "SALE AGREEMENT"). PG&E is a public
utility primarily engaged in the business of supplying
electric energy and natural gas to customers in an
approximately 70,000 square-mile area of Northern and
Central California.
The Seller will also act as the servicer of the
Transition Property (in its capacity as servicer, the
"SERVICER") pursuant to a Transition Property
Servicing Agreement between the Note Issuer and the
Servicer (the "SERVICING AGREEMENT").
See "The Seller and Servicer" herein.
Issuer of Certificates A trust entitled "California Infrastructure and
Economic Development Bank Special Purpose Trust PG&E-1"
(the "TRUST") to be established by the California
Infrastructure and Economic Development Bank (the
"INFRASTRUCTURE BANK"). The Trust will be governed by
an amended and restated Declaration and Agreement of
Trust among the Infrastructure Bank, the Delaware
Trustee and the Certificate Trustee (the "TRUST
AGREEMENT"). The Certificateholders will be the
beneficiaries of the Trust upon the issuance of the
Certificates. See "The Trust" herein.
Infrastructure Bank A public body established within the state government
of the State of California. Under the Statute, the
Infrastructure Bank must approve the issuance of
Certificates by the Trust. See "The Infrastructure
Bank" herein.
Certificate Trustee The entity named as co-trustee under the Trust
Agreement in each Prospectus Supplement (the
"CERTIFICATE TRUSTEE").
Delaware Trustee The Delaware entity named as co-trustee under the Trust
Agreement in each Prospectus Supplement (the "DELAWARE
TRUSTEE").
The Certificates The California Infrastructure and Economic Development
Bank Special Purpose Trust PG&E-1 Rate Reduction
Certificates (the "CERTIFICATES"), issuable in Series.
The Certificates will be issuable under the terms of
the Trust Agreement.
8
<PAGE>
The Certificates of each Series will represent an
undivided interest in the related Series of Notes and
the proceeds thereof. The Certificates are entitled to
all of the benefits accorded to "rate reduction bonds"
by the Statute.
The Certificates may be issued in one or more series
(each, a "SERIES"), and the Certificates of each Series
may be issued in one or more classes (each, a "CLASS").
Each Class of Certificates will correspond to a Class
of Notes. Each Class of Certificates will entitle the
holders thereof to receive the payments received by the
Trust in respect of the corresponding Class of Notes.
The funds received by the Trust from the payments on
each Class of Notes will be the only source of
distributions on the Certificates of the corresponding
Class. Each Note will be secured by the Transition
Property and the other Note Collateral.
A Series may include two or more Classes of
Certificates which differ as to the interest rate,
timing, sequential order and amount of distributions of
principal or interest or both or otherwise.
While the specific terms of any Series of Certificates
(and the Classes thereof, if any) in respect of which
this Prospectus is being delivered will be described in
the related Prospectus Supplement, the terms of such
Series and any Classes thereof will not be subject to
prior review by, or consent of, the holders of the
Certificates of any previously issued Series.
The assets of the Trust will be allocated among the
Certificateholders of each Series of Certificates
issued by the Trust in the manner described herein. If
a Series includes two or more Classes of Certificates,
the assets of the Trust allocable to the Certificates
of such Series will be further allocated among each
Class in such Series in the manner described in the
Prospectus Supplement.
All Certificates of the same Series will be identical
in all respects except for the denominations thereof,
unless such Series is comprised of two or more Classes,
in which case all Certificates of the same Class will
be identical in all respects except for the
denominations thereof.
So long as any Certificates are outstanding, the
Certificateholders will direct the Certificate Trustee,
as sole Noteholder, as to matters in which the
Noteholders are permitted or required to take action;
provided, however, that the Certificate Trustee will be
permitted to take certain actions specified in the
Trust Agreement without the direction of the
Certificateholders. See "Description of the Notes--
Actions by Noteholders" herein.
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None of the Certificates, the Notes or the underlying
Transition Property will be guaranteed or insured by
any governmental agency or instrumentality or by the
Seller or any of its affiliates. Neither the full
faith and credit nor taxing power of the State of
California is pledged to the payment of principal of or
interest on the Certificates or the Notes or to the
payments in respect of the Transition Property.
See "Description of the Certificates" and "Description
of the Notes" herein.
Note Issuer PG&E Funding LLC, a Delaware special purpose limited
liability company whose single member is PG&E. The
assets of the Note Issuer will consist of the
Transition Property and a limited amount of capital
contributed by PG&E. The Note Issuer will either lend
the contributed capital to an affiliate of PG&E in
exchange for an affiliate demand note or invest such
contributed capital in financial instruments that can
be converted to cash no later than the next scheduled
Payment Date.
The principal executive office of the Note Issuer is
located at 245 Market Street, Room 424, San Francisco,
California 94105, and its telephone number is (415)
973-7000.
The Notes The Notes of each Series and Class issued by the Note
Issuer will be in an initial aggregate principal amount
equal to the initial aggregate principal amount of the
related Series and Class of Certificates, and the Notes
of each Series and Class will bear interest at an
interest rate equal to the interest rate of the related
Series and Class of Certificates.
The Note Issuer will use all collections received with
respect to the Transition Property (FTA Collections, as
more specifically defined below) to pay certain
expenses described herein, interest due on the Notes
and principal payable on the Notes, allocated among the
Series and Classes of Notes based on the priorities
described herein and in the Prospectus Supplement,
until each outstanding Series and Class of Notes is
retired. All principal not previously paid, if any, on
a Note is due and payable on the Final Maturity Date of
such Note, which will correspond with the Termination
Date of the related Class of Certificates.
Each Series of Notes represents a non-recourse
obligation of the Note Issuer, and will be secured only
by Transition Property owned by the Note Issuer,
together with the other Note Collateral.
See "Description of the Notes" herein.
Note Trustee The entity named as trustee under the Note Indenture in
each Prospectus Supplement.
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<PAGE>
FTA Charge/Transition
Property In connection with the restructuring of the electric
utility industry in California to facilitate increased
competition among providers of electricity, Sections
367 and 369 of the California Public Utilities Code
(the "PU CODE") provide the Seller, as well as the
other Utilities providing electricity to consumers in
California, with an opportunity to recover certain
costs. These costs, commonly known as stranded costs
and referred to herein as "TRANSITION COSTS," consist
generally of the costs of generation-related assets and
obligations that may become uneconomic as a result of a
competitive generation market, together with certain
other costs associated therewith.
Under Section 840 of the PU Code, the Seller has
obtained from the CPUC a Financing Order (the
"FINANCING ORDER") designating the amount of the
Seller's Transition Costs to be financed, along with
the costs of providing, recovering, financing or
refinancing the Transition Costs, including the costs
of issuing, servicing and retiring the Certificates.
In order to enable the Seller to recover these amounts,
the CPUC will authorize, in the Financing Order, the
imposition of a nonbypassable, usage-based, per
kilowatt hour charge (the "FTA CHARGE"). The FTA
Charge will be imposed upon existing and future
residential and small commercial consumers of
electricity in the service territory in which the
Seller provided electricity services as of December 20,
1995 (the "CUSTOMERS").
The FTA Charge will be calculated from time to time to
generate projected revenues sufficient to provide for
the amortization of each Series of Certificates in
accordance with the related Expected Amortization
Schedule, together with the overcollateralization
amounts described herein and fees and expenses related
to the issuance and servicing of the Certificates.
Calculation of the FTA Charge is based on certain
assumptions, including but not limited to projected
usage of electricity by Customers and expected
delinquencies and charge-offs. The FTA Charge
specifically identifies, for each class of Customers, a
charge that will be assessed on behalf of the Note
Issuer to each Customer based on such Customer's
consumption of electricity. Such amounts will be
collected by the Servicer as part of its normal
collection activities and will be deposited into the
Collection Account under the terms of the Note
Indenture on each Remittance Date (as defined below).
The Financing Order requires a notification letter
(each, an "ISSUANCE ADVICE LETTER") to be submitted to
the CPUC prior to the issuance of each Series of
Certificates. The first Issuance Advice Letter will
establish the initial FTA Charge. Subsequent Issuance
Advice Letters may modify the FTA Charge to support the
issuance of
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<PAGE>
additional Series of Certificates. The Issuance Advice
Letters and the True-Up Mechanism Advice Letters (as
defined below) are collectively referred to as "ADVICE
LETTERS."
The right to collect payments made by residential and
small commercial consumers of electricity based on the
FTA Charge ("FTA PAYMENTS") gives rise to a separate
property right under California law and is referred to
herein generally as the "TRANSITION PROPERTY." FTA
Payments received by the Servicer to be remitted to the
Collection Account are referred to generally herein as
the "FTA COLLECTIONS." "Transition Property" is
defined more specifically in Section 840(g) of the PU
Code as the property right created under the PU Code
including, without limitation, the right, title and
interest of an electrical corporation or its transferee
(i) in and to the FTA Charge, as adjusted from time to
time, (ii) to be paid the FTA Payments, and (iii) to
obtain adjustments to the FTA Charge as provided in the
PU Code.
Adjustments to
FTA Charge In order to enhance the likelihood that the actual FTA
Collections are neither more nor less than the amount
scheduled to amortize the Certificates in accordance
with the Expected Amortization Schedules, the Servicing
Agreement requires the Servicer to seek, and the
Statute and the Financing Order require the CPUC to
approve, periodic adjustments to the FTA Charge based
on actual distributions on the Certificates and updated
assumptions by the Servicer as to, among other factors,
projected usage of electricity by Customers and
expected delinquencies and charge-offs. Each Advice
Letter relating to an adjustment to the FTA Charge is
referred to as a "TRUE-UP MECHANISM ADVICE LETTER." The
adjustments to the FTA Charge will continue until all
interest on and principal of all Series of Notes and
corresponding Series of Certificates have been paid or
distributed in full.
The Servicer will file a routine True-Up Mechanism
Advice Letter annually, requesting modifications to the
FTA Charge. Calculations of appropriate modifications
to the FTA Charge will be made based on the Base
Calculation Model, with certain exceptions. The
Servicer will also file a routine True-Up Mechanism
Advice Letter quarterly, if actual payments on any
Series of Notes cause the outstanding principal balance
of the related Series of Certificates to vary from the
related Expected Amortization Schedule as of any
Calculation Date by more than an amount to be specified
in the related Prospectus Supplement. The Servicer may
also file a non-routine True-Up Mechanism Advice Letter
as often as quarterly, to revise the Base Calculation
Model or True-Up Mechanism Calculation Model, if either
of such models no longer accurately forecasts required
collections.
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<PAGE>
See "Description of the Transition Property--
Adjustments to the FTA Charge" herein.
Customers The Customers consist of residential and small
commercial consumers of electricity in the service
territory in which the Seller provided electricity
services as of December 20, 1995. The primary source
of payments on the Certificates will be amounts
collected from the Customers. Of amounts collected
from the Customers, only the portion of amounts
collected attributable to the FTA Charge, as adjusted
from time to time, will be available for distributions
on the Certificates.
Distribution and
Payment Dates Unless otherwise specified in the related Prospectus
Supplement, each January 25, April 25, July 25 and
October 25 (or, if any such date is not a Certificate
Business Day, the next succeeding Certificate Business
Day) following the Closing Date for a Series of
Certificates, the quarterly dates on which
distributions will be made to specified holders of
Certificates of such Series (each, a "DISTRIBUTION
DATE"). Each Distribution Date with respect to the
Certificates will also be a date on which payments are
made with respect to the Notes (each, a "PAYMENT
DATE").
Record Dates With respect to any Distribution Date, the last day of
the preceding calendar month (each, a "RECORD DATE").
Final Distribution and
Termination Dates For each Class of Certificates, the related Prospectus
Supplement will specify a Scheduled Final Distribution
Date and a Termination Date. The "SCHEDULED FINAL
DISTRIBUTION DATE" will be the date when all principal
and interest on the related Class of Certificates is
expected to be distributed in full, based on various
assumptions described herein. Failure to pay principal
of and interest on any Class of Certificates in full by
the "TERMINATION DATE," which will be a date specified
in the related Prospectus Supplement after the related
Scheduled Final Distribution Date, shall constitute an
Event of Default and the Certificate Trustee may, and
upon the written direction of the holders of a majority
in principal amount of all Certificates of all Series
then outstanding shall, declare the unpaid principal
amount of all the Notes of all Series then outstanding
to be due and payable. The Scheduled Final
Distribution Date and the Termination Date for any
Class of Certificates will coincide with the Scheduled
Maturity Date and Final Maturity Date, respectively,
for the related Class of Notes. See "Description of
the Certificates--Events of Default" and "Ratings"
herein.
Issuance of New Series The Trust is authorized to issue new Series of
Certificates from time to time. See "Description of
the Transition Property--Financing Order and
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<PAGE>
Advice Letters." A new Series may be issued only upon
satisfaction of the conditions described under
"Description of the Certificates--Conditions of
Issuance of Additional Series" herein. Since each
Series of Certificates will be secured by the
Transition Property, a Certificate Event of Default
with respect to one Series of Certificates (or one or
more Classes thereof) may adversely affect other
outstanding Classes or Series of Certificates.
Interest Unless otherwise specified in the related Prospectus
Supplement, interest on each Class of Certificates will
accrue and be distributable in arrears at the interest
rate for such Class specified in the related Prospectus
Supplement. Interest accrued on each Class of
Certificates at the applicable interest rate will be
distributed, to the extent monies are available
therefor, on each Distribution Date, commencing on the
day specified in the related Prospectus Supplement and
will be distributed in the manner specified in such
Prospectus Supplement, to the extent of payments
received with respect to the related Class of Notes on
the Payment Date for the Notes occurring on the same
day as such Distribution Date. Note Events of Default
will include failure to make any payment of interest
within five days after the Payment Date on which such
payment is due.
Principal Principal of each Class of Certificates will be
distributed to the Certificateholders of such Class in
the amounts and on the Distribution Dates specified in
the related Prospectus Supplement, but only to the
extent FTA Collections not applied to the payment of
certain fees and expenses or to the distribution of
interest on the Certificates are available therefor.
See "Description of the Notes--Allocations; Payments"
and "Description of the Certificates--Payments and
Distributions" herein. The related Prospectus
Supplement will set forth a schedule of the expected
amortization of principal of the related Series of
Certificates and, if applicable, the Classes thereof.
However, principal of any Series or Class of
Certificates may be distributed earlier or later than
reflected in the related Expected Amortization
Schedule, as described herein and in the related
Prospectus Supplement. See "Risk Factors--Yield
Considerations" herein.
If an event of default under the Trust Agreement (a
"CERTIFICATE EVENT OF DEFAULT") has occurred and is
continuing with respect to any Series or Class of
Certificates, the Certificate Trustee may and, upon the
written direction of the holders of a majority in
principal amount of all Series of Certificates then
outstanding shall declare the unpaid principal amount
of all the Notes of all Series then outstanding to be
due and payable. A Certificate Event of Default is
defined as the occurrence and continuance of an Event
of Default under the Notes (a "NOTE EVENT
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<PAGE>
OF DEFAULT," and together with a Certificate Event of
Default, an "EVENT OF DEFAULT"). See "Description of
the Certificates--Events of Default" herein.
Optional Redemption The Note Issuer may redeem any Class of Notes relating
to a Class of Certificates, and accordingly cause the
Trust to redeem the related Class of Certificates, to
the extent and in the manner specified in the related
Prospectus Supplement. See "Description of the
Certificates--Optional Redemption" herein.
Overcollateralization In order to enhance the likelihood that distributions
on each Series of the Certificates will be made in
full by their respective Final Scheduled Distribution
Dates, the Financing Order permits the Servicer to set
the FTA Charge at a level that will produce FTA
Collections in an amount that exceeds the amount
expected to be required to make all distributions on
the related Series of Certificates in a timely manner
and to pay all related fees and expenses. The amount
of such excess will be specified in the related
Prospectus Supplement. See "Description of the Notes--
Overcollateralization Amount" herein.
Other Credit Enhancement In addition to overcollateralization, other types of
credit enhancement may be provided with respect to one
or more Series or Classes of Notes. Credit enhancement
may be provided in one or more forms including, but
not limited to, letters of credit, credit or liquidity
facilities, third party payments or other support,
cash deposits, surety bonds, insurance policies,
subordination and reserve funds. The coverage of any
credit enhancement may be limited or have exclusions
from coverage and may decline over time or under
certain circumstances, all as specified in the related
Prospectus Supplement. See "Description of the Notes--
Other Credit Enhancement" herein.
Collections; Allocations;
Distributions Except as otherwise specified herein or any Prospectus
Supplement, on the twentieth day of each month (or, if
such day is not a Servicer Business Day, the following
Servicer Business Day), the Servicer will remit
Estimated FTA Collections with respect to the prior
calendar month (the "COLLECTION PERIOD"), increased or
reduced as described herein under "Servicing--
Remittances to Collection Account," to the Collection
Account. Any day other than a Saturday, a Sunday or a
day on which the Servicer's offices are not open for
business is a "SERVICER BUSINESS DAY."
On each Distribution Date, amounts in the Collection
Account will be allocated to the following (in the
priority indicated): (1) all amounts owed by the Note
Issuer or the Trust to the Note Trustee, the Delaware
Trustee and the Certificate Trustee will be paid to
such persons; (2) the Servicing Fee and all unpaid
Servicing
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<PAGE>
Fees from prior Collection Periods will be paid to the
Servicer; (3) the Quarterly Administration Fee payable
under the Administrative Services Agreement between the
Note Issuer and PG&E, as administrator (the
"ADMINISTRATOR"), and all unpaid Quarterly
Administration Fees from prior Distribution Dates will
be paid to the Administrator; (4) so long as no Event
of Default has occurred or would be caused by such
payment, all other fees, costs, expenses and
indemnities of the Note Issuer and the Trust
("OPERATING EXPENSES") will be paid to the persons
entitled thereto; (5) the excess of Estimated FTA
Collections remitted to the Collection Account over
Actual FTA Collections will be paid to the Servicer to
the extent that the Servicer has not previously
withheld or been paid such excess; (6) Quarterly
Interest and any overdue Quarterly Interest with
respect to each Series of Notes will be transferred to
the Certificate Trustee for payment to the
Certificateholders; (7) principal on any Series of
Notes payable as a result of a Note Event of Default or
on the Final Maturity Date for such Series of Notes
will be transferred to the Certificate Trustee for
payment to the Certificateholders; (8) net earnings on
amounts in the Collection Account previously invested
in Eligible Investments will be paid to the Note
Issuer; (9) the balance, if any, will be transferred to
the Certificate Trustee for payment to the
Certificateholders in respect of Quarterly Principal
and any overdue Quarterly Principal, if any, for each
Series of Notes based on priorities described in each
Prospectus Supplement; and (10) following the repayment
of each outstanding Series of Notes, the balance, if
any, will be released to the Note Issuer. See
"Description of the Notes--Allocations; Payments"
herein.
On each Payment Date for any Series of Notes, the
amounts available for payment with respect to such
Series will be paid as described in the Prospectus
Supplement for the related Series of Certificates.
Servicing The Servicer is responsible for servicing, managing and
receiving FTA Collections in respect of the Transition
Property in the same manner that it services and
administers bill collections for its own account. On
each Remittance Date, the Servicer will deposit
Estimated FTA Collections for the previous Collection
Period (or, if Remittance Dates are daily, for the
previous day), increased or reduced as described under
"Servicing--Remittances to Collection Account" herein,
into the Collection Account. Subject to certain
conditions described herein, pending deposit into the
Collection Account, the FTA Collections may be invested
by the Servicer at its own risk and for its own
benefit, and will not be segregated from other funds of
the Servicer. See "Servicing--Remittances to
Collection Account" herein.
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<PAGE>
Servicing Compensation The Servicer will be entitled to receive a Servicing
Fee for each Collection Period in an amount equal to
the percent per annum specified in the related
Prospectus Supplement of the original principal amount
of the Notes (the "SERVICING FEE"). The Servicing Fee
will be paid prior to the distribution of any amounts
in respect of interest on and principal of the Notes.
The Servicer will be entitled to retain as additional
compensation net investment income on FTA Collections
prior to remittance thereof to the Collection Account
and the portion of late fees, if any, paid by Customers
relating to the FTA Collections. See "Servicing--
Servicing Compensation" herein.
No Servicer Advances The Servicer will not make any advances of interest or
principal on the Notes.
Denominations Each Class of Certificates will be issued in the
minimum initial denominations set forth in the related
Prospectus Supplement and, except as otherwise provided
in the related Prospectus Supplement, in integral
multiples thereof.
Registration of the
Certificates Each Class of Certificates may be issued in definitive
form or initially may be represented by one or more
certificates registered in the name of Cede & Co.
("CEDE") ("BOOK-ENTRY CERTIFICATES"), the nominee of
The Depository Trust Company ("DTC"), and available
only in the form of book-entries on the records of DTC,
participating members thereof ("PARTICIPANTS") and
other entities, such as banks, brokers, dealers and
trust companies, that clear through or maintain
custodial relationships with a Participant, either
directly or indirectly ("INDIRECT PARTICIPANTS"). If
so indicated in the applicable Prospectus Supplement,
Certificateholders may also hold Book-Entry
Certificates of a Series through CEDEL or Euroclear (in
Europe), if they are participants in such systems or
indirectly through organizations that are participants
in such systems. Certificates representing Book-Entry
Certificates will be issued in definitive form only
under the limited circumstances described herein and in
the related Prospectus Supplement. With respect to the
Book-Entry Certificates, all references herein to
"HOLDERS" reflect the rights of owners of the Book-
Entry Certificates as they may indirectly exercise such
rights through DTC and Participants, except as
otherwise specified herein. See "Risk Factors" and
"Description of the Certificates--Book-Entry
Registration" herein.
Ratings It is a condition of issuance of each Class of
Certificates that at the time of issuance such Class
receive the rating indicated in the related Prospectus
Supplement from one or more nationally recognized
statistical rating agencies (each, a "RATING AGENCY")
specified therein. See "Ratings" in the related
Prospectus Supplement.
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<PAGE>
A security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or
withdrawal at any time. No person is obligated to
maintain any rating on any Certificate and,
accordingly, there can be no assurance that the ratings
assigned to any Class of Certificates upon initial
issuance thereof will not be revised or withdrawn by a
Rating Agency at any time thereafter. If a rating of
any Class of Certificates is revised or withdrawn, the
liquidity of such Class of Certificates may be
adversely affected. In general, the ratings address
credit risk and do not represent any assessment of the
rate of FTA Collections. See "Risk Factors--Yield
Considerations" and "Ratings" herein.
Tax Status of the
Certificates The Certificates will be treated as representing
ownership of debt for federal income tax purposes.
Interest and original issue discount, if any, on the
Certificates generally will be included in gross income
for federal income tax purposes. See "Federal Income
Tax Consequences" herein and in the related Prospectus
Supplement.
Interest and original issue discount, if any, on the
Certificates will be exempt from California personal
income tax, but not exempt from the California
franchise tax applicable to banks and corporations.
See "State and Local Taxation" herein.
ERISA Considerations A fiduciary of any employee benefit plan or other plan
or arrangement that is subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Internal Revenue Code
of 1986, as amended (the "CODE"), should carefully
review with its legal advisors whether the purchase or
holding of the Certificates of any Class or Series
could give rise to a transaction prohibited or not
otherwise permissible under ERISA or the Code. See
"ERISA Considerations" herein and in the related
Prospectus Supplement.
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of Certificates:
TRANSITION PROPERTY
Reliance on FTA Adjustments. The Servicer will be obligated to submit
---------------------------
True-Up Mechanism Advice Letters to the CPUC at least annually and as often as
quarterly, seeking adjustments to the FTA Charge to reflect the actual rate of
FTA Collections, which will vary from projections upon which the FTA Charge was
based, primarily as a result of variations from projected electricity usage by
Customers and expected delinquencies and charge-offs. PU Code Section 841(c)
requires the CPUC to approve adjustments requested by True-Up Mechanism Advice
Letters necessary to assure timely recovery of Transition Costs, including
interest on and principal in accordance with the related Expected Amortization
Schedule of, and the costs of issuance of, the Certificates. Despite the
Statute and the Financing Order, there can be no assurance that the CPUC will
approve such requests in a timely manner. In the event of any delay in
adjustments to the FTA Charge, costly and time consuming litigation might ensue.
Any such litigation might adversely affect both the price and liquidity of the
Certificates.
State Amendment or Repeal of the Statute. Under the Statute, the State of
----------------------------------------
California pledged and agreed with the owners of Transition Property and the
holders of the Certificates, and the Infrastructure Bank as agent for the State
of California will pledge and undertake in the Trust Agreement for the benefit
of Certificateholders, that the State will neither limit nor alter the fixed
transition amounts, transition property, financing orders and all rights
thereunder until all obligations under the Certificates are fully met and
discharged, provided nothing contained in the Statute or the Trust Agreement
precludes such limitation or alteration by the State if and when adequate
provision shall be made by law for the protection of the Certificateholders. It
is unclear what "adequate provision" would be afforded to Certificateholders by
the State if such limitation or alteration were attempted. Accordingly, no
assurance can be given that any such provisions would not adversely affect the
price of the Certificates, or the timing of payments with respect to the
Certificates.
Under applicable United States and State of California Constitutional
principles relating to the impairment of contracts, the State of California
could not repeal or amend the Statute (by way of either legislative process or
California voter initiative) or take, or refuse to take, any action required by
the State of California under its pledge and agreement with the
Certificateholders (described above) if such action or inaction would
substantially impair the rights of the Certificateholders, unless such action or
inaction would constitute a reasonable and necessary exercise of the State's
sovereign powers. There have been numerous cases in which legislative or popular
concerns with the burden of taxation or governmental charges have led to
adoption of legislation reducing or eliminating taxes or charges which supported
bonds or other contractual obligations entered into by public instrumentalities.
However, such concerns have not been considered by the courts to provide
sufficient justification for a substantial impairment of the security for such
bonds or obligations provided by the taxes or governmental charges involved.
Based upon such analogous case law, it would appear unlikely that the State
could reduce, modify or alter the Transition Property, or take, or refuse to
take, any action with respect to the Transition Property in a manner which would
substantially impair the rights of Certificateholders. Nonetheless, no assurance
can be given that a repeal or amendment to the Statute will not be sought or
adopted or that any action, or refusal to act, by the State may not occur, any
of which might constitute a violation of the State's pledge and undertaking with
the Certificateholders. In any such event, costly and time consuming litigation
might ensue. Any such litigation might adversely affect both the price and
liquidity of the Certificates. Moreover, given the lack of judicial precedent
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<PAGE>
directly on point, and the novelty of the security for the Certificates, the
outcome of any such litigation cannot be predicted with certainty.
Federal Preemption of the Statute. At least one bill has been introduced
---------------------------------
in the current session of Congress prohibiting the recovery of stranded costs
such as the FTAs, which would negate the existence of the Transition Property
that is the source of payments on the Notes and the Certificates. No prediction
can be made as to whether this bill, or any future proposed bill which would
prohibit the recovery of stranded costs, will become law or, if it becomes law,
what its final form or effect will be. See "Energy Deregulation and the New
California Market Structure" herein.
Legal Challenges and Voter Initiatives. The existence of the Transition
--------------------------------------
Property and its adequacy as a source of distributions on the Certificates are
dependent on relevant provisions of the PU Code, the Financing Order and
applicable Advice Letters. If the relevant provisions of the PU Code, the
Financing Order or any such Advice Letters were challenged in a lawsuit and
determined to be invalid or unenforceable in whole or in part, such
determination could adversely affect the ability of the Note Issuer to make
timely payments on the Notes, and the Certificateholders could suffer a loss on
their investment. Furthermore, Section 3 of Article XIIIC of the California
Constitution ("PROPOSITION 218") provides that the initiative process shall not
be prohibited or otherwise limited in matters of reducing or repealing any local
tax, assessment, fee or charge. There is no controlling precedent interpreting
Proposition 218, given its recent adoption. However, the Seller believes that
the FTA Charge is not a "local" tax to which Proposition 218 applies, and that
the local initiative power is therefore inapplicable to the Transition Property,
the Notes and the Certificates.
Uncertainties Associated with New Asset Type. There are no historical
--------------------------------------------
performance data for an asset type such as the Transition Property, although
energy usage records are available. Furthermore, the Servicer does not have any
experience administering this specific type of regulatory asset. See "--
Servicing" herein. In addition, in the event of a foreclosure, there is likely
to be a limited market, if any, for the Transition Property.
SERVICING
Reliance on Servicer. The Trust relies on the Servicer for the
--------------------
determination of any adjustments to the FTA Charge and for the Customer billing
and collection that is necessary to recover the FTA Payments and, therefore,
necessary to make distributions on the Certificates. If, as a result of its
insolvency or liquidation or otherwise, PG&E were to cease servicing the
Transition Property, determining any adjustments to the FTA Charge or collecting
FTA Payments, it may be difficult to find a substitute Servicer. In such an
event, the timing of recovery of payment on the Transition Property could be
delayed. See "Servicing" herein.
Usage and Credit Projections. The ability of the Servicer to forecast
----------------------------
accurately the electricity usage of Customers and the delinquency and charge-off
experience relating to FTA Payments will affect significantly whether
Certificateholders will receive timely distributions on the Certificates. The
adjustment mechanism for the FTA Charge described under "Description of the
Transition Property--Adjustments to the FTA Charge" is intended to mitigate
these risks, although the frequency of such adjustments is limited. See "The
Seller and Servicer--Credit Policy and Procedures" herein.
Changes in Payment Terms. The Servicer is permitted to alter the terms of
------------------------
billing arrangements and modify amounts due by Customers. While PG&E has no
current intention of taking actions that would change the payment or other terms
of any billed item constituting FTA Charges, there can be no assurance that
changes in PG&E's customary and usual practices for comparable assets it
services for itself might not result in a determination to do so or that a
successor Servicer may not make such determination. It is possible that any
such changes
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<PAGE>
could delay collections from Customers or result in lower collections, and
accordingly could adversely affect the distribution of interest on the
Certificates on a timely basis or the distribution of the principal of the
Certificates in full by the applicable Scheduled Final Distribution Dates. See
"Certain Yield and Maturity Considerations" herein.
Credit Policy and Procedures. The ability of the Servicer to collect
----------------------------
amounts billed to Customers under the FTA Charge, as adjusted from time to time,
will depend in part on the creditworthiness of the Customers. PG&E generally is
obligated to provide service to new Customers under California law and generally
no outside credit investigations are performed on new Customers. PG&E's
information regarding the credit status of new Customers is limited to
information regarding prior service, if any, by PG&E to such Customers. PG&E
relies on the information provided by Customers and its customer information
system audits to indicate whether a new Customer has had previous service from
PG&E. See "Servicing--Credit Policy and Procedures" herein.
Aggregators and Other Suppliers. As part of the deregulation of the
-------------------------------
California electric industry described elsewhere herein, there will be an
unbundling of generation, transmission, distribution and billing services. A
recent decision of the CPUC allows alternative energy service providers ("ESPS")
to elect to present a consolidated bill to their retail customers, including the
FTA Charge. Any ESP who elects consolidated billing will be responsible for
paying the Servicer monthly amounts payable by customers of the ESP, including
monthly FTA Payments. Neither the Seller nor the Servicer will pay any
shortfalls resulting from the failure of any ESPs to forward FTA Payments to
PG&E, as Servicer, which may result in delays in distributions to
Certificateholders.
RISKS RELATED TO THE ELECTRIC INDUSTRY GENERALLY
New California Market Structure. The California electric industry will
-------------------------------
change dramatically in the near future, as a result of recent decisions by the
CPUC and enactment of the Statute. See "Energy Deregulation and New California
Market Structure" herein. The new California electric market structure,
scheduled to begin January 1, 1998, has neither been tested nor implemented.
Many elements of the new market structure present novel regulatory issues yet to
be resolved as well as many practical issues of implementation such as the
development of systems, software and procedures for each of (a) the independent
power exchange (the "PX"), which will manage electricity supply and demand, (b)
the independent system operator (the "ISO"), which will have operational control
of the Utilities' transmission facilities, and (c) all of the market
participants who will transact with the PX and ISO. If the new market structure
is not implemented in a timely and orderly fashion, electricity generation,
transmission and distribution may be adversely affected, FTA Payments may not be
made as expected, the Servicer's business may be impacted or Certificateholders
may fail to receive distributions of principal and interest for other reasons.
Regulatory Environment. As described under "Energy Deregulation and New
----------------------
California Market Structure" herein, the California electric industry will
change dramatically as a result of the Statute. However, in addition to actions
taken by the California Legislature and regulation by the CPUC, the electric
industry is also subject to federal law and regulation by the Federal Energy
Regulatory Commission (the "FERC"). As described above under "--Transition
Property--Federal Preemption of the Statute," at least five bills have been
introduced recently into Congress mandating the deregulation of the electric
utility industry on the state level. In general, the bills provide for open
competition in the furnishing of electricity to all retail customers. No
prediction can be made as to whether these bills, or any future proposed bills
to mandate the deregulation of the electric industry, will become law or, if
they become law, what their final form or effect would be. Any changes in the
existing legal structure regulating the electric industry might have an impact
on the manner in which electricity is distributed and payments therefor are
collected, or on the Servicer and its business, and thus the likelihood that
Certificateholders will receive distributions in the amounts and at the times
scheduled.
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General Economic Conditions and Changes in Electricity Usage. General
------------------------------------------------------------
economic conditions and technological changes that would significantly alter
power consumption or reduce the residential and small commercial consumer base
in the Seller's historical service area may affect payments on the Notes and,
accordingly, distributions on the Certificates. Changes in business cycles,
departures of Customers from the Seller's historic service area, weather,
occurrence of natural disasters such as earthquakes and floods, implementation
of energy conservation efforts and increased efficiency of equipment all affect
energy usage. If a sufficient number of Customers reduce significantly their
electricity consumption or cease consuming electricity altogether, the FTA
Charges, as adjusted from time to time through True-Up Mechanism Advice Letters,
as described herein, required to be paid by each remaining Customer could become
burdensome. See "--Transition Property--Reliance on FTA Adjustments" herein.
BANKRUPTCY; CREDITORS' RIGHTS
Bankruptcy of Seller. The Seller will represent and warrant in the Sale
--------------------
Agreement that the transfer of the Transition Property pursuant thereto to the
Note Issuer is a valid sale and assignment of such Transition Property from the
Seller to the Note Issuer. The Seller and the Note Issuer will also represent
and warrant that they will each take the appropriate actions under the PU Code
to perfect this sale. The Statute provides that the transactions described in
the Sale Agreement shall constitute a sale of the Transition Property to the
Note Issuer, and the Seller and the Note Issuer will treat the transactions as a
sale under applicable law, although for financial reporting purposes the
transactions will be treated as debt of the Seller. If the Seller were to
become a debtor in a bankruptcy case and a creditor or bankruptcy trustee of the
Seller or the Seller itself as debtor in possession were to take the position
that the sale of the Transition Property to the Note Issuer should be
recharacterized as a pledge of such Transition Property to secure a borrowing of
the Seller, and a court were to adopt such position, then delays or reductions
in distributions on the Certificates could result.
The Seller and the Note Issuer have taken steps to ensure that in the event
the Seller or an affiliate of the Seller were to become the debtor in a
bankruptcy case, a court would not order that the assets and liabilities of the
Seller or such affiliate be substantively consolidated with those of the Note
Issuer. The Note Issuer is a separate, limited purpose limited liability
company, the organizational documents of which provide that it shall not
commence a voluntary bankruptcy case without the unanimous affirmative vote of
all of its directors, and pursuant to the Trust Agreement, each holder of a
Certificate agrees that it will not commence an involuntary bankruptcy case
against the Note Issuer. Nonetheless, no assurance can be given that if the
Seller or an affiliate of the Seller were to become a debtor in a bankruptcy
case, a court would not order that the assets and liabilities of the Note Issuer
be consolidated with those of the Seller or such affiliate, thus resulting in
delays or reductions in distributions on the Certificates.
Should the transfer of the Transition Property to the Note Issuer be
recharacterized as a borrowing by the Seller, the Statute provides that there is
a perfected first priority statutory lien on the Transition Property that
secures all obligations to the holders of the Certificates. In addition, in the
Sale Agreement, the Seller grants to the Note Issuer a security interest in the
Transition Property, and covenants that the appropriate actions will be taken to
perfect such security interest. The Seller's First and Refunding Mortgage,
dated December 1, 1920, as amended, contains limits on the Seller's ability to
grant consensual security interests, and while the Seller believes that the
security interest purported to be granted under the Sale Agreement is valid and
enforceable, such limits mean that no assurances can be given that such security
interest is valid or enforceable.
The Seller believes and the Statute provides that any Transition Property
constitutes a current property right on the date that the Financing Order and
the related Issuance Advice Letter have become effective and that it thereafter
exists continuously for all purposes. Nonetheless, no assurances can be given
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that if the Seller were to become the debtor in a bankruptcy case, a creditor
of, or a bankruptcy trustee for, the Seller or the Seller itself as debtor in
possession would not attempt to take the position that, because the payments
based on the FTA Charge are usage-based charges, Transition Property comes into
existence only as Customers use electricity. If a court were to adopt this
position, no assurances can be given that either the statutory lien created by
the Statute or the security interest purported to be granted in the Sale
Agreement would attach to collections of FTA Payments in respect of electricity
consumed after the commencement of a bankruptcy case for the Seller. If it were
determined that the Transition Property has not been sold to the Note Issuer,
and that the statutory lien created by the Statute and the security interest
purported to be granted in the Sale Agreement do not attach to collections of
FTA Payments in respect of electricity consumed after the commencement of a
bankruptcy case for the Seller, then the holders of the Certificates would be
unsecured creditors of the Seller, and delays or reductions in distributions on
the Certificates could result. The Seller believes that the collections of the
FTA Payments should be transferred to the Note Issuer as required by the Sale
Agreement and that the FTA Payments should not become part of the Seller's
bankruptcy estate or subject to the automatic stay created by Section 362(a) of
the United States Bankruptcy Code (Title 11, U.S.C.)(the "BANKRUPTCY CODE").
Nonetheless, no assurances can be given that the court would not rule that any
FTA Payments relating to electricity consumed after the commencement of the
Seller's bankruptcy cannot be transferred to the Note Issuer or the Certificate
Trustee, thus resulting in delays or reductions of distributions on the
Certificates.
Because the payments based on the FTA Charge are usage-based charges, if
the Seller were to become the debtor in a bankruptcy case, a creditor of, or a
bankruptcy trustee for, the Seller, or the Seller itself as debtor in possession
could take the position that the Note Issuer should pay a portion of the costs
of the Seller associated with the generation, transmission, or distribution by
the Seller of the electricity whose consumption gave rise to the FTA Collections
that are used to make distributions on the Certificates. If a court were to
adopt this position, the result could initially be a reduction in the amounts
paid to the Note Issuer, and thus to the holders of the Certificates. The FTA
Charge may be adjusted through True-Up Mechanism Advice Letters, although delays
in implementation thereof may cause a delay in receipt of scheduled
distributions.
Regardless of whether the Seller is the debtor in a bankruptcy case, if a
court were to accept the arguments of a creditor of the Seller that Transition
Property comes into existence only as Customers use electricity, a tax or
government lien or other nonconsensual lien on property of the Seller arising
before the Transition Property came into existence may have priority over the
Note Issuer's interest in such Transition Property, thereby possibly initially
resulting in a reduction of amounts distributed to the holders of the
Certificates. The FTA Charge may be adjusted through True-Up Mechanism Advice
Letters, although delays in implementation thereof may cause a delay in receipt
of scheduled distributions.
Bankruptcy of Servicer. For so long as the Servicer maintains a short-term
----------------------
debt rating of at least "A-1" by Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. ("S&P") and "P-1" by Moody's Investors Service, Inc.
("MOODY'S") or certain other conditions are satisfied, the Servicer is entitled
to commingle FTA Collections with its own funds until the relevant Remittance
Date. In the event of a bankruptcy of the Servicer, the Note Trustee will
likely not have a perfected interest in such commingled funds and the inclusion
thereof in the bankruptcy estate of the Servicer may result in delays in
distributions due on the Certificates. See "--Servicing--Reliance on Servicer"
herein.
Bankruptcy of Infrastructure Bank. The Infrastructure Bank is a public
---------------------------------
body established within the state government of the State of California. The
State of California cannot be a debtor in a case under the Bankruptcy Code. If
a court determined that the Infrastructure Bank was an "instrumentality" of the
State, rather than an integral part of the State, then the Infrastructure Bank
23
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could become a debtor in a case commenced under Chapter 9 of the Bankruptcy Code
if the requirements set forth in the Bankruptcy Code for the commencement of a
voluntary case under Chapter 9 were met. An involuntary case cannot be
commenced against the Infrastructure Bank under Chapter 9 and neither a
voluntary nor an involuntary case can be commenced by or against the
Infrastructure Bank under any other chapter of the Bankruptcy Code.
The Certificates will be issued by the Trust, which is a business trust
formed by the Infrastructure Bank under Title 12, Chapter 38 of the Laws of the
State of Delaware (the "DELAWARE BUSINESS TRUST ACT"). The Trust may be subject
to a voluntary or involuntary case under the Bankruptcy Code. However, the
Trust will be created solely to issue and administer the Certificates, and the
only assets of the Trust will consist of the Notes. The Trust and the
Infrastructure Bank have taken steps to ensure that in the event the
Infrastructure Bank becomes a debtor in a case under Chapter 9 of the Bankruptcy
Code, a bankruptcy court having jurisdiction over such case should not order
that the assets and liabilities of the Trust be substantially consolidated with
those of the Infrastructure Bank. These steps include (a) creating the Trust as
a separate business trust under the Delaware Business Trust Act which includes
provisions preventing creditors of the Infrastructure Bank from having any right
to the assets of the Trust, (b) limiting interaction between the Infrastructure
Bank and the Trust, (c) maintaining accounting, bookkeeping, business forms and
financial statements for the Trust separate from those of the Infrastructure
Bank, and (d) restricting the nature of the Trust's business and its ability to
commence a voluntary case under the Bankruptcy Code.
THE CERTIFICATES
Limited Liquidity. There is no assurance that a secondary market for any
-----------------
of the Certificates will develop or, if one does develop, that it will provide
the Certificateholders with liquidity of investment or that it will continue for
the life of such Certificates. It is not anticipated that any Certificates will
be listed on any securities exchange.
Restrictions of Book-Entry Registration. The Certificates will be
---------------------------------------
initially represented by one or more Certificates registered in Cede's name, as
nominee for DTC, and will not be registered in the names of the
Certificateholders or their nominees. Therefore, unless and until Definitive
Certificates are issued, Certificateholders will not be recognized by the
Certificate Trustee as Certificateholders. Hence, until such time,
Certificateholders will only be able to receive distributions from, and exercise
the rights of Certificateholders indirectly through, DTC and participating
organizations, and, unless a Certificateholder requests a copy of any such
report from the Certificate Trustee or the Servicer, will receive reports and
other information provided for under the Servicing Agreement only if, when and
to the extent provided to Certificateholders by DTC and its participating
organizations. In addition, the ability of Certificateholders to pledge
Certificates to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Certificates, may be limited due to
the lack of physical certificates for such Certificates. See "Description of
the Certificates--Book-Entry Registration" herein.
Limited Obligations. Neither the Notes nor the Certificates will represent
-------------------
an interest in or obligation of the Seller, the State of California or the
Infrastructure Bank. The Transition Property owned by the Note Issuer and any
other assets of the Note Issuer, which are expected to be minimal, are the sole
source of payments on the Notes and, as a result, distributions on the
Certificates. None of the Notes, the Certificates or the underlying Transition
Property will be guaranteed or insured by the State of California, the
Infrastructure Bank or any other governmental agency or instrumentality or by
the Seller. Neither the full faith and credit nor the taxing power of the State
of California is pledged to the payment of principal of or interest on the
Certificates or the Notes or the payments in respect of the Transition Property.
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Issuance in Series. The Note Issuer expects to issue new Series of Notes
------------------
from time to time, and accordingly the Trust is expected to issue new
corresponding Series of Certificates from time to time. While the terms of any
Series of Notes and the corresponding Series of Certificates will be specified
in supplements to the Note Indenture and the Trust Agreement, respectively, and
described in the related Prospectus Supplement, the provisions of supplements to
the Note Indenture and the Trust Agreement and, therefore, the terms of any new
Series, will not be subject to the prior review or consent of holders of the
Notes or Certificates of any previously issued Series. The terms of a new
Series of Certificates may include without limitation the matters described
under "Description of the Certificates--General" herein. The ability of the
Trust to issue any new Series of Certificates is subject to the condition, among
others, that such issuance will not result in any Rating Agency reducing or
withdrawing its then existing rating of the Certificates of any outstanding
Class. There can be no assurance, however, that the issuance of any other
Series of Certificates, including any Series issued from time to time hereafter,
might not have an impact on the timing or amount of distributions received by a
Certificateholder. See "Description of the Certificates--Conditions of Issuance
of Additional Series" herein.
Limited Nature of Ratings. It is a condition of issuance of each Class of
-------------------------
Certificates that they receive from the Rating Agencies the respective ratings
set forth in the applicable Prospectus Supplement. The ratings of the
Certificates address the likelihood of the ultimate distribution of principal
and the timely distribution of interest on the Certificates. A security rating
is not a recommendation to buy, sell or hold securities. There can be no
assurance that a rating will remain in effect for any given period of time or
that a rating will not be revised or withdrawn entirely by a Rating Agency if,
in its judgment, circumstances so warrant.
Yield Considerations. The yield on each Class of Certificates will be
--------------------
affected by, among other things, the amount and timing of FTA Collections and
the timing of receipt of such FTA Collections. Since the FTA Charge will
consist of a charge per kilowatt hour of usage by the Customers in the Seller's
historical geographic service territory, the aggregate amount of FTA
Collections, and the amount and timing of principal amortization on the
Certificates, will depend, in part, on actual usage of electricity by Customers
and the rate of delinquencies and charge-offs. Actual energy usage is
influenced by a number of factors that are difficult to predict, including
weather conditions, natural disasters, technological changes and local and
regional economic conditions. The rate of FTA Collections will also be
influenced by the timing of approvals of adjustments to the FTA Charge.
Although the amount of the FTA Charge will adjust from time to time based on the
actual rate of FTA Collections, no assurances can be given that the Servicer
will be able to forecast actual Customer energy usage and the rate of
delinquencies and charge-offs and obtain adjustments to the FTA Charge that
would cause FTA Payments to be made at any particular rate. See "Certain Yield
and Maturity Considerations" and "Description of the Transition Property--
Adjustments to the FTA Charge" herein.
ENERGY DEREGULATION AND NEW CALIFORNIA MARKET STRUCTURE
The electric industry is experiencing intensifying competitive pressures,
particularly in the wholesale generation and industrial customer markets.
Historically, electric utilities operated as regulated monopolies in their
service territories, pursuant to which they were the sole suppliers of
electricity, and their rates were set by the CPUC based upon the utilities' cost
of providing services and a reasonable return on their capital investments. The
National Energy Policy Act of 1992 was designed to increase competition in the
wholesale electric generation market by easing regulatory restrictions on
producers of wholesale power and by authorizing the FERC to mandate access to
electric transmission systems by wholesale power generators.
At least five bills have been introduced in the current session of Congress
which would mandate the deregulation of the electric industry on the state
level.
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In their current forms, some but not all of the bills contain provisions
recognizing the validity of prior state actions relating to deregulation. At
least one of the bills prohibits the recovery of stranded costs. The entire
California delegation to Congress has signed a letter to the chairman of the
House Subcommittee responsible for holding hearings regarding the bills, which
expresses the shared concern that the effect of the Statute should not be
impacted by federal legislation. No prediction can be made as to whether any of
these bills, or any future proposed bills to deregulate the electric industry,
will become law or, if they become law, what their final form or effect will be.
The California electric industry will change dramatically in the near
future as a result of recent decisions by the CPUC and enactment of the Statute.
Among other things, the PX will create a competitive market for electric energy
in California through the creation of a wholesale power pool where all
suppliers, including the Utilities, municipal utilities, power marketing
agencies, independent power producers, and out-of-state generators, will have
the opportunity to sell electricity through the pool according to established
competitive bidding procedures with winning bids awarded to those suppliers that
bid to supply electricity at the lowest price. In addition, the Utilities will
be required, and other transmission owners will be permitted, to place certain
of their transmission facilities under the operational control of the ISO.
Ownership and maintenance of the transmission lines will remain with the
transmission line owners. All power suppliers will receive nondiscriminatory
access to the transmission grid under the control of the ISO and will be subject
to the same protocols and pricing procedures. Customers will have the
opportunity to choose the generators from whom they purchase their electricity.
Notwithstanding these changes, the Utilities are expected to continue to be the
sole providers of electricity distribution services within their service
territories. The Utilities will be encouraged, through CPUC-established
incentives, to divest at least 50 percent of their fossil-fueled electricity
generation assets, in order to address market dominance issues.
The changes which are occurring at both the federal and the California
levels will have a significant impact on PG&E and the other Utilities, as well
as other entities in the industry. PG&E faces greater competition for resources
and for customers. Competitors include privately owned independent power
producers, exempt wholesale power generators, industrial customers developing
their own generation resources, suppliers of natural gas and other fuels, other
investor-owned electric utilities and municipal generators. There can be no
assurance that such trends will not have a significant adverse impact on PG&E's
business in the future.
DESCRIPTION OF THE TRANSITION PROPERTY
GENERAL
In September 1996, the California Legislature approved legislation
implementing an electric industry restructuring program for the State of
California. The legislation was adopted to provide, among other things, subject
to the timely and sufficient issuance of rate reduction bonds, a 10 percent
reduction in rates for services charged to residential and small commercial
customers, effective as of January 1, 1998 and generally continuing until the
earlier of March 31, 2002 or the date on which transition costs have been fully
recovered (the "RATE FREEZE PERIOD"). As part of this legislation, Sections 367
and 369 of the PU Code generally provide the Seller an opportunity to recover
the Transition Costs. The Transition Costs consist generally of the costs of
generation-related assets and obligations that may become uneconomic as a result
of a competitive generation market, together with certain other costs associated
therewith.
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<PAGE>
FINANCING ORDER AND ADVICE LETTERS
The Statute authorizes the CPUC to issue the Financing Order, a regulatory
order which allows the Seller to reduce electricity rates for the Customers by
10 percent, and approves the amount of the Seller's Transition Costs which the
Seller wishes to finance through the issuance of rate reduction bonds. On May
6, 1997, PG&E filed its application for the Financing Order with the CPUC. The
CPUC issued the Financing Order on __________, 1997. The Financing Order also
permits the sale of Certificates in an aggregate principal amount not to exceed
$3,500,000,000. As issued, the Financing Order requires the Seller to reduce
electricity rates for the Customers by 10 percent through the Rate Freeze
Period, conditional upon the issuance of the Certificates. The principal amount
of the Certificates approved in the Financing Order was calculated so as to
result in a reduction in revenue requirements for the Seller sufficient to
finance the ten percent rate reduction. The principal amount of the
Certificates was derived based upon a number of variables, including sales
forecasts and the interest rate and amortization schedule for the Certificates.
If estimated usage exceeds the assumptions used in the Financing Order, the
Seller intends to request the issuance of additional Certificates to finance the
rate reduction resulting from this increased usage. See "Description of the
Certificates--Conditions of Issuance of Additional Series" herein.
The Financing Order establishes, among other things, a tariff pursuant to
which the Seller will impose nonbypassable charges upon residential and small
commercial customers in an amount sufficient to repay in full the rate reduction
bonds and associated costs and fees. The charges are stated to be nonbypassable
on the basis that the Statute authorizes the Seller to continue to collect the
charges (or termination or disconnection charges) from all Customers
notwithstanding any of the circumstances described under "--Nonbypassable FTA
Charge" below. The Statute provides that the right to collect the FTA Charges
is a property right which may be pledged, assigned or sold in connection with
the issuance of the Certificates.
The Financing Order entitles the Note Issuer, as the owner of the
Transition Property, to receive FTA Payments from all Customers, which consist
of all (i) residential customers and (ii) small commercial customers, which are
defined as all small commercial customers who do not have demand meters, and
other small commercial customers whose maximum billing demand has not exceeded
20 kilowatts for any three billing periods during the preceding 12 month period
("SMALL COMMERCIAL CUSTOMERS").
The Financing Order requires the Seller to submit an Issuance Advice Letter
to the CPUC with respect to each Series of Certificates issued. The first
Issuance Advice Letter will establish the FTA Charge pursuant to which
nonbypassable charges will be imposed upon the Customers. The Financing Order
provides that Issuance Advice Letters become effective five business days after
filing with the CPUC. Subsequent Issuance Advice Letters may increase the FTA
Charge to support the issuance of additional Series of Certificates. The
Financing Order permits the Servicer to file True-Up Mechanism Advice Letters to
modify the FTA Charge from time to time, in order to enhance the likelihood of
retirement of each Series and Class of Certificates on a timely basis. See "--
Adjustments to the FTA Charge" herein.
The initial FTA Charge will be calculated by determining (i) projected
monthly electricity sales for the Customers and the timing and extent of receipt
of payments therefor and (ii) the FTA Collections on a projected basis,
including interest on the Notes, ongoing transaction expenses including the
Servicing Fee, the related Overcollateralization Amount and scheduled principal
payments on the Notes; based on the figures determined for the two foregoing
amounts, the lowest aggregate charge which will be adequate to cover all of the
amounts to be covered by FTA Collections will be calculated (the "BASE
CALCULATION MODEL"). This charge, expressed on a per unit of electricity basis,
will be the FTA Charge.
27
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The Prospectus Supplement related to a Series of Certificates will specify,
based on the applicable Issuance Advice Letter, the amount of the FTA Charge as
of the date thereof.
TRANSITION PROPERTY
The right to receive FTA Collections under the Financing Order and related
Advice Letters gives rise to a separate property right under California law and
is referred to herein generally as the "TRANSITION PROPERTY." "Transition
Property" is defined more specifically in Section 840(g) of the PU Code as the
property right created under the PU Code including, without limitation, the
right, title and interest of an electrical corporation or its transferee (i) in
and to the FTA Charge, as adjusted from time to time, (ii) to be paid the Fixed
Transition Amounts, and (iii) to obtain adjustments to the FTA Charge as
provided in the PU Code.
Each Class of Notes will be issued in connection with a specific issuance
of a Class of Certificates. Each Note will be secured primarily by Transition
Property sold to the Note Issuer at the time such Note is issued, and the
aggregate amount of Transition Property will increase as additional Issuance
Advice Letters become effective.
NONBYPASSABLE FTA CHARGE
The Financing Order provides that the FTA Charge is nonbypassable, meaning
that Customers will still be required to make payments with respect to the FTA
Charge, even if another entity takes over a portion of PG&E's existing service
territory or a Small Commercial Customer's load increases so that such Customer
is no longer a Small Commercial Customer. The Financing Order provides that
each Customer who leaves PG&E's system during the Rate Freeze Period through
annexation by another electricity supplier will pay an ongoing charge based on
the electricity usage of such Customer prior to annexation. The Financing Order
provides that each Customer who ceases to be a Small Commercial Customer as a
result of increased electricity usage will continue to pay FTA Charges, based on
either (i) the last twelve months of the Customer's recorded pre-departure use,
(ii) an average derived from the last three years of recorded use or (iii)
actual use; provided, however, that any such Customer will have the opportunity
to continue to pay for electricity based on the Small Commercial Customer rates,
including the FTA Charge.
ADJUSTMENTS TO THE FTA CHARGE
In order to enhance the likelihood that actual FTA Collections are neither
more nor less than the amount scheduled to amortize the Certificates in
accordance with the Expected Amortization Schedule, the Servicing Agreement and
the Financing Order require the Servicer to seek periodic adjustments to the FTA
Charge based on actual FTA Collections and updated assumptions by the Servicer
as to, among other factors, usage of electricity by Customers and the rate of
delinquencies and charge-offs. The date as of which any calculation is
performed and which forms the basis for a requested adjustment to the FTA Charge
is referred to as a "CALCULATION DATE." The adjustments to the FTA Charge will
continue until all interest and principal on all Series of Notes and
corresponding Series of Certificates have been paid or distributed in full.
The Financing Order provides that the Servicer will file a routine True-Up
Mechanism Advice Letter annually, requesting modifications to the FTA Charge
which are intended to return the projected principal balance of the Certificates
to the Expected Amortization Schedule within a twelve month period.
Calculations of appropriate modifications to the FTA Charge will be made based
on the Base Calculation Model, except that (i) the amount of debt service and
related expenses for the following year shall be increased or decreased to
reflect the amount by which actual FTA Collections remitted to the Collection
Account through the end of the month preceding the month of calculation was less
than or exceeded the aggregate actual portion of the debt service on the
Certificates and related expenses for such period, (ii) forecasted electricity
sales for the remaining
28
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period of the transaction will be revised based on the methodology described in
the Financing Order, (iii) estimated transaction expenses will be modified to
reflect changed circumstances, (iv) assumed delinquencies and charge-offs will
be modified to reflect changed circumstances and (v) an adjustment will be made
to reflect any collections which are expected to be received at the existing
tariff rate from the end of the month preceding the month of calculation through
the end of the month in which the new FTA Charge becomes effective (the "TRUE-UP
MECHANISM CALCULATION MODEL").
The Financing Order also provides that the Servicer is required to file a
routine True-Up Mechanism Advice Letter quarterly, if, after giving effect to
the actual distributions of interest on and principal of any Series of
Certificates, the outstanding principal balance of the related Series of
Certificates varies from the amount provided for in the related Expected
Amortization Schedule as of any Calculation Date by more than an amount to be
specified in the related Prospectus Supplement. Furthermore, the Financing
Order provides that the Servicer may file a non-routine True-Up Mechanism Advice
Letter as often as quarterly, to reflect any changes to the Base Calculation
Model or True-Up Mechanism Calculation Model which are necessary to meet any
Expected Amortization Schedule. Finally, the Statute requires the Servicer to
file a True-Up Mechanism Advice Letter with the CPUC annually, prior to each
anniversary of the issuance of the Financing Order (a "FINANCING ORDER
ANNIVERSARY").
The Servicing Agreement will require the Servicer to deliver a written copy
of each True-Up Mechanism Advice Letter, together with a copy of all supporting
calculations, to the Note Issuer, the Note Trustee, the Infrastructure Bank and
the Certificate Trustee upon filing such True-Up Mechanism Advice Letter with
the CPUC.
The Financing Order provides that (i) routine True-Up Mechanism Advice
Letters shall be filed with the CPUC annually at least 15 days before the end of
each calendar year, with resulting adjustments to the FTA Charge to become
effective at the beginning of the next calendar year, (ii) routine True-Up
Mechanism Advice Letters may be filed with the CPUC quarterly at least 15 days
before the end of each calendar quarter, with resulting adjustments to the FTA
Charge to become effective at the beginning of the next calendar quarter, (iii)
non-routine True-Up Mechanism Advice Letters may be filed with the CPUC
quarterly at least 90 days before the end of each calendar quarter, with
resulting adjustments to the FTA Charge to become effective at the beginning of
the next calendar quarter, and (iv) True-Up Mechanism Advice Letters shall be
filed with the CPUC at least 15 days before each Financing Order Anniversary,
with resulting adjustments to the FTA Charge, if necessary, to become effective
within 90 days of such Financing Order Anniversary.
SALE AND ASSIGNMENT OF TRANSITION PROPERTY
On the date on which the initial Series of Certificates is issued and sold
(the "CLOSING DATE"), pursuant to the Sale Agreement the Seller will sell and
assign to the Note Issuer, without recourse, its entire interest in the
Transition Property which is described in the first Issuance Advice Letter
submitted by the Servicer (the "INITIAL TRANSITION PROPERTY"). The net proceeds
received from the sale of the Notes will be applied to the purchase of the
Initial Transition Property. In addition, in order to finance the cost of the
ten percent rate reduction the Seller may agree with the Note Issuer to sell
additional Transition Property ("SUBSEQUENT TRANSITION PROPERTY") to the Note
Issuer, subject to the satisfaction of certain conditions. Such Subsequent
Transition Property will be sold to the Note Issuer effective on a date (a
"SUBSEQUENT TRANSFER DATE") specified in the written agreement between the
Seller and the Note Issuer.
To promote uniform quality in servicing the Transition Property and to
reduce administrative costs, the Note Issuer will appoint the Servicer as
custodian of the documentation relating to the Transition Property. The
Seller's computer systems will reflect the sale and assignment of the Transition
Property to the Note Issuer. The Seller's financial statements will indicate
that the
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<PAGE>
Transition Property has been sold to the Note Issuer and will not be available
to creditors.
Any conveyance of Subsequent Transition Property is subject to the
following conditions, among others:
(a) the Seller shall have entered into a written sale agreement with
the Note Issuer;
(b) the Seller shall have filed an Issuance Advice Letter with the
CPUC relating to such Subsequent Transition Property, which Issuance Advice
Letter shall have become effective;
(c) as of the applicable Subsequent Transfer Date, the Seller shall
not be insolvent and shall not be made insolvent by such conveyance;
(d) the Rating Agency Condition shall have been satisfied with respect
to such conveyance;
(e) such conveyance will not result in an adverse tax consequence to
the Trust or the Certificateholders;
(f) as of the applicable Subsequent Transfer Date, no breach by the
Seller of its representations, warranties or covenants in the applicable
Sale Agreement shall exist; and
(g) as of the applicable Subsequent Transfer Date, the Note Issuer
shall have sufficient funds available to pay the purchase price for the
Subsequent Transition Property to be transferred on such date and all
conditions to the issuance of new series of Notes and Certificates shall
have been satisfied or waived.
SELLER REPRESENTATIONS AND WARRANTIES
In the initial Sale Agreement and each subsequent Sale Agreement, the
Seller will make representations and warranties to the Note Issuer to the
effect, among other things, that: (a) the information provided by the Seller to
the Note Issuer with respect to the applicable Transition Property is correct in
all material respects; (b) at the Closing Date, the applicable Transition
Property is owned by the Seller and is free and clear of all security interests,
liens, charges and encumbrances, no offsets, defenses or counterclaims exist or
have been asserted or threatened with respect thereto and the Seller, in its
capacity as Seller or Servicer, will not at any time assert any security
interest, lien, charge or encumbrance against or with respect to any applicable
Transition Property; (c) at the Closing Date, the applicable Transition Property
has been validly transferred and sold to the Note Issuer and all filings
(including filings with the CPUC under the PU Code) necessary in any
jurisdiction to give the Note Issuer a first perfected ownership interest in the
applicable Transition Property shall have been made; (d) the Financing Order and
each Issuance Advice Letter pursuant to which any applicable Transition Property
has been created are valid, binding and irrevocable; (e) the assumptions used in
calculating the FTA Charge related to any Initial Transition Property or
Subsequent Transition Property are or will be, at the time made, reasonable and
made in good faith; (f) the Seller is a corporation duly organized and in good
standing under the laws of the State of California, with power and authority to
own its properties and conduct its business as currently owned or conducted and
to execute, deliver and perform the terms of the Sale Agreement; (g) the
execution, delivery and performance of the Sale Agreement have been duly
authorized by the Seller by all necessary corporate action; (h) the Sale
Agreement constitutes a legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms; (i) the
consummation of the transactions contemplated by the Sale Agreement do not
conflict with the Seller's articles of incorporation or bylaws or any material
agreement to which the Seller is a party or bound, result in the creation or
imposition of any lien upon the Seller's properties or violate any law or any
order, rule or regulation applicable to the Seller; (j) no
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<PAGE>
governmental approvals, authorizations or filings are required for the Seller to
execute, deliver and perform its obligations under the Sale Agreement except
those which have previously been obtained or made; and (k) except as disclosed
to the Note Issuer, no court or administrative proceeding or investigation is
pending or, to the Seller's knowledge, threatened (i) asserting the invalidity
of, or seeking to prevent the consummation of the transactions contemplated by,
the Sale Agreement, the Note Indenture, the Trust Agreement or any of the other
Basic Documents, (ii) seeking a determination that might materially and
adversely affect the performance by the Seller of its obligations thereunder, or
(iii) which might adversely affect the federal or state income tax attributes of
the Notes or the Certificates .
In the event of a breach by the Seller of any of its representations and
warranties described in the preceding paragraph, the Seller will indemnify,
defend and hold harmless the Note Issuer, the Trust, the Noteholders, the Note
Trustee, the Delaware Trustee, the Certificate Trustee, the Certificateholders
and the Infrastructure Bank against any costs, expenses, losses, claims, damages
and liabilities incurred as a result thereof.
CERTAIN YIELD AND MATURITY CONSIDERATIONS
The rate of principal distributions on each Class of Certificates, the
aggregate amount of each interest distribution on each Class of Certificates and
the yield to maturity of each Class of Certificates will be related to the rate
and timing of FTA Payments.
The yield on each Class of Certificates will be affected by, among other
things, the rate of FTA Collections and the timing of receipt of such FTA
Collections. Since the FTA Charge will consist of a charge per kilowatt hour of
usage by the Customers, the aggregate amount of FTA Collections and the rate of
principal amortization on the Certificates will depend, in part, on actual
energy usage by Customers and the rate of delinquencies and charge-offs.
Although the amount of the FTA Charge will be adjusted from time to time based
in part on the actual rate of FTA Collections, no assurances are given that the
Servicer will be able to forecast actual energy usage and the rate of
delinquencies and charge-offs and obtain adjustments to the FTA Charge that
would cause FTA Collections to be received at any particular rate.
No representation is made as to the particular factors that will affect the
rate of FTA Collections, as to the relative importance of such factors, as to
the percentage of the principal balance of the Certificates that will be
distributed as of any date or as to the overall rate of FTA Collections.
THE TRUST
The Trust will be specifically created for the purpose of acquiring the
Notes. The Trust will be formed under the laws of the State of Delaware
pursuant to the Trust Agreement to be entered into among the Infrastructure
Bank, the Delaware Trustee and the Certificate Trustee, each such trustee not in
its individual capacity but acting as trustee on behalf of the holders of the
Certificates. The Trust will have no assets other than the Notes. The Trust
Agreement will not permit the Trust to engage in any activities other than
holding such assets, issuing the Certificates, acting as paying agent and
engaging in certain other activities related thereto.
Each Class of Certificates offered hereby will represent a fractional
undivided interest in the corresponding Class of Notes, all monies due and to
become due under such corresponding Class of Notes, and will represent the right
to receive a portion of the payments of principal of and interest on the
corresponding Class of Notes. See "The Certificates--Payments and
Distributions" herein.
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The Fee and Indemnity Agreement among the Note Issuer, the Delaware Trustee
and the Certificate Trustee (the "FEE AGREEMENT") will provide that the Note
Issuer will pay the Certificate Trustee's fees and expenses. The Fee Agreement
will further provide that the Certificate Trustee will be entitled to
indemnification by the Note Issuer for, and will be held harmless against, any
loss, liability or expenses incurred by the Certificate Trustee (other than
through its own wilful misconduct, bad faith or negligence or by reason of a
breach of any of its representations or warranties set forth in the Trust
Agreement).
The fiscal year of the Trust will be the calendar year.
THE INFRASTRUCTURE BANK
The Infrastructure Bank is a public body organized within the government of
the State of California and created pursuant to the Bergeson-Peace
Infrastructure and Economic Development Bank Act, codified at (S)63000 et seq.
of the California Government Code, as amended (the "ACT"). The Infrastructure
Bank is governed, and its corporate powers are exercised by, a Board of
Directors consisting of the State Director of Finance, the State Treasurer and
the State Secretary of Trade and Commerce.
Pursuant to the Act and the Statute, the Infrastructure Bank may authorize
a "special purpose trust" created by the Bank to issue "rate reduction bonds"
and to purchase with the proceeds of such "rate reduction bonds" notes issued by
the Utilities or their affiliates secured by Transition Property. For the
purposes of the Act and the Statute, the Trust will constitute a "special
purpose trust" and each Series of Certificates issued by the Trust will
constitute "rate reduction bonds" entitled to the benefit of the Statute.
Pursuant to the Act, the Infrastructure Bank has no authority to alter or
modify any term or condition related to the Transition Costs or the Transition
Property as set forth in the Financing Order, and has no authority over any
matter that is subject to the approval of the CPUC.
The Certificates do not represent an interest in or obligation of the
State, the Infrastructure Bank or the Seller. None of the Certificates, the
Notes or the underlying Transition Property will be guaranteed or insured by the
State, the Infrastructure Bank, or any other governmental agency or
instrumentality or by the Seller or its affiliates. None of such entities will
have any obligations in respect of the Certificates, except as expressly set
forth herein or in the related Prospectus Supplement.
Neither the full faith and credit nor the taxing power of the State of
California or any agency or instrumentality thereof is pledged to the
distributions of principal of, or interest on, the Certificates or the Notes or
to the payments in respect of the Transition Property.
THE NOTE ISSUER
The Note Issuer is a special purpose, single member limited liability
company organized under the laws of the State of Delaware. The Seller is the
sole member of the Note Issuer. The principal executive office of the Note
Issuer is located at 245 Market Street, Room 424, San Francisco, California
94105. Its mailing address is Mail Code N10A, P.O. Box 770000, San Francisco, CA
94177 and its phone number is (415) 973-7000. The Note Issuer was organized for
the limited purpose of holding and servicing the Transition Property and issuing
Notes secured by the Transition Property and the other Note Collateral and
related activities, and will be restricted by its organizational documents from
engaging in other activities. In addition, its organizational documents require
it to operate in a manner such that it should not be consolidated in the
bankruptcy estate of PG&E in the event PG&E becomes subject to such a
proceeding.
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THE SELLER AND SERVICER
GENERAL
The Seller is engaged in the business of generating, transmitting and
distributing electric power to residential, commercial, industrial and
governmental customers within its electric service territory. PG&E's electric
service territory currently consists of approximately 70,000 square miles
throughout Northern and Central California with an estimated population of 13
million, and includes all or portions of 48 of California's 58 counties. During
1996, PG&E provided a total of 73,181 million kilowatt-hours of electricity to
4.44 million customers, including 32,235 million kilowatt-hours of electricity
provided to its approximately 4.28 million residential and small commercial
customers.
As an investor-owned electric utility, the Seller is regulated by the CPUC
and the FERC.
PG&E CUSTOMER BASE AND ELECTRIC ENERGY CONSUMPTION
PG&E's customer base is divided into several categories, including the two
categories covered by the Statute: residential and small commercial. Residential
customers use electricity for lighting, operating household appliances and other
domestic purposes. The primary factor influencing the number of residential
customers is the number of housing starts, which is a measure of the strength of
the economy. The primary factors influencing short-term energy consumption are
weather and electricity prices. Long-term factors would include the availability
of more energy efficient appliances, new energy consuming technologies and the
customer's ability to acquire these new products. Small commercial customers use
electricity for lighting, operating appliances and operating equipment in office
and retail settings. The primary factor influencing the number of commercial
customers is commercial employment, which is also a measure of the strength of
the economy. The factors influencing the energy consumption of a small
commercial customer would include those of the residential customers, but would
also include the level of business activity associated with the particular
commercial customer. The table below sets forth the number of customers and
electric energy consumption for the two categories.
<TABLE>
<CAPTION>
CUSTOMERS AND ENERGY CONSUMPTION
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AVERAGE NUMBER OF CUSTOMERS:
Residential
Small Commercial
ENERGY CONSUMPTION (GWH)
Residential
Small Commercial
Total
========================================
AVERAGE ANNUAL CONSUMPTION PER CUSTOMER
Residential
Small Commercial
</TABLE>
FORECASTING CONSUMPTION
PG&E has developed sales and load forecasts since the company's inception.
The only things that have changed over the years have been the length of the
forecast horizon and the methods of forecasting. Sales forecasts have always had
a short horizon since they are used for rate making and budgeting purposes. Load
forecast horizons have varied over the years, depending on the lead time
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<PAGE>
necessary to construct new resources. In the early years, the horizon was as few
as four or five years, but since then it has been twelve to twenty years.
Forecasts developed in the early years used simple trending techniques.
Forecasts produced more recently have been done using more sophisticated
statistical techniques. These models produce quarterly estimates, which are then
spread to the months using recorded monthly sales data as allocation factors.
PG&E's electric sales forecast was last updated in January 1997 and is
based on a combination of short-term and long-term forecasting models. The
short-term forecasting models are econometric models used to project sales for
the first two years after the base year. PG&E develops econometric models to
forecast electric sales for the residential and small commercial customer
classes.
The long-term models are used to forecast sales for years three through
five after the base year. They are end-use models as required by the California
Energy Commission's Common Forecasting Methodology process. Such models
explicitly forecast energy consumption by end-uses such as lighting and heating.
For the residential sector, energy consumption is the product of the total
number of households in the PG&E service area, average appliance saturations,
and average unit energy consumption by end-use. Adjustments for additional
conservation savings and appliance utilization are also accounted for in the
model.
For the small commercial sector, energy consumption is the product of floor
space (organized by building type and climate area), average end-use equipment
saturation and average unit energy consumption by end-use . Equipment
replacement rates and efficiency rates of new equipment are accounted for in the
calculations. Adjustments for additional conservation savings and equipment
utilization are also accounted for in the model.
The short- and long-term models have been in use for more than twenty
years and have undergone extensive review by the California Public Utilities
Commission and the California Energy Commission, respectively. Each year PG&E
updates these models with the most recent recorded data, and conducts thorough
testing to ensure that model statistics meet the highest standards possible.
PG&E utilizes DRI/McGraw Hill (DRI) to produce economic and demographic
forecasts. The most recent DRI regional economic forecast (September 1996) was
used to drive PG&E's electric sales forecast of both the short-term and long-
term models of the residential, small light and power, and medium light and
power sectors.
The forecasted weather related drivers assume normal weather conditions.
Normal weather conditions imply a twenty year average for such weather drivers
as heating and cooling degree days.
FORECAST VARIANCE
PG&E conducts sales forecast variance analyses on a regular basis to
monitor how well forecasts track recorded consumption. This is important for
short-term resource procurement functions as well as budgeting and financial
reporting.
Since PG&E updates its forecast on an annual basis, the table below shows
annual variance for forecasts prepared for one year in the future. For example,
the annual 1992 variance is based on a forecast prepared in 1991. With the
exception of 1996, PG&E has under-forecasted the energy consumption of these
customers. The variances range from a low of 0.01% to a high of 2.5% in absolute
terms.
<TABLE>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
</TABLE>
ANNUAL VARIANCE
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CREDIT POLICY; BILLING; COLLECTIONS; RESTORATION OF SERVICE
CREDIT POLICY. PG&E is obligated to provide service to all customers
under California law. PG&E relies on the information provided by the customer
and its customer information system audits to indicate whether the customer has
been previously served by PG&E.
Certain accounts are secured with deposits or guarantees to prevent
losses. The amount of the deposit reflects the potential use over a two-month
period, which is the average time period required to take billing action on
past-due billings. Since the vast majority of customers pay their bills within
the allotted time, it is not necessary to require deposits from all customers.
Specific criteria have been developed for establishing credit. These criteria
are based on such factors as prior service, property ownership, or providing an
acceptable guarantor.
As a rule, residential customers may establish credit by depositing
cash equal to twice the average monthly bill, furnishing a satisfactory
guarantor, or owning the premises to be served or other property in the service
territory. Deposits or guarantees may not be required if the applicant has been
a PG&E customer during the past two years, and either (a) the applicant has not
had more than two past-due billings during the last 12 consecutive months, or
(b) the applicant has paid all bills for domestic service previously supplied to
the applicant and has proof of payment, or (c) the applicant's credit is
otherwise established to the satisfaction of the Company. Credit that is
"established to the satisfaction of the Company" is a broad category that
includes options such as acceptable payment records with other utilities, credit
scoring, and other factors that would establish creditworthiness.
Small commercial customers may establish credit by depositing cash
equal to twice the maximum monthly bills, owning substantial equity in the
location to be served, furnishing a satisfactory guarantor, or otherwise
establishing credit to the satisfaction of the Company.
Deposits or guarantees may not be required if the applicant has been a
PG&E customer during the past two years with like service, during the past 12
consecutive months of that prior service has not had more than two past due
bills, the billing for the previous service was equal to at least 50 percent of
that estimated for the new service, and the customer has paid all prior PG&E
bills.
PG&E may change its credit policies and procedures from time to time.
It is expected that any such changes would be designed to enhance PG&E's ability
to make timely recovery of amounts billed to customers.
BILLING PROCESS. PG&E bills its customers once every 27 to 33 days,
with approximately an equal number of bills being distributed each Servicer
Business Day. For the year ending December 31, 1996, the Company mailed out an
average of 235,000 bills daily to its various customer categories.
For accounts with potential billing errors exception reports are
generated for manual review. This review examines accounts that have abnormally
high or low bills, potential meter-reading errors and possible meter
malfunctions.
PG&E may change its billing policies and procedures from time to time.
It is expected that any such changes would be designed to enhance PG&E's ability
to make timely recovery of amounts billed to customers.
COLLECTION PROCESS. PG&E receives approximately 68 percent of total
bill payments via the U.S. mail. Approximately 17 percent of bill payments are
received at local offices, and 8 percent are received at local pay stations.
PG&E receives the remainder of payments via automatic payment service,
electronic funds transfer, credit card payments and electronic data interchange.
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Two days after the meter is scheduled to be read, bills are processed and
mailed to customers. Bills are due on presentation, and are considered past due
after 15 calendar days for small commercial accounts, and after 19 days for
residential accounts. Timing and collection follow-up is based on customer type,
as follows.
For residential customers, a reminder notice is sent to residential
customers if payment has not been received at the time of the second month's
billing. Eight days after the reminder notice bill is issued, a fifteen-day
notice is mailed directly to the customer if the account has a prior balance.
Ten workdays after the fifteen-day notice is sent, a 48-hour notice is mailed,
notifying the customer that service is scheduled to be shut off if payment is
not received within 48 hours. A telephone contact, or reasonable attempt at
making telephone contact, is also required to all residential customers prior to
service shut off.
For Small Commercial Customers, thirteen workdays after the first billing,
a seven-day notice is mailed directly to Small Commercial Customers. A 24-hour
notice, although not required, is often given to notify small commercial
customers that shut-off is scheduled.
PG&E may change its collection policies and procedures from time to time.
It is expected that any such changes would be designed to enhance PG&E's ability
to make timely recovery of amounts billed to customers.
RESTORATION OF SERVICE. Once service has been shut-off for non-payment,
PG&E has the right to require the payment of all of the following charges: (i)
the total amount owing on an account including any past-due balance, the current
billing, and a credit deposit, if requested; (ii) any miscellaneous charges
associated with the reconnection of service (i.e., reconnection charges, field
collection charges, and/or returned check charges); (iii) any charges assessed
for unusual costs incidental to the termination or restoration of service which
have resulted from the customer's action or negligence; and (iv) any unpaid
closing bills from other accounts in the name of the customer of record.
PG&E may change its restoration of service policies and procedures from
time to time. It is expected that any such changes would be designed to enhance
PG&E's ability to make timely recovery of amounts billed to customers.
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth information relating to the delinquency and
loss experience of the Servicer for residential and small commercial customers
for each of the five preceding years.
<TABLE>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
</TABLE>
CUSTOMERS
The following table indicates the total billed revenue from electricity
sales to each of residential and small commercial customers during the last five
years:
<TABLE>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE>
SERVICING
SERVICING PROCEDURES
GENERAL. The Servicer, as agent for the Note Issuer, will manage, service
and administer, and make collections in respect of, the Transition Property
pursuant to the Servicing Agreement between the Servicer and the Note Issuer.
Except to the extent that alternative energy service providers elect to engage
in consolidated billing (as described herein under "Risk Factors--Servicing--
Aggregators and Other Suppliers"), the Servicer's duties generally will include
calculation and billing of all amounts based on the FTA Charge, receipt and
posting of all FTA Collections, responding to inquiries of Customers and the
CPUC with respect to the Transition Property and the FTA Charge, obtaining usage
calculations, accounting for collections and furnishing monthly, quarterly and
annual statements to the Note Issuer, the Note Trustee and the Certificate
Trustee and taking action in connection with periodic revisions to the FTA
Charge as described below.
The FTA Charge will be expressed as an amount per kilowatt hour of
electricity usage by the applicable Customer, regardless of whether the Customer
receives its electricity from the Servicer or from another electricity provider.
The Servicer generally expects the total amount of the FTA Charge to be included
as a separate line item on each Customer's bill, with an aggregate amount to be
paid to the Servicer for all services provided by the Servicer. Bills are sent
to Customers every 27 to 33 days.
Any amounts collected by the Servicer that represent partial payments of
the total amount billed will be proportionately allocated between the Note
Issuer and PG&E based on the portion of the amount billed which is based on the
FTA Charge and the total charges due to PG&E.
SERVICING STANDARDS AND COVENANTS
The Servicing Agreement will require the Servicer, in servicing and
administering the Transition Property, to employ or cause to be employed
procedures and exercise the same care it customarily employs and exercises in
servicing and administering bill collections for its own account.
Consistent with the foregoing, the Servicer may in its own discretion waive
any late payment charge or any other fee or charge relating to delinquent
payments, if any, and may waive, vary or modify any terms of payment of any
amounts payable by a Customer, in each case, if such waiver or action (a) would
be in accordance with the Servicer's customary practices or those of any
successor Servicer with respect to comparable assets that it services for
itself, (b) would not materially adversely affect the Certificateholders and (c)
would comply with applicable law.
In the Servicing Agreement, the Servicer will covenant that, in servicing
the Transition Property: (a) it will manage, service, administer and make
collections in respect of the Transition Property with reasonable care and in
accordance with applicable law, including all applicable guidelines of the CPUC,
using the same degree of care and diligence that the Servicer exercises with
respect to bill collections for its own account; (b) it will follow customary
standards, policies and procedures for the industry in performing its duties as
Servicer; (c) it will use all reasonable efforts, consistent with its customary
servicing procedures, to enforce, and maintain rights in respect of, the
Transition Property; (d) it will comply with all laws applicable to and binding
on it relating to the Transition Property; and (e) it will submit True-Up
Mechanism Advice Letters to the CPUC seeking adjustments to the FTA Charge as
described herein.
In the event of a breach by the Servicer of any of these covenants, the
Servicer will indemnify, defend and hold harmless the Note Issuer, the Trust,
the Noteholders, the Note Trustee, the Certificate Trustee, the Delaware
Trustee, the
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Certificateholders and the Infrastructure Bank against any costs, expenses,
losses, claims, damages and liabilities incurred as a result thereof.
REMITTANCES TO COLLECTION ACCOUNT
For so long as (a) no Servicer Default shall have occurred and be
continuing and (b) the Rating Agency Condition shall have been satisfied (and
any conditions or limitations imposed by the Rating Agencies in connection
therewith are complied with), the Servicer is required to remit FTA Payments
expected to have been received during the preceding Collection Period (the
"ESTIMATED FTA COLLECTIONS") to the Collection Account on or before the
twentieth day of each calendar month (or, if such twentieth day is not a
Servicer Business Day, the Servicer Business Day immediately preceding such
twentieth day). Pending remittance to the Collection Account, such collections
may be invested by the Servicer at its own risk and for its own benefit, and
will not be segregated from funds of the Servicer. If any of the conditions
described above are not satisfied, the Servicer will remit within two Servicer
Business Days of receipt thereof to the Collection Account all Estimated FTA
Collections. The date on which FTA Collections with respect to the FTA Charge
are required to be deposited in the Collection Account is referred to herein as
the "REMITTANCE DATE."
Six months after each monthly Collection Period, the Servicer will compare
actual FTA Collections received with respect to that Collection Period (the
"ACTUAL FTA COLLECTIONS") to the Estimated FTA Collections for that Collection
Period previously remitted to the Collection Account. If Estimated FTA
Collections remitted for a Collection Period exceed Actual FTA Collections for
such Collection Period (such excess, an "EXCESS REMITTANCE"), the Servicer shall
be entitled to reduce the amount which the Servicer remits to the Collection
Account on the following Remittance Date by the amount of such Excess
Remittance, the amount of such reduction becoming the property of the Servicer.
If Estimated FTA Collections remitted for a Collection Period are less than
Actual FTA Collections for such Collection Period (such deficiency, a
"REMITTANCE SHORTFALL"), the amount which the Servicer remits to the Collection
Account on the following Remittance Date will be increased by the amount of such
Remittance Shortfall, such increase coming from the Servicer's own funds. The
Estimated FTA Collections for any Remittance Date shall not be affected by any
Excess Remittance or Remittance Shortfall which modifies the actual amount
remitted by the Servicer on such Remittance Date.
NO SERVICER ADVANCES
The Servicer will not make any advances of interest or principal on the
Notes.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to the percent per annum specified in the
related Prospectus Supplement of the original principal amount of the Notes. The
Servicing Fee (together with any portion of the Servicing Fee that remains
unpaid from prior Distribution Dates) will be paid solely to the extent funds
are available therefor as described under "Description of the Notes--
Allocations; Payments." The Servicing Fee will be paid prior to the distribution
of any amounts in respect of interest on and principal of the Notes. The
Servicer will be entitled to retain as additional compensation net investment
income on FTA Collections prior to remittance thereof to the Collection Account
and the portion of late fees, if any, paid by Customers relating to the FTA
Collections.
AGGREGATORS AND OTHER SUPPLIERS
As part of the deregulation of the California electric industry described
elsewhere herein, there will be an unbundling of generation, transmission,
distribution and billing services. A recent decision of the CPUC allows
alternative energy service providers ("ESPS") to elect to present a consolidated
bill to their retail customers, including the FTA Charge. Any ESP who elects
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<PAGE>
consolidated billing will be responsible for paying the Servicer monthly amounts
payable by customers of the ESP, including monthly FTA Payments. Neither the
Seller nor the Servicer will pay any shortfalls resulting from the failure of
any ESPs to forward FTA Payments to PG&E, as Servicer, which may result in
delays in distributions to Certificateholders.
SERVICER REPRESENTATIONS AND WARRANTIES
In the Servicing Agreement, the Servicer will make representations and
warranties to the Note Issuer to the effect, among other things, that: (a) the
Servicer is a corporation duly organized and in good standing under the laws of
the State of California, with power and authority to own its properties and
conduct its business as currently owned or conducted and to execute, deliver and
carry out the terms of the Servicing Agreement; (b) the execution, delivery and
carrying out of the Servicing Agreement have been duly authorized by the
Servicer by all necessary corporate action; (c) the Servicing Agreement
constitutes a legal, valid and binding obligation of the Servicer, enforceable
against the Servicer in accordance with its terms; (d) the consummation of the
transactions contemplated by the Servicing Agreement do not conflict with the
Servicer's articles of incorporation or bylaws or any agreement to which the
Servicer is a party or bound, result in the creation or imposition of any lien
upon the Servicer's properties or violate any law or any order, rule or
regulation applicable to the Servicer; (e) the Servicer has all licenses
necessary for it to perform its obligations under the Servicing Agreement; (f)
no governmental approvals, authorizations or filings are required for the
Servicer to execute, deliver and perform its obligations under the Servicing
Agreement except those which have previously been obtained or made; and (g)
except as disclosed to the Note Issuer, no court or administrative proceeding or
investigation is pending or, to the Servicer's knowledge, threatened (i)
asserting the invalidity of, or seeking to prevent the consummation of the
transactions contemplated by, the Servicing Agreement or (ii) seeking a
determination that might materially and adversely affect the performance by the
Servicer of its obligations thereunder.
In the event of a breach by the Servicer of any of its representations and
warranties described in the preceding paragraph, the Servicer will indemnify,
defend and hold harmless the Note Issuer, the Trust, the Noteholders, the Note
Trustee, the Certificate Trustee, the Delaware Trustee, the Certificateholders
and the Infrastructure Bank against any costs, expenses, losses, claims, damages
and liabilities incurred as a result thereof.
STATEMENTS BY SERVICER
On or before each Remittance Date, the Servicer will prepare and furnish to
the Note Trustee, the Certificate Trustee, the Infrastructure Bank and the Note
Issuer a statement for the related Collection Period (the "MONTHLY SERVICER'S
CERTIFICATE") setting forth the aggregate amount remitted. In addition, the
Servicer will prepare, and the Note Trustee will furnish to the Noteholders on
each Payment Date the report described under "Description of the Notes--Reports
to Noteholders." The Servicer will also prepare and the Certificate Trustee will
furnish to the Certificateholders on each Payment Date the report described
under "Description of the Certificates--Reports to Certificateholders" herein.
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement will provide that a firm of independent public
accountants will furnish to the Note Issuer, the Note Trustee and the
Certificate Trustee on or before January 31 of each year, beginning January 31,
1998, a statement as to compliance by the Servicer during the preceding twelve
months ended [October] [December] 31 with certain standards relating to the
servicing of the Transition Property. This report (the "ANNUAL ACCOUNTANT'S
REPORT") shall state that such firm has performed certain procedures in
connection with the Servicer's compliance with the servicing procedures of the
Servicing Agreement, identifying the results of such procedures and including
any exceptions noted. The Annual Accountant's Report will also indicate that the
accounting firm
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providing such report is independent of the Servicer within the meaning of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants.
The Servicing Agreement will also provide for delivery to the Note Issuer,
the Infrastructure Bank, the Note Trustee and the Certificate Trustee, on or
before January 31 of each year, commencing January 31, 1998, of a certificate
signed by an officer of the Servicer stating that the Servicer has fulfilled its
obligations under the Servicing Agreement throughout the preceding twelve months
ended December 31 (or in the case of the first such certificate, the period from
the Closing Date to December 31, 1997) or, if there has been a default in the
fulfillment of any such obligation, describing each such default. The Servicer
has agreed to give the Note Issuer, the Infrastructure Bank, the Note Trustee
and the Certificate Trustee notice of certain Servicer Defaults under the
Servicing Agreement.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the Certificate Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicing Agreement will provide that PG&E may not resign from its
obligations and duties as Servicer thereunder, except upon either (a) a
determination that PG&E's performance of such duties is no longer permissible
under applicable law or (b) the Rating Agency Condition is satisfied and there
is no increase in the Servicing Fee. No such resignation will become effective
until a successor Servicer has assumed PG&E's servicing obligations and duties
under the Servicing Agreement.
The Financing Order provides that the CPUC will not approve or require any
third party to act as a servicer of the Transition Property if the ratings on
the Certificates will be reduced as a result.
The Servicing Agreement will further provide that neither the Servicer nor
any of its directors, officers, employees, and agents will be under any
liability to the Note Issuer, the Note Trustee, the Trust, the Noteholders, the
Delaware Trustee, the Certificate Trustee, the Certificateholders or any other
person, except as provided under the Servicing Agreement, for taking any action
or for refraining from taking any action pursuant to the Servicing Agreement, or
for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Servicing Agreement will provide that the
Servicer is under no obligation to appear in, prosecute, or defend any legal
action that is not incidental to its servicing responsibilities under the
Servicing Agreement and that, in its opinion, may cause it to incur any expense
or liability.
Under the circumstances specified in the Servicing Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor of the Servicer
under the Servicing Agreement.
SERVICER DEFAULTS
"SERVICER DEFAULTS" under the Servicing Agreement will include (a) any
failure by the Servicer to deposit in the Collection Account any required
payment, which failure continues unremedied for three Servicer Business Days
after written notice from the Note Issuer is received by the Servicer or after
discovery by the Servicer; (b) any failure by the Servicer or the Seller, as the
case may be, duly to observe or perform in any material respect any other
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covenant or agreement in the Servicing Agreement, the Sale Agreement or any
other Basic Document to which it is a party, which failure materially and
adversely affects the rights of Noteholders and which continues unremedied for
60 days after the giving of notice of such failure (i) to the Servicer by the
Note Issuer or the Note Trustee or (ii) to the Servicer by holders of Notes
evidencing not less than 25 percent in principal amount of the outstanding Notes
of all Series; (c) any representation or warranty made by the Servicer in the
Servicing Agreement shall prove to have been incorrect when made, which has a
material adverse effect on the Note Issuer or the Certificateholders and which
material adverse effect continues unremedied for a period of 60 days after the
giving of notice to the Servicer by the Note Issuer or the Note Trustee; and (d)
certain events of insolvency, readjustment of debt, marshaling of assets and
liabilities, or similar proceedings with respect to the Servicer or the Seller
and certain actions by the Servicer or the Seller indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default under the Servicing Agreement remains
unremedied, either the Note Trustee or holders of Notes evidencing not less than
25 percent in principal amount of then outstanding Notes of all Series may
terminate all the rights and obligations of the Servicer (other than the
Servicer's indemnity obligation) under the Servicing Agreement, whereupon a
successor servicer appointed by the Note Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Servicing
Agreement and will be entitled to similar compensation arrangements. In
addition, upon a Servicer Default, each of the following shall be entitled to
apply to the CPUC for sequestration and payment of revenues arising with respect
to the Transition Property: (1) the Certificateholders and the Certificate
Trustee as beneficiary of any statutory lien permitted by the PU Code; (2) the
Note Issuer or its assignees; or (3) pledgees or transferees, including
transferees under PU Code (S) 844, of the Transition Property. If, however, a
bankruptcy trustee or similar official has been appointed for the Servicer, and
no Servicer Default other than such appointment has occurred, such trustee or
official may have the power to prevent the Note Trustee or the Noteholders from
effecting a transfer of servicing. The Note Trustee may appoint, or petition a
court of competent jurisdiction for the appointment of, a successor servicer
which satisfies criteria specified by the Rating Agencies. The Note Trustee may
make such arrangements for compensation to be paid, which in no event may be
greater than the servicing compensation to the Servicer under the Servicing
Agreement.
WAIVER OF PAST DEFAULTS
Holders of Notes evidencing at least a majority in principal amount of the
then outstanding Notes of all Series, on behalf of all Noteholders, may waive
any default by the Servicer in the performance of its obligations under the
Servicing Agreement and its consequences, except a default in making any
required deposits to the Collection Account in accordance with the Servicing
Agreement. No such waiver will impair the Noteholders' rights with respect to
subsequent defaults.
AMENDMENT
The Servicing Agreement may be amended by the parties thereto, without the
consent of the Noteholders (or, accordingly, the Certificateholders), but with
the consent of the Note Trustee, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of that agreement or
of modifying in any manner the rights of the Noteholders (or, accordingly, the
Certificateholders), provided that such action will not, as certified in a
certificate of an officer of the Servicer delivered to the Note Trustee and the
Note Issuer, materially and adversely affect the interest of any Noteholder (or,
accordingly, any Certificateholder). The Servicing Agreement may also be
amended by the Servicer and the Note Issuer with the consent of the Note Trustee
and the holders of Notes evidencing at least a majority in principal amount of
the then outstanding Notes of all Series and Classes for the purpose of adding
any
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provisions to or changing in any manner or eliminating any of the provisions of
such agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided, however, that no such amendment may (i)
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increase or reduce in any manner the amount of, or accelerate or delay the
timing of, FTA Collections or (ii) reduce the aforesaid percentage of the Notes
the holders of which are required to consent to any such amendment, without the
consent of the holders of all the outstanding Notes.
TERMINATION
The obligations of the Servicer and the Note Issuer pursuant to the
Servicing Agreement will terminate upon the payment to the Noteholders and
corresponding distribution to the Certificateholders of all amounts required to
be paid or distributed to them pursuant to the Servicing Agreement, the Notes,
the Note Indenture, the Certificates and the Trust Agreement.
DESCRIPTION OF THE NOTES
The Notes of any Class will be issued by the Note Issuer to the Trust (as
such, the "NOTEHOLDER") pursuant to the terms of an Indenture (the "NOTE
INDENTURE") between the Note Issuer and the Note Trustee, in a principal amount
equal to the initial aggregate principal amount of the related Class of
Certificates. The following summary describes certain general terms and
provisions of the Note Indenture. The particular terms of the Notes of any
Class will be established in a supplement to the Note Indenture and described in
the Prospectus Supplement for the related Series of Certificates. This summary
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the terms and provisions of the Note Indenture and
related supplements thereto.
GENERAL
The Notes may be issued in one or more Series, any one or more of which may
be comprised of one or more Classes. All Notes of the same Series will be
identical in all respects except for the denominations thereof, unless such
Series is comprised of more than one Class, in which case all Notes of the same
Class will be identical in all respects except for the denominations thereof.
The Prospectus Supplement for a Series of Certificates will describe the
following terms of the related Series of Notes and, if applicable, the Classes
thereof: (a) the designation of the Series and, if applicable, the Classes
thereof, (b) the principal amount, (c) the annual rate at which interest accrues
(the "NOTE INTEREST RATE"), (d) the Payment Dates, (e) the scheduled maturity
date (the "SCHEDULED MATURITY DATE"), (f) the final termination date of the
Series (the "FINAL MATURITY DATE"), (g) the issuance date of the Series (the
"SERIES ISSUANCE DATE"), (h) the place or places for the payment of principal,
(i) the authorized denominations, (j) the provisions for optional redemption by
the Note Issuer, (k) the Expected Amortization Schedule for principal of such
Series and, if applicable, the Classes thereof, (l) the terms, if any, on which
any Class of Notes will be subordinated to any other Class of Notes, (m) the FTA
Charge as of the date of issuance of such Series of Notes, and the portion of
the FTA Charge attributable to such Series or Class of Notes and (n) any other
terms of such Class that are not inconsistent with the provisions of the Notes
and that will not result in any Rating Agency reducing or withdrawing its then
current rating of any outstanding Class of Notes or Certificates (the
notification in writing by each Rating Agency to the Seller, the Servicer, the
Note Trustee and the Note Issuer that any action will not result in such a
reduction or withdrawal is referred to herein as the "RATING AGENCY CONDITION").
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SECURITY
To secure the payment of principal of and interest on the Notes, the Note
Issuer will grant to the Note Trustee a security interest in all of the Note
Issuer's right, title and interest in and to (a) the Transition Property and all
proceeds thereof, (b) the Sale Agreement, (c) the Servicing Agreement, (d) the
Collection Account and all amounts of investment property on deposit therein or
credited thereto from time to time, (e) all other property of whatever kind
owned from time to time by the Note Issuer, (f) all present and future claims,
demands, causes and choses in action in respect of any or all of the foregoing
and all payments on or under and (g) all proceeds in respect of any or all of
the foregoing (collectively, the "NOTE COLLATERAL").
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of Notes of a Class of Notes
at the per annum rate either specified in or determined in the manner specified
in the related Prospectus Supplement and will be payable on the Payment Dates
specified in the related Prospectus Supplement. FTA Collections, and, if
necessary, the minimal equity contributed to the Note Issuer by PG&E, will be
used to make interest payments to the Noteholders of each Class on each Payment
Date with respect thereto.
Principal of the Notes of each Class will be payable in the amounts and on
the Payment Dates specified in the related Prospectus Supplement, but only to
the extent FTA Collections not applied to pay interest on the Notes or other
amounts having a higher priority are available therefor. See "--Allocations;
Payments" herein. Each Prospectus Supplement will set forth the Expected
Amortization Schedule for the related Series of Notes and, if applicable, the
Classes of such Series. However, principal of any Class of Notes may be payable
earlier or later than expected as described herein. See "Risk Factors--Risks of
the Transition Property" and "--Yield Considerations" herein. The entire unpaid
principal amount of the Notes of a Class will be due and payable on the date on
which a Note Event of Default has occurred and is continuing with respect to
such Class, if the holders of a majority in principal amount of the Notes of all
Series then outstanding have declared the Notes to be immediately due and
payable. See "--Note Events of Default; Rights Upon Note Event of Default"
herein.
Unless the context requires otherwise, all references in this Prospectus to
principal of the Notes of a Series includes any premium that might be payable
thereon if Notes of such Series are redeemed, as described in the related
Prospectus Supplement.
OPTIONAL REDEMPTION
The Note Issuer may redeem, at its option, any Notes of a Class and
accordingly cause the Trust to redeem the related Certificates to the extent and
in the manner specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, notice of such redemption will
be given by the Note Issuer to each holder of Notes to be redeemed by first-
class mail, postage prepaid, mailed not less than five days nor more than 25
days prior to the date of redemption.
OVERCOLLATERALIZATION AMOUNT
The Financing Order and Advice Letters give the Seller (or its assignee)
the right to recover from Customers an amount equal to the aggregate Transition
Costs together with designated amounts included therewith, including without
limitation amounts necessary to pay principal of and interest on each Series of
Notes at the applicable Note Interest Rate and all related fees and expenses,
and an additional amount (for any Series, the "OVERCOLLATERALIZATION AMOUNT")
that will be specified in the related Prospectus Supplement. The
Overcollateralization Amount will not bear interest.
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On each Payment Date, all FTA Collections will be applied first to pay or
provide for fees and expenses and interest on each Series of Notes at the
applicable Note Interest Rate. All other FTA Collections will be applied to pay
or provide for principal of the Notes, with a corresponding reduction in the
aggregate recoverable amount payable with respect to the FTA Charge. See "--
Allocations; Payments" herein. Accordingly, the aggregate recoverable amount
should always exceed the aggregate principal and interest due with respect to
the Notes, together with all related fees and expenses, by the
Overcollateralization Amount. The Overcollateralization Amount is intended to
cover any shortfall in FTA Collections that might otherwise occur at the
Scheduled Final Distribution Date. Any FTA Collections with respect to a
particular Series of Notes in excess of the amounts required to make
distributions on the related Series of Certificates in full at the Termination
Date will be returned to the Note Issuer, which may distribute such amounts to
its members under the circumstances described under "--Certain Covenants of the
Note Issuer."
OTHER CREDIT ENHANCEMENT
For any Class of Notes, credit enhancement in addition to the FTA Charge
adjustments and the Overcollateralization Amount may be provided with respect
thereto. The amounts and types of credit enhancement, and the provider of any
credit enhancement, if any, with respect to each Class of Notes will be
described in the related Prospectus Supplement. Credit enhancement may be in
the form of a reserve account, overcollateralization, financial guaranty
insurance policy, letter of credit, credit or liquidity facility, subordination,
third party payment or other support, cash deposit or such other arrangement, or
any combination of two or more of the foregoing, as may be described in the
related Prospectus Supplement for a Series. If specified in the related
Prospectus Supplement, credit enhancement for a Class of Notes may cover one or
more other Class of Notes.
If any such additional credit enhancement is provided with respect to a
Class of Notes offered hereby, the related Prospectus Supplement will include a
description of (a) the amount payable under such credit enhancement, (b) any
conditions to payment thereunder not otherwise described herein, (c) the
conditions (if any) under which the amount payable under such credit enhancement
may be reduced and under which such credit enhancement may be terminated or
replaced, (d) the priority of reimbursement to the provider of the credit
enhancement of amounts paid pursuant to the credit enhancement and (e) any
material provisions of any applicable agreement relating to such credit
enhancement. Additionally, in certain cases, the related Prospectus Supplement
may set forth certain information with respect to the provider of any third-
party credit enhancement, including (i) a brief description of its principal
business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to do
business, (iii) if applicable, the identity of regulatory agencies which
exercise primary jurisdiction over the conduct of its business and (iv) its
total assets, and its stockholders' equity or policyholders' surplus, if
applicable, as of a date specified in the related Prospectus Supplement.
The presence of any such additional credit enhancement is intended to
enhance the likelihood of receipt by the credit enhanced Noteholders of the full
amount of principal and interest due thereon in a timely manner and to decrease
the likelihood that such Noteholders will experience losses or delays in
payment. Any such additional credit enhancement for a Class of Notes will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal and interest thereon. If losses occur which exceed the
amount covered by any credit enhancement or which are not covered by any credit
enhancement, Noteholders will bear their allocable share of deficiencies. In
addition, if a form of additional credit enhancement covers more than one Class
of Notes, Noteholders of any such Class will be subject to the risk that such
credit enhancement will be exhausted by the claims of Noteholders of other
Classes or Notes.
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COLLECTION ACCOUNT
The Note Issuer will establish, in the name of the Note Trustee, a
segregated identifiable account (the "COLLECTION ACCOUNT") with an Eligible
Institution.
An "ELIGIBLE INSTITUTION" means (a) the corporate trust department of the
Note Trustee or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) has either (A) a
long-term unsecured debt rating of "A" by S&P and Moody's or (B) a certificate
of deposit rating of "A-1+" by S&P and "P-1" by Moody's, or any other long-term,
short-term or certificate of deposit rating acceptable to the Rating Agencies
and (ii) whose deposits are insured by the Federal Deposit Insurance
Corporation.
Funds in the Collection Account may be invested in any of the following:
(a) direct obligations of, or obligations fully and unconditionally guaranteed
as to timely payment by, the United States of America, (b) demand deposits, time
deposits, certificates of deposit or banker's acceptances of certain depository
institutions or trust companies, (c) commercial paper having, at the time of
investment, a rating in the highest rating category from each Rating Agency, (d)
money market funds which have the highest rating from each Rating Agency, (e)
repurchase obligations with respect to any security that is a direct obligation
of, or fully guaranteed by, the United States of America, entered into with
certain depository institutions or trust companies, or (f) any other investment
permitted by each Rating Agency (collectively, the "ELIGIBLE INVESTMENTS"), in
each case which mature (i) on or before the Certificate Business Day preceding
the next Distribution Date. The Note Issuer will provide the Note Trustee and
the Certificate Trustee with access to the Collection Account for the purpose of
making deposits in and withdrawals from the Collection Account in accordance
with the Notes.
The Servicer will remit to the Collection Account, on each Remittance Date,
the Estimated FTA Collections, modified by the Excess Remittance or Remittance
Shortfall, if any, as described under "Servicing--Remittances to Collection
Account" herein.
ALLOCATIONS; PAYMENTS
On each Payment Date, the Note Trustee will at the direction of the
Servicer apply all amounts on deposit in the Collection Account with respect to
the prior Collection Period to pay the following amounts in the following
priority:
(a) all amounts owed by the Note Issuer or the Trust to the Note
Trustee, the Delaware Trustee and the Certificate Trustee will be paid to such
persons;
(b) the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods will be paid to the Servicer;
(c) the Quarterly Administration Fee and all unpaid Quarterly
Administration Fees from prior Distribution Dates will be paid to the
Administrator;
(d) so long as no Event of Default has occurred or would be caused by
such payment, all other Operating Expenses will be paid to the persons entitled
thereto;
(e) the excess of Estimated FTA Collections remitted to the
Collection Account over Actual FTA Collections will be paid to the Servicer to
the extent that the Servicer has not previously withheld or been paid such
excess;
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(f) Quarterly Interest and any overdue Quarterly Interest (together
with, to the extent lawful, interest on such overdue Quarterly Interest at the
applicable Note Interest Rate) with respect to each Series of Notes will be
transferred to Certificate Trustee for payment to the Certificateholders;
(g) principal on the Notes payable as a result of a Note Event of
Default or on the Final Maturity Date for any Notes will be transferred to the
Certificate Trustee for payment to the Certificateholders;
(h) net earnings on Eligible Investments will be paid to the Note
Issuer;
(i) the balance, if any, will be transferred to the Certificate
Trustee for payment to Certificateholders in respect of Quarterly Principal and
overdue Quarterly Principal, if any, for each Series of Notes based on
priorities described in each Prospectus Supplement; and
(j) following the repayment of each outstanding Series of Notes, the
balance, if any, will be released to the Note Issuer.
If on any Payment Date when there is more than one Series of Notes
outstanding, funds on deposit in the Collection Account are insufficient to make
the transfers contemplated by clauses (f) and (g) above, such funds will be
allocated among the various Series based on priorities described in each
Prospectus Supplement.
For purposes of the foregoing allocations:
"QUARTERLY ADMINISTRATION FEE" means the quarterly fee payable to PG&E
as the Administrator under the Administrative Services Agreement between
PG&E and the Note Issuer, which will be specified in each Prospectus
Supplement.
"QUARTERLY INTEREST" means, with respect to any Payment Date and any
Series of Notes, the quarterly interest for such date and Series as
specified in the related Prospectus Supplement.
"QUARTERLY PRINCIPAL" means, with respect to any Distribution Date and
any Series of Notes, the quotient obtained by dividing (a) the amount of
principal shown for the next Payment Date for such Series on the Expected
Amortization Schedule therefor or, if less, the unpaid principal amount of
such Series, by (b) four or, if such Payment Date is on or prior to the
first Payment Date for such Series, the lesser of four and the number of
Payment Dates from and including the Series Issuance Date for such Series
to and including such first Payment Date. For any Series of Notes, the
related Prospectus Supplement will indicate the frequency of Payment Dates.
Payments to the Noteholders of a Series will be made to such holders as
specified in the related Prospectus Supplement.
ACTIONS BY NOTEHOLDERS
The Certificate Trustee, on behalf of the Trust as sole initial holder of
the Notes, has the right to vote and give consents and waivers in respect of
modifications to any Class or Series of Notes thereunder and to the provisions
of certain Basic Documents under the Note Indenture. Subject to certain
exceptions, the holders of a majority of the aggregate outstanding amount of the
Certificates of all Series (or, if less than all Series or Classes are affected,
the affected Series or Class or Classes) shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Certificate Trustee, or exercising any trust or power conferred on the
Certificate Trustee under the Trust Agreement, including any right of the
Certificate Trustee as holder of the Notes of the
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corresponding Series or Class or Classes, in each case unless a different
percentage is specified in the Trust Agreement; provided that: (1) such
--------
direction shall not be in conflict with any rule of law or with the Trust
Agreement and would not involve the Certificate Trustee in personal liability or
expense; (2) the Certificate Trustee shall not have determined that the action
so directed would be unjustly prejudicial to the holders of Certificates of such
Series or Class or Classes not taking part in such direction; (3) the
Certificate Trustee may take any other action deemed proper by the Certificate
Trustee which is not inconsistent with such direction; and (4) if a Note Event
of Default with respect to such Series or Class or Notes shall have occurred and
be continuing, such direction shall not obligate the Certificate Trustee to vote
more than a corresponding majority of the related Notes held by the Trust in
favor of declaring the unpaid principal amount of the Notes of all Series and
accrued interest thereon to be due and payable or directing any action by the
Note Trustee with respect to such Note Event of Default. In circumstances under
which the Certificate Trustee is required to seek instructions from the holders
of the Certificates of any Class with respect to any such action or vote, the
Certificate Trustee will take such action or vote for or against any proposal in
proportion to the principal amount of the corresponding Class, as applicable, of
Certificates taking the corresponding position. See "Description of the
Certificates--Voting of Notes" herein.
NOTE EVENTS OF DEFAULT; RIGHTS UPON NOTE EVENT OF DEFAULT
An "EVENT OF DEFAULT" with respect to any Series of Notes (a "NOTE EVENT OF
DEFAULT") is defined in the Note Indenture as being: (a) a default for five
days or more in the payment of any interest on any Note; (b) a default in the
payment of the then unpaid principal of any Note of any Series on the Final
Maturity Date for such Series; (c) a default in the payment of the redemption
price for any Note on the redemption date therefor; (d) a default in the
observance or performance of any covenant or agreement of the Note Issuer made
in the Note Indenture and the continuation of any such default for a period of
30 days after notice thereof is given to the Note Issuer by the Note Trustee or
to the Note Issuer and the Note Trustee by the holders of at least 25 percent in
principal amount of the Notes of such Series then outstanding; (e) any
representation or warranty made by the Note Issuer in the Note Indenture or in
any certificate delivered pursuant thereto or in connection therewith having
been incorrect in a material respect as of the time made, and such breach not
having been cured within 30 days after notice thereof is given to the Note
Issuer by the Note Trustee or to the Note Issuer and the Note Trustee by the
holders of at least 25 percent in principal amount of the Note Indenture of such
Series then outstanding; or (f) certain events of bankruptcy, insolvency,
receivership or liquidation of the Note Issuer.
If a Note Event of Default should occur and be continuing with respect to
any Series of Notes, the Note Trustee or holders of not less than a majority in
principal amount of the Notes of all Series then outstanding may declare the
principal of the Notes of all Series to be immediately due and payable. Such
declaration may, under certain circumstances set forth in the Note Indenture, be
rescinded by the holders of a majority in principal amount of the Notes of all
Series then outstanding.
If the Notes of all Series have been declared to be due and payable
following a Note Event of Default, the Note Trustee may, in its discretion,
either sell the Transition Property or elect to have the Note Issuer maintain
possession of the Transition Property and continue to apply FTA Collections as
if there had been no declaration of acceleration. There is likely to be a
limited market, if any, for the Transition Property following a foreclosure
thereon, in light of the preceding default, the unique nature of the Transition
Property as an asset and other factors discussed herein. In addition, the Note
Trustee is prohibited from selling the Transition Property following a Note
Event of Default with respect to any Series, other than a default in the payment
of any principal or redemption price or a default for five days or more in the
payment of any interest on any Note of any Series
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unless (a) the holders of all the outstanding Notes of all Series consent to
such sale, (b) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on the outstanding Notes of all Series or
(c) the Note Trustee determines that the proceeds of the Transition Property
would not be sufficient on an ongoing basis to make all payments on the Notes of
all Series as such payments would have become due if the Notes had not been
declared due and payable, and the Note Trustee obtains the consent of the
holders of 66-2/3 percent of the aggregate outstanding amount of the Notes of
all Series.
Subject to the provisions of the Note Indenture relating to the duties of
the Note Trustee, in case a Note Event of Default will occur and be continuing,
the Note Trustee will be under no obligation to exercise any of the rights or
powers under the Notes at the request or direction of any of the holders of
Notes of any Series if the Note Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to such provisions
for indemnification and certain limitations contained in the Note Indenture, the
holders of a majority in principal amount of the outstanding Notes of all Series
(or, if less than all Classes are affected, the affected Class or Classes) will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the Note Trustee and the holders of a majority in
principal amount of the Notes of all Series then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or interest or a default in respect of a covenant or provision of
the Note Indenture that cannot be modified without the waiver or consent of all
of the holders of the outstanding Notes of all Classes affected thereby.
With respect to the Notes, no holder of any Note of any Series will have
the right to institute any proceeding with respect to the Notes, unless (a) such
holder previously has given to the Note Trustee written notice of a continuing
Event of Default with respect to such Series, (b) the holders of not less than
25 percent in principal amount of the outstanding Notes of all Series have made
written request of the Note Trustee to institute such proceeding in its own name
as Note Trustee, (c) such holder or holders have offered the Note Trustee
reasonable indemnity, (d) the Note Trustee has for 60 days failed to institute
such proceeding and (e) no direction inconsistent with such written request has
been given to the Note Trustee during such 60-day period by the holders of a
majority in principal amount of the outstanding Notes of all Series.
In addition, the Servicer, the Note Trustee, each Noteholder, the
Certificate Trustee and the Certificateholders will covenant that they will not
at any time institute against the Note Issuer or the Trust any bankruptcy,
reorganization or other proceeding under any Federal or state bankruptcy or
similar law.
Neither the Certificate Trustee nor the Note Trustee in its individual
capacity, nor any holder of any ownership interest in the Note Issuer, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, successors or assigns will, in the absence of an express agreement to
the contrary, be personally liable for the payment of the principal of or
interest on the Notes of any Series or for the agreements of the Note Issuer
contained in the Note Indenture.
CERTAIN COVENANTS OF THE NOTE ISSUER
The Note Issuer may not consolidate with or merge into any other entity,
unless (a) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States, any state thereof or the District
of Columbia, (b) such entity expressly assumes by an indenture supplemental to
the Note Indenture the Note Issuer's obligation to make due and punctual
payments upon the Notes and the performance or observance of every agreement and
covenant of the Note Issuer under the Note Indenture, (c)
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no Event of Default will have occurred and be continuing immediately after such
merger or consolidation, (d) the Rating Agency Condition will have been
satisfied with respect to such transaction, (e) the Note Issuer has received an
opinion of counsel to the effect that such consolidation or merger would have no
material adverse tax consequence to the Note Issuer, the Trust, any Noteholder
or any Certificateholder and such consolidation or merger complies with the
Notes and all conditions precedent therein provided for relating to such
transaction have been complied with and (f) any action as is necessary to
maintain the lien and security interest created by the Note Indenture will have
been taken.
The Note Issuer may not convey or transfer substantially all of its
properties or assets to any person or entity, unless (a) the person or entity
acquiring the properties and assets (i) is a United States citizen or an entity
organized under the laws of the United States, any state thereof or the District
of Columbia, (ii) expressly assumes by an indenture supplemental to the Note
Indenture the Note Issuer's obligation to make due and punctual payments upon
the Notes and the performance or observance of every agreement and covenant of
the Note Issuer under the Notes, (iii) expressly agrees by such supplemental
indenture that all right, title and interest so conveyed or transferred will be
subject and subordinate to the rights of Noteholders, (iv) unless otherwise
specified in the supplemental indenture referred to in clause (ii) above,
expressly agrees to indemnify, defend and hold harmless the Note Issuer against
and from any loss, liability or expense arising under or related to the Note
Indenture and the Notes, and (v) expressly agrees by means of such supplemental
indenture that such person (or if a group of persons, then one specified person)
shall make all filings with the Commission (and any other appropriate person)
required by the Exchange Act in connection with the Notes, (b) no Event of
Default will have occurred and be continuing immediately after such transaction,
(c) the Rating Agency Condition will have been satisfied with respect to such
transaction, (d) the Note Issuer has received an opinion of counsel to the
effect that such transaction will not have any material adverse tax consequence
to the Note Issuer, the Trust, any Noteholder or any Certificateholder and such
conveyance or transfer complies with the Note Indenture and all conditions
precedent therein provided for relating to such transaction have been complied
with and (e) any action as is necessary to maintain the lien and security
interest created by the Note Indenture shall have been taken.
The Note Issuer will not, among other things, (a) except as expressly
permitted by the Note Indenture, sell, transfer, exchange or otherwise dispose
of any of the assets of the Note Issuer, unless directed to do so by the Note
Trustee, (b) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly withheld
under the Code) or assert any claim against any present or former Noteholder
because of the payment of taxes levied or assessed upon any part of the
Transition Property and the other Note Collateral (the "COLLATERAL") (c)
terminate its existence, dissolve or liquidate in whole or in part; (d) permit
the validity or effectiveness of the Notes to be impaired, (e) permit the lien
of the Note Indenture to be amended, hypothecated, subordinated, terminated or
discharged or permit any person to be released from any covenants or obligations
with respect to the Notes except as may be expressly permitted by the Indenture,
(f) permit any lien, charge, excise, claim, security interest, mortgage or other
encumbrance, other than the lien and security interest created by the Indenture,
to be created on or extend to or otherwise arise upon or burden the Collateral
or any part thereof or any interest therein or the proceeds thereof or (g)
permit the lien of the Note Indenture not to constitute a valid first priority
security interest in the Collateral.
The Note Issuer may not engage in any business other than financing,
purchasing, owning and managing the Transition Property in the manner
contemplated by the Notes, the Sale Agreement, the Servicing Agreement, the
Trust Agreement, the Note Purchase Agreement between the Note Issuer and the
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Trust, or certain related documents (collectively, the "BASIC DOCUMENTS") and
activities incidental thereto.
The Note Issuer will not issue, incur, assume, guarantee or otherwise
become liable for any indebtedness except for the Notes.
The Note Issuer will not, except for any securities or notes issued by an
affiliate and as contemplated by the Basic Documents, make any loan or advance
or credit to, or guarantee, endorse or otherwise become contingently liable in
connection with the obligations, stocks or dividends of, or own, purchase,
repurchase or acquire (or agree contingently to do so) any stock, obligations,
assets or securities of, or any other interest in, or make any capital
contribution to, any other person. The Note Issuer will not, except as
contemplated by the Basic Documents, make any expenditure (by long-term or
operating lease or otherwise) for capital assets (either realty or personalty).
The Note Issuer will not, directly or indirectly, make payments to or
distributions from the Collection Account except in accordance with the Basic
Documents.
The Note Issuer will not make any payments, distributions or dividends to
any holder of beneficial interests in the Note Issuer in respect of such
beneficial interest for any Collection Period unless no Note Event of Default
shall have occurred and be continuing and any such distributions do not cause
the book value of the remaining equity in the Note Issuer to decline below 0.5%
of the original aggregate principal amount of all Series of Notes which remain
outstanding.
The Note Issuer will cause the Servicer to deliver to the Note Trustee and
the Certificate Trustee the annual accountant's certificates, compliance
certificates, reports regarding distributions and statements to Noteholders and
the Certificateholders required by the Servicing Agreement.
REPORTS TO NOTEHOLDERS
With respect to each Series of Notes, on or prior to each Payment Date, the
Servicer will prepare and provide to the Note Issuer, the Infrastructure Bank,
the Note Trustee and the Certificate Trustee a statement (the "QUARTERLY
SERVICER'S CERTIFICATE") to be delivered to the Noteholders on such Payment
Date. With respect to each Series of Notes, each such statement to be delivered
to Noteholders will include (to the extent applicable) the following information
(and any other information so specified in the related Prospectus Supplement) as
to the Notes of such Series with respect to such Payment Date or the period
since the previous Payment Date, as applicable:
(a) the amount of the distribution to Noteholders allocable to
principal;
(b) the amount of the distribution to Noteholders allocable to
interest;
(c) the aggregate outstanding principal balance of the Notes, after
giving effect to payments allocated to principal reported under (a) above; and
(d) the difference, if any, between the amount specified in (c) above
and the principal amount scheduled to be outstanding on such date according to
the Expected Amortization Schedule.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Notes, the Note Trustee will
mail to each person who at any time during such calendar year has been a
Noteholder and received any payment thereon, a statement containing certain
information for the purposes of such Noteholder's preparation of Federal and
state income tax returns. See "Federal Income Tax Consequences" and "State and
Local Taxation" herein.
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ANNUAL COMPLIANCE STATEMENT
The Note Issuer will be required to file annually with the Note Trustee,
the Certificate Trustee and the Rating Agencies a written statement as to the
fulfillment of its obligations under the Notes.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Trust will issue the Certificates pursuant to the Trust Agreement, the
form of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Each Series of Certificates will be issued under the
terms of a supplement to the Trust Agreement, as described in the related
Prospectus Supplement. The following summary description of the Certificates is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Trust Agreement and the Certificates, a form of which is also filed as an
exhibit to the Registration Statement.
The Certificates will be issued in fully registered form only. Each Class
of Certificates offered hereby will represent a fractional undivided interest in
the corresponding Class of Notes, all monies due and to become due under such
corresponding Class of Notes and funds from time to time deposited with the
Trustee in certain amounts relating to the Trust. Each Certificate of each
Class will correspond to a pro rata share of the outstanding principal amount of
the corresponding Class of the Notes held in the Trust and will be issued in
minimum denominations specified in the applicable Prospectus Supplement.
Each Class of Certificates will bear interest at the rate per annum borne
by the corresponding Class of the Notes. See "Description of the Notes--
Interest and Principal" herein. Payments of interest and principal made in
respect of any Class of Notes are required to be passed through to holders of
the corresponding Class of Certificates at the times and in the manner described
herein. See "--Payments and Distributions" below and "Description of the Notes-
- -Interest and Principal" herein.
The Certificates are not obligations of, or guaranteed by, the Certificate
Trustee, PG&E, the Infrastructure Bank or any affiliate of any of the foregoing.
Neither the full faith and credit nor the taxing power of the State of
California or any agency or instrumentality thereof is pledged to the
distributions of principal of, or interest on, the Certificates. The
Certificates represent beneficial interests in the Trust only.
PAYMENTS AND DISTRIBUTIONS
The Certificate Trustee is scheduled to receive payments of interest on and
principal of the Notes (in each case, the amounts paid to any Series or Class of
the Notes will be determined from time to time in accordance with the provisions
described under "Description of the Notes--Allocations; Payments" herein) on
each Payment Date.
The Certificate Trustee will distribute on each Distribution Date to the
holders of each Class of Certificates all payments of principal and interest
with respect to the corresponding Class of Notes (other than payments received
following a payment default in respect of such Class of Notes), the receipt of
which is confirmed by the Certificate Trustee by 1:00 p.m. (New York City time)
on such Distribution Date or, if such receipt is confirmed after 1:00 p.m. (New
York City time) on such Distribution Date, then on the following business day.
Each such distribution other than the final distribution with respect to any
Certificate will be made by the Certificate Trustee to the holders of record of
the Certificates of the applicable Class on the Record Date in respect of such
Distribution Date. If a payment of principal or interest on any Class of the
Notes (other than a payment received following a
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payment default in respect of such Class of Notes) is not received by the
Certificate Trustee on a Distribution Date but is received within five days
thereafter, it will be distributed to such holders of record on the date receipt
thereof is confirmed by the Certificate Trustee, if such receipt is confirmed by
the Certificate Trustee by 1:00 p.m. (New York City time) or, if such receipt is
confirmed after 1:00 p.m. (New York City time), then on the following business
day. If such payment is received by the Certificate Trustee after such five-day
period, it will be treated as a payment received following a payment default in
respect of such Class of Notes and distributed as described below. The final
distribution with respect to any Certificate, however, will be made only upon
presentation and surrender of such Certificate at the office or agency of the
Certificate Trustee specified in the notice given by the Certificate Trustee
with respect to such final distribution.
Any payment received by the Certificate Trustee following a payment default
in respect of any Class of the Notes ("SPECIAL PAYMENTS") will be distributed on
the later of (i) the date such receipt is confirmed and (ii) the date on which
any Special Payment is scheduled to be distributed by the Certificate Trustee (a
"SPECIAL DISTRIBUTION DATE"). However, in the case of any such Special Payment
receipt of which is confirmed after 1:00 p.m. (New York City time), such Special
Payment will be distributed on the following day. The Certificate Trustee will
mail notice to the holders of record of Certificates of the applicable Class as
of the most recent Record Date not less than 20 days prior to the Special
Distribution Date on which any Special Payment is scheduled to be distributed in
respect of Certificates of such Class stating such anticipated Special
Distribution Date. Each distribution of any such Special Payment will be made
by the Certificate Trustee on the Special Distribution Date to the holders of
record of the Certificates of such Class as of the most recent Record Date. See
"--Events of Default" below.
The Trust Agreement requires that the Certificate Trustee establish and
maintain, for the Trust and for the benefit of the holders of each Class of
Certificates, one or more non-interest bearing accounts (a "CERTIFICATE
ACCOUNT") for the deposit of payments on the Notes corresponding to such Class.
Pursuant to the terms of the Trust Agreement, the Certificate Trustee is
required to deposit any payments received by it with respect to any Class of
Notes in the corresponding Certificate Account. All amounts so deposited will
be distributed by the Certificate Trustee to holders of the applicable Class of
Certificates on a Distribution Date or a Special Distribution Date, as
appropriate, unless a different date for distribution of such amount is
specified herein.
At such time, if any, as the Certificates of any Class are issued in the
form of Definitive Certificates and not to DTC or its nominee, distributions by
the Certificate Trustee from the Certificate Account with respect to such Class
on a Distribution Date or a Special Distribution Date will be made by check
mailed to each holder of a Definitive Certificate of such Class of record on the
applicable Record Date at its address appearing on the register maintained with
respect to the Certificates of such Series, or, upon application by a holder of
any Class of Certificates in the principal amount of $1,000,000 or more to the
Certificate Trustee not later than the applicable Record Date, by wire transfer
to an account maintained by the payee in New York, New York. The final
distribution for each Class of Certificates, however, will be made only upon
presentation and surrender of the Certificates of such Class at the office or
agency of the Certificate Trustee specified in the notice or agency given by the
Certificate Trustee of such final distribution. The Certificate Trustee will
mail such notice of the final distribution to the Certificateholders of such
Class, specifying the date set for such final distribution and the amount of
such distribution.
If any Special Distribution Date or other date specified herein for
distribution of any distributions to Certificateholders is not a Business Day,
distributions scheduled to be made on such Special Distribution Date or other
date may be made on the next succeeding Certificate Business Day and no interest
shall accrue upon such distribution during the intervening period.
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"CERTIFICATE BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which banking institutions or trust companies in New York, New York or
San Francisco, California are authorized or obligated by law, regulation or
executive order to remain closed.
VOTING OF THE NOTES
The Certificate Trustee, as sole initial holder of the Notes, has the right
to vote and give consents and waivers in respect of modifications to any Class
of Notes. Subject to certain exceptions, the holders of a majority of the
aggregate outstanding amount of the Certificates of all Series (or, if less than
all Series or Classes are affected, the affected Series or Class or Classes)
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Certificate Trustee, or exercising
any trust or power conferred on the Certificate Trustee under the Trust
Agreement, including any right of the Certificate Trustee as holder of the Notes
of the corresponding Series or Class or Classes, in each case unless a different
percentage is specified in the Trust Agreement; provided that: (1) such
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direction shall not be in conflict with any rule of law or with the Trust
Agreement and would not involve the Certificate Trustee in personal liability or
expense; (2) the Certificate Trustee shall not have determined that the action
so directed would be unjustly prejudicial to the holders of Certificates of such
Series or Class or Classes not taking part in such direction; (3) the
Certificate Trustee may take any other action deemed proper by the Certificate
Trustee which is not inconsistent with such direction; and (4) if a Note Event
of Default with respect to such Series or Class or Notes shall have occurred and
be continuing, such direction shall not obligate the Certificate Trustee to vote
more than a corresponding majority of the related Notes held by the Trust in
favor of declaring the unpaid principal amount of the Notes of all Series and
accrued interest thereon to be due and payable or directing any action by the
Note Trustee with respect to such Note Event of Default. If the Certificate
Trustee is required to seek instructions from the holders of the Certificates of
any Class with respect to any such action or vote, the Certificate Trustee will
take such action or vote for or against any proposal in proportion to the
principal amount of the corresponding Class, as applicable, or Certificates
taking the corresponding position.
EVENTS OF DEFAULT
An event of default with respect to any Class of Certificates under the
Trust Agreement (a "CERTIFICATE EVENT OF DEFAULT") is defined as the occurrence
and continuance of a Note Event of Default. For a description of the Note
Events of Default, see "Description of the Notes -- Note Events of Default;
Rights Upon Note Event of Default" herein.
The Trust Agreement provides that, if a Certificate Event of Default shall
have occurred and be continuing with respect to any Class of Certificates, the
Certificate Trustee (i) may vote all the Notes of all Series to declare the
unpaid principal amount of all Series of Notes and accrued interest thereon to
be due and payable and (ii) upon the written direction of holders of the
corresponding Class of Certificates, will vote a corresponding percentage of the
corresponding Class of Notes in favor of so declaring. In addition, the Trust
Agreement provides that, if a Certificate Event of Default with respect to any
Class of Certificates shall have occurred and be continuing, the Trustee (i) may
vote all the Notes of all Series in favor of directing the Note Trustee as to
the time, method and place of conducting any proceeding for any remedy available
to the Note Trustee or of exercising any trust or power conferred on the Note
Trustee under the Note Indenture and (ii) upon the written direction of holders
of the corresponding Class of Certificates, will vote a corresponding percentage
of the corresponding Class of Notes in favor of so directing the Note Trustee.
As an additional remedy, if a Certificate Event of Default shall have
occurred and be continuing with respect to a particular Series or Class of
Certificates, the Trust Agreement provides that the Trustee may and, upon the
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written direction of the holders of Certificates representing not less than a
majority of the aggregate outstanding principal amount of the Certificates of
such Series or Class, will sell any Note or Notes, without recourse to or
warranty by the Certificate Trustee or any Certificateholder, to any person.
The Certificate Trustee may, but shall not be obligated to refrain, in its sole
discretion, from liquidating any Notes if (i) the Certificate Trustee determines
that amounts receivable from the Note Collateral with respect to the applicable
Class of Notes will be sufficient to pay (a) all principal of and interest on
that Class of Notes in accordance with its terms without regard to any
declaration of acceleration thereof and (b) all sums due to the Certificate
Trustee and any other administrative expenses specified in the Trust Agreement,
and (ii) holders of Certificates representing not less than a majority of the
aggregate outstanding principal amount of the Certificates of all Series have
not directed the Certificate Trustee to sell any Note or Notes. In addition,
the Certificate Trustee is prohibited from selling any Notes following certain
nonpayment Certificate Events of Default unless (x) the Certificate Trustee
determines that the amounts receivable from the Note Collateral with respect to
each Class of Notes are not sufficient to pay in full the principal of and
accrued interest on the Notes of each such Class and to pay all sums due to the
Certificate Trustee and other administrative expenses specified in the Trust
Agreement and the Certificate Trustee obtains the written consent of holders of
Certificates of each such Class representing 66%% of the aggregate outstanding
principal amount of each such Class of Certificates or (y) the Certificate
Trustee obtains the consent of 100% of the aggregate outstanding principal
amount of each such Class of Certificates. Any proceeds received by the
Certificate Trustee upon any such sale will be deposited in the Certificate
Account for such Class and will be distributed to the holders of Certificates of
such Class on a Special Distribution Date.
Any funds representing payments received with respect to any Series or
Class of Notes in default, or the proceeds from the sale by the Certificate
Trustee of any Class of Notes, held by the Certificate Trustee in a Certificate
Account shall, to the extent practicable, be invested and reinvested by the
Certificate Trustee in Eligible Investments permitted under the Trust Agreement
maturing in not more than 60 days or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date, pending the
distribution of such funds to Certificateholders as described herein.
The Trust Agreement provides that, with respect to the Certificates of any
Class, within 30 days after the occurrence of any event that is, or after notice
or lapse of time or both would become, a Certificate Event of Default with
respect to such Class of Certificates (a "DEFAULT"), the Certificate Trustee
will give to the Infrastructure Bank, the Note Trustee and the holders of such
Certificates notice, transmitted by mail, of all such uncured or unwaived
Defaults known to it. However, except in the case of a Default relating to the
payment of principal of or interest on any of the Notes, the Certificate Trustee
will be protected in withholding such notice if in good faith it determines that
the withholding of such notice is in the interests of the holders of the
Certificates of such Class.
The Trust Agreement contains a provision entitling the Certificate Trustee
to be indemnified by the holders of the Certificates before proceeding to
exercise any right or power under the Trust Agreement at the request or
direction of Certificateholders.
In certain cases, the holders of Certificates representing not less than a
majority of the outstanding aggregate principal amount of the Certificates of
all Series may waive any past Default or Certificate Event of Default under the
Trust Agreement and thereby annul any previous direction given by the
Certificate Trustee with respect thereto, except a Default (i) in the deposit or
distribution of any payment on the Notes or Special Payment required to be made
with respect to any Class of Certificates, (ii) in the payment of principal of
or interest on any of the Notes, and (iii) in respect of any covenant or
provision of the Trust Agreement that cannot be modified or
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amended without the consent of the holder of each Certificate of all Classes
affected hereby. Upon any such direction, the Certificate Trustee shall vote a
corresponding percentage of the corresponding Class of Notes in favor of such
waiver. The Notes provide that, with certain exceptions, the holders of not
less than a majority in aggregate unpaid principal amount of the Notes of all
Series may waive any Note Event of Default or any event that is, or after notice
or passage of time, or both, would be, a Note Event of Default.
The Trust may hold two or more Classes of Notes, each of which may have a
different interest rate and, in the case of different Classes, a different or
potentially different schedule of the repayment of principal and different
rights in the security therefor. Accordingly, the holders of Certificates of
each Class may have divergent or conflicting interests from the holders of
Certificates of other Classes.
OPTIONAL REDEMPTION
The Trust may redeem, at its option, any Certificates of a Class if the
related Class of Notes is redeemed and otherwise to the extent and in the manner
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, notice of such redemption will be given by
the Trust to each holder of Certificates to be redeemed by first-class mail,
postage prepaid, mailed not less than five days nor more than 25 days prior to
the date of redemption.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, Special Distribution Date or any other date
specified in the Trust Agreement for distribution of any payments with respect
to any Class of Certificates, the Certificate Trustee will include with each
distribution to holders of Certificates of such Class a statement with respect
to such distribution to be made on such Distribution Date, Special Distribution
Date or other date, as the case may be, setting forth the following information,
in each case, to the extent received by the Certificate Trustee from the Note
Trustee, no later than two Certificate Business Days prior to such Distribution
Date, Special Distribution Date or other date specified herein for such
distribution.
(a) the amount of the distribution to Certificateholders allocable to
(i) principal and (ii) interest, in each case per $1,000 original principal
amount of each Class of Certificates;
(b) the aggregate outstanding principal balance of the Certificates,
after giving effect to distributions allocated to principal reported under (a)
above; and
(c) the difference, if any, between the amount specified in (b) above
and the principal amount scheduled to be outstanding on such date according to
the Expected Amortization Schedule.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Notes, the Certificate Trustee
will mail to each person who at any time during such calendar year has been a
Certificateholder and received any distribution thereon, a statement containing
certain information for the purposes of such Certificateholder's preparation of
Federal and state income tax returns. See "Federal Income Tax Consequences" and
"State and Local Taxation" herein.
AMENDMENTS
The Infrastructure Bank (with the prior written approval of the Note
Issuer) and the Certificate Trustee may amend the Trust Agreement from time to
time, without the consent of the Certificateholders of any Series, (1) to add to
the covenants of the Infrastructure Bank for the benefit of the
Certificateholders, or to surrender any right or power conferred upon the
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Infrastructure Bank; (2) to correct or supplement any provision in the Trust
Agreement or in any supplemental agreement which may be defective or
inconsistent with any other provision in the Trust Agreement or in any
supplemental agreement or to make any other provisions with respect to matters
or questions arising under the Trust Agreement; provided that any such action
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shall not adversely affect the interests of the Certificateholders; (3) to cure
any ambiguity or correct any mistake; or (4) to modify, eliminate or add to the
provisions of the Trust Agreement to such extent as shall be necessary to
continue the qualification of the Trust Agreement (including any supplemental
agreement) under the Trust Indenture Act, and to add to the Trust Agreement
certain other provisions as may be expressly permitted by the Trust Indenture
Act.
In addition, the Infrastructure Bank (with the prior written approval of
the Note Issuer) and the Certificate Trustee may amend the Trust Agreement with
the consent of Certificateholders holding not less than a majority of the
aggregate outstanding principal amount of the Certificates of all affected
Classes. No amendment, however, may, without the consent of each
Certificateholder affected thereby, (a) reduce in any manner the amount of, or
delay the timing of, deposits or distributions on any Certificate, (b) reduce
the aforesaid percentage of the aggregate outstanding principal amount of the
Certificates the holders of which are required to consent to any such amendment,
(c) permit the disposition of any Note held by the Trust except as permitted by
the Trust Agreement, or otherwise deprive any Certificateholder of the benefit
of the ownership of the related Notes held by the Trust, or (d) cause the Trust
to be treated as an association or publicly traded partnership taxable as a
corporation for federal income tax purposes. Promptly following the execution
of any amendment to the Trust Agreement (other than an amendment described in
the preceding paragraph), the Certificate Trustee will furnish written notice of
the substance of such amendment to each Certificateholder.
Any supplement to the Trust Agreement executed in connection with the
issuance of one or more new Series of Certificates will not be considered an
amendment to the Trust Agreement.
LIST OF CERTIFICATEHOLDERS
Upon written request of any Certificateholder or group of
Certificateholders of any Series or of all outstanding Series of record holding
Certificates evidencing not less than 10 percent of the aggregate outstanding
principal amount of the Certificates of such Series or all Series, as
applicable, the Certificate Trustee will afford such Certificateholder or
Certificateholders access during business hours to the current list of
Certificateholders of such Series or of all outstanding Series, as the case may
be, for purposes of communicating with other Certificateholders with respect to
their rights under the Trust Agreement.
The Trust Agreement does not provide for any annual or other meetings of
Certificateholders.
REGISTRATION AND TRANSFER OF THE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes
of Certificates will be issued in definitive form and will be transferable and
exchangeable at the office of the registrar identified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement, no
service charge will be made for any such registration or transfer of such
Certificates, but the owner may be required to pay a sum sufficient to cover any
tax or other governmental charge.
Each Class of Certificates will be issued in the minimum initial
denominations set forth in the related Prospectus Supplement and, except as
otherwise provided in the related Prospectus Supplement, in integral multiples
thereof.
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Distributions of interest and principal will be made on each Distribution
Date to the Certificateholders in whose names the Certificates were registered
on the related Record Date.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, one or more Classes
of Certificates initially may be Book-Entry Certificates, which are initially
represented by one or more certificates registered in the name of Cede, as
nominee of DTC, or another securities depository, and are available only in the
form of book-entries. Any Book-Entry Certificates will initially be registered
in the name of Cede, the nominee of DTC. Holders may also hold Certificates of
a Class through Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") or
the Euroclear System ("EUROCLEAR") (in Europe), if they are participants in such
systems or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Certificate or Certificates.
CEDEL and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in CEDEL's and Euroclear's names on the
books of their respective Depositaries (as defined herein) which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC. Citibank, N.A. will act as depositary for CEDEL and Morgan
Guaranty Trust Company of New York will act as depositary for Euroclear (in such
capacities, the "DEPOSITARIES").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations, which are the Participants, and facilitate
the settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of securities. Participants include
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to Indirect Participants, which are
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants (as defined herein) and Euroclear
Participants (as defined herein) will occur in accordance with their respective
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary. Cross-market transactions will require delivery of instructions
to the relevant European international clearing system by the counterparty in
such system in accordance with its rules and procedures and within its
established deadlines (European time). The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its Depositary to take action to effect final settlement
on its behalf by delivering or receiving bonds in DTC, and making or receiving
distributions in accordance with normal procedures for same-day funds settlement
applicable to DTC. CEDEL Participants and Euroclear Participants may not
deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent settlement processing and dated the Certificate
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Business Day following the DTC settlement date. Such credits or any
transactions in such Certificates settled during such processing will be
reported to the relevant Euroclear or CEDEL Participant on such Certificate
Business Day. Cash received in CEDEL or Euroclear as a result of sales of
Certificates by or through a CEDEL Participant or a Euroclear Participant to a
DTC Participant will be received with value on the DTC settlement date but will
be available in the relevant CEDEL or Euroclear cash account only as of the
Certificate Business Day following settlement in DTC.
Certificateholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificateholders will receive all distributions of principal and
interest on the Certificates from the Certificate Trustee through DTC and its
Participants. Under a book-entry format, Certificateholders will receive
distributions after the related Distribution Date, as the case may be, because,
while distributions are required to be forwarded to CEDEL, as nominee for DTC,
on each such date, DTC will forward such distributions to its Participants,
which thereafter will be required to forward them to Indirect Participants or
holders of beneficial interests in the Certificates. The Certificate Trustee,
the Seller, the Servicer and any paying agent, transfer agent or registrar may
treat the registered holder in whose name any Certificate is registered
(expected to be Cede) as the absolute owner thereof (whether or not such
Certificate is overdue and notwithstanding any notice of ownership or writing
thereon or any notice to the contrary) for the purpose of making distributions
and for all other purposes.
Unless and until Definitive Certificates (as defined below) are issued, it
is anticipated that the only "HOLDER" of Book-Entry Certificates of any Series
will be Cede, as nominee of DTC. Certificateholders will only be permitted to
exercise their rights as Certificateholders indirectly through Participants and
DTC. All references herein to actions by Certificateholders thus refer to
actions taken by DTC upon instructions from its Participants, and all references
herein to distributions, notices, reports and statements to Certificateholders
refer to distributions, notices, reports and statement to Cede, as the
registered holder of the Certificates, for distribution to the beneficial owners
of the Certificate in accordance with DTC procedures.
While any Book-Entry Certificates of a Series are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "RULES"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Book-Entry Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Book-Entry Certificates.
Participants with whom Certificateholders have accounts with respect to Book-
Entry Certificates are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
Certificateholders. Accordingly, although Certificateholders will not possess
physical certificates, the Rules provide a mechanism by which Certificateholders
will receive distributions and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Certificates to pledge Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such Certificates, may be limited due to the lack of a Definitive
Certificate for such Certificates.
DTC has advised the Certificate Trustee that it will take any action
permitted to be taken by a Certificateholder under the Trust Agreement and the
related Prospectus Supplement only at the direction of one or more Participants
to whose account with DTC the Certificates are credited. Additionally, DTC has
advised the Certificate Trustee that it may take actions
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with respect to the Certificateholders' Interest that might conflict with other
of its actions with respect thereto.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
PARTICIPANTS") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of securities. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include any underwriters, agents or dealers with respect
to a Series of Certificates offered hereby. Indirect access to CEDEL is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("EUROCLEAR PARTICIPANTS") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
securities and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office (the "EUROCLEAR
OPERATOR"), under contract with Euroclear Clearance System S.C., a Belgian
cooperative corporation (the "COOPERATIVE"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of Euroclear and applicable Belgian law
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific securities to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
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Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant systems' rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Federal Income Tax Consequences" herein. CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Certificateholder under the Trust Agreement or the relevant
Prospectus Supplement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Certificates of a Class will be issued in registered form to
Certificateholders, or their nominees, rather than to DTC (such Certificates
being referred to herein as "DEFINITIVE CERTIFICATES") only under the
circumstances provided in the Trust Agreement, which generally will include,
except if otherwise provided therein, if (a) DTC advises the Certificate Trustee
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as nominee and depository with respect to the Book-Entry
Certificates of such Class and the Note Issuer is unable to locate a qualified
successor, (b) the Note Issuer, at its sole option, elects to terminate the
book-entry system through DTC or (c) after the occurrence of an Event of Default
under the terms of the Trust Agreement, holders of Certificates representing not
less than 50 percent of the aggregate outstanding principal amount of the
Certificates of all Series advise DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) to the exclusion of any
physical certificates being issued to Certificateholders is no longer in the
best interests of Certificateholders. Upon issuance of Definitive Certificates
of a Class, such Certificates will be transferable directly (and not exclusively
on a book-entry basis) and registered holders will deal directly with the
Certificate Trustee with respect to transfers, notices and distributions.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive securities representing the Certificates and instructions for
registration, the Certificate Trustee will issue the Certificates in the form of
Definitive Certificates, and thereafter the Certificate Trustee will recognize
the holders of such Definitive Certificates as Certificateholders under the
Trust Agreement and the related Prospectus Supplement.
Distribution of principal and interest on the Certificates will be made by
the Certificate Trustee directly to Certificateholders in accordance with the
procedures set forth herein and in the Trust Agreement and the related
Prospectus Supplement. Interest distributions and principal distributions will
be made to Certificateholders in whose names the Definitive Certificates were
registered at the close of business on the related Record Date. Distributions
will be made by check mailed to the address of such Certificateholder as it
appears on the register maintained by the Certificate Trustee. The final
distribution on any Certificate (whether Definitive Certificates or Certificates
registered in the name of Cede), however, will be made only upon presentation
and surrender of such Certificate on the final distribution date at such office
or agency as is specified in the notice of final distribution to
Certificateholders. The Certificate Trustee will
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provide such notice to registered Certificateholders not later than the fifth
day of the month of the final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the transfer agent and registrar, which initially will be the
Certificate Trustee. No service charge will be imposed for any registration of
transfer or exchange, but the transfer agent and registrar may require payment
of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
CONDITIONS OF ISSUANCE OF ADDITIONAL SERIES
The issuance of any additional Series of Certificates is subject to the
following conditions, among others:
(a) appropriate documentation required by the Note Indenture and Trust
Agreement shall have been authorized, executed and delivered by all parties
required to do so by the terms of the relevant documents;
(b) an Issuance Advice Letter shall have been submitted to the CPUC
and shall have become effective;
(c) the Rating Agency Condition shall have been satisfied with respect
to such issuance;
(d) such issuance will not result in an adverse tax consequence to the
Trust or the Certificateholders;
(e) no Event of Default shall have occurred and be continuing under
the Note Indenture or the Trust Agreement;
(f) as of the date of issuance, the Trust shall have sufficient funds
available to pay the purchase price for the related Series of Notes, and
all conditions to the issuance of a new series of Notes and Certificates
shall have been satisfied or waived; and
(g) delivery by the Note Issuer to the Note Trustee of certain
certificates and opinions specified in the Note Indenture.
FEDERAL INCOME TAX CONSEQUENCES
Interest on the Certificates will be included in gross income for federal
income tax purposes.
GENERAL
The following is a general discussion of material federal income tax
consequences relating to the purchase, ownership and disposition of a
Certificate, and is based on the opinion of Brown & Wood LLP, counsel to the
Trust ("SPECIAL COUNSEL"). This discussion represents the opinion of Special
Counsel, subject to the qualifications set forth therein or herein. Additional
federal income tax considerations relevant to a particular Series may be set
forth in the related Prospectus Supplement. This discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
currently applicable Treasury regulations and judicial and administrative
rulings and decisions. Legislative, judicial or administrative changes may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect tax consequences to Certificateholders.
The discussion does not address all of the tax consequences relevant to a
particular Certificateholder in light of that Certificateholder's circumstances,
and some Certificateholders may be subject to special tax rules
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and limitations not discussed below (e.g., life insurance companies, tax-exempt
organizations, financial institutions or broker-dealers). CONSEQUENTLY, EACH
PROSPECTIVE CERTIFICATEHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISER IN
DETERMINING THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND ANY OTHER TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF A CERTIFICATE.
For purposes of this discussion, "U.S. PERSON" means a citizen or resident
of the United States, a corporation or partnership created or organized in the
United States, or under the law of the United States or of any state thereof
(including the District of Columbia), an estate the income of which is
includible in gross income for U.S. federal income tax purposes regardless of
its source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States fiduciaries has the authority to control all substantial decisions of the
trust (or, under certain circumstances, a trust the income of which is
includible in gross income for U.S federal income tax purposes regardless of its
source). The term "U.S. CERTIFICATEHOLDER" means any U.S. Person and any other
person to the extent that income attributable to its interest in a Certificate
is effectively connected with that person's conduct of a U.S. trade or business.
The term "NON-U.S. CERTIFICATEHOLDER" means any person other than a U.S.
Certificateholder.
The discussion assumes that a Certificate is issued in registered form, has
all payments denominated in U.S. dollars and not determined by reference to the
value of any other currency and has a term that exceeds one year. Moreover, the
discussion assumes that any original issue discount ("OID") on the Certificate
(i.e., any excess of the stated redemption price at maturity of the Certificate
over its issue price) is less than a de minimis amount (i.e., 0.25 percent of
its stated redemption price at maturity multiplied by the Certificate's weighted
average maturity), all within the meaning of the OID regulations. Moreover, the
discussion assumes that the Certificates are of a type, as set forth below,
which Special Counsel is of the opinion will represent ownership of debt for
federal income tax purposes. The applicable Prospectus Supplement will set
forth a discussion of any additional material tax consequences with respect to
Certificates not conforming to the foregoing assumptions.
TREATMENT OF THE CERTIFICATES AS DEBT
The Seller has obtained from the Internal Revenue Service (the "IRS") a
letter ruling to the effect that securities such as the Notes will be treated as
debt for federal income tax purposes. Special Counsel has rendered an opinion
to the effect that, for federal income tax purposes, the Certificates will
represent ownership of debt and the Trust will not be treated as an association
or publicly traded partnership taxable as a corporation.
TAXATION OF INTEREST INCOME OF U.S. CERTIFICATEHOLDERS
General. Assuming, in accordance with Special Counsel's opinion, that the
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Certificates represent ownership of debt obligations for federal income tax
purposes, stated interest on a beneficial interest in a Certificate will be
taxable as ordinary income when received or accrued by U.S. Certificateholders
in accordance with their method of accounting. Generally, interest received on
the Certificates will constitute investment income for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense.
Market Discount. A U.S. Certificateholder who purchases (including a
---------------
purchase at original issuance for a price less than the issue price) an interest
in a Certificate at a discount that exceeds any unamortized OID may be subject
to the "market discount" rules of sections 1276 through 1278 of the Code. These
rules generally provide that, subject to a statutorily-defined de minimis
exception, if a U.S. Certificateholder acquires a Certificate at a market
discount (i.e., at a price below its stated redemption price at
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maturity or its revised issue price if it was issued with OID) and thereafter
recognizes gain upon a disposition of the Certificate (or disposes of it in
certain non-recognition transactions, including by gift), the lesser of such
gain (or appreciation, in the case of an applicable non-recognition transaction)
or the portion of the market discount that accrued while the Certificate was
held by such holder will be treated as ordinary interest income at the time of
the disposition. In addition, a U.S. Certificateholder who acquired a
Certificate at a market discount would be required to treat as ordinary interest
income the portion of any principal payment attributable to accrued market
discount on such Certificate. Generally, market discount accrues ratably over
the life of a debt instrument unless the debt holder elects to accrue market
discount on a constant yield to maturity basis. It is not clear how either the
ratable accrual or constant yield accrual methodologies apply to instruments
such as the Certificates where the timing of principal payments is uncertain.
Investors should consult their own tax advisors concerning the accrual of market
discount. The market discount rules also provide that a U.S. Certificateholder
who acquires a Certificate at a market discount may be required to defer a
portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or maintained to purchase or carry the Certificate until
the holder disposes of the Certificate in a taxable transaction.
A U.S. Certificateholder who acquired a Certificate at a market discount
may elect to include market discount in income as the discount accrues, either
on a ratable basis or, if elected, on a constant yield basis. The current
inclusion election, once made, applies to all market discount obligations
acquired on or after the first day of the first taxable year to which the
election applies, and may not be revoked without the consent of the IRS. If a
holder elects to include market discount in income in accordance with the
preceding sentence, the foregoing rules with respect to the recognition of
ordinary income on sales, principal payments and certain other dispositions of
the Certificates and the deferral of interest deductions on indebtedness related
to the investor certificates will not apply. It is not clear how either the
ratable accrual or constant yield accrual methodologies apply to instruments
such as the Certificates where the timing of principal payments is uncertain.
Investors should consult their own tax advisors concerning the accrual of market
discount.
Amortizable Bond Premium. A U.S. Certificateholder who purchases an
------------------------
interest in a Certificate at a premium may elect to offset the premium against
interest income under the constant yield method over the remaining term of the
Certificate in accordance with the provisions of section 171 of the Code. A
holder that elects to amortize bond premium must reduce the tax basis in the
related Certificate by the amount of bond premium used to offset interest
income. If a Certificate purchased at a premium is redeemed in full prior to
its maturity, a holder who has elected to amortize bond premium should be
entitled to a deduction in the taxable year of redemption in an amount equal to
the excess, if any, of the adjusted basis of the Certificate over the greater of
the redemption price or the amount payable on maturity.
SALE OR EXCHANGE OF CERTIFICATES
Upon a disposition of an interest in a Certificate, a U.S.
Certificateholder generally will recognize gain or loss equal to the difference
between (i) the amount of cash and the fair market value of any other property
received (other than amounts attributable to, and taxable as, accrued stated
interest) and (ii) the U.S. Certificateholder's adjusted basis in its interest
in the Certificate. The adjusted basis in the interest in the Certificate will
equal its cost, increased by any OID or market discount included in income with
respect to the interest in the Certificate prior to its disposition and reduced
by any payments reflecting principal or OID previously received with respect to
the interest in the Certificate and any amortized premium. Subject to the OID
and market discount rules, gain or loss will generally be capital gain or loss
if the interest in the Certificate was held as a capital asset. Capital losses
generally may be used by a corporate
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taxpayer only to offset capital gains and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income.
NON-U.S. CERTIFICATEHOLDERS
In general, a non-U.S. Certificateholder will not be subject to U.S.
federal income tax on interest (including OID) on a beneficial interest in a
Certificate unless (i) the non-U.S. Certificateholder actually or constructively
owns 10 percent or more of the total combined voting power of all classes of
stock of the Seller entitled to vote (or of a profits or capital interest of the
Trust characterized as a partnership), (ii) the non-U.S. Certificateholder is a
controlled foreign corporation that is related to the Seller (or the Trust
treated as a partnership) through stock ownership, (iii) the non-U.S.
Certificateholder is a bank which receives interest as described in Code Section
881(c)(3)(A), (iv) such interest is contingent interest described in Code
Section 871(h)(4), or (v) the non-U.S. Certificateholder bears certain
relationships to any holder of either the Notes other than the transferor or any
other interest in the Trust not properly characterized as debt. To qualify for
the exemption from taxation, the last U.S. Person in the chain of payment prior
to payment to a non-U.S. Certificateholder (the "WITHHOLDING AGENT") must have
received (in the year in which a payment of interest or principal occurs or in
either of the two preceding years) a statement that (i) is signed by the non-
U.S. Certificateholder under penalties of perjury, (ii) certifies that the non-
U.S. Certificateholder is not a U.S. Person and (iii) provides the name and
address of the non-U.S. Certificateholder. The statement may be made on a Form
W-8 or substantially similar substitute form, and the non-U.S. Certificateholder
must inform the Withholding Agent of any change in the information on the
statement within 30 days of the change. If a Certificate is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. However, in that case, the signed statement must be accompanied by a
Form W-8 or substitute form provided by the non-U.S. Certificateholder to the
organization or institution holding the Certificate on behalf of the non-U.S.
Certificateholder. The U.S. Treasury Department is considering implementation
of further certification requirements aimed at determining whether the issuer of
a debt obligation is related to holders thereof.
Generally, any gain or income realized by a non-U.S. Certificateholder upon
retirement or disposition of an interest in a Certificate (other than gain
attributable to accrued interest or OID, which is addressed in the preceding
paragraph) will not be subject to U.S. federal income tax, provided that in the
case of a Certificateholder that is an individual, such Certificateholder is not
present in the United States for 183 days or more during the taxable year in
which such retirement or disposition occurs. Certain exceptions may be
applicable, and an individual non-U.S. Certificateholder should consult a tax
adviser.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at a rate of 31 percent may
apply to payments made in respect of a Certificate to a registered owner who is
not an "exempt recipient" and who fails to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the manner required. Generally, individuals are not exempt recipients whereas
corporations and certain other entities are exempt recipients. Payments made in
respect of a U.S. Certificateholder must be reported to the IRS, unless the U.S.
Certificateholder is an exempt recipient or otherwise establishes an exemption.
In the case of payments of principal of and interest on (and the amount of
OID, if any, accrued on) investor certificates to non-U.S. Certificateholders,
temporary Treasury regulations provide that backup withholding and information
reporting will not apply to payments with respect to which either requisite
certification has been received or an exemption has
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otherwise been established (provided that neither the Note Issuer nor a paying
agent has actual knowledge that the holder is a United States Person or that the
conditions of any other exemption are not in fact satisfied). Payments of the
proceeds of the sale of a Certificate to or through a foreign office of a broker
that is a United States Person, a controlled foreign corporation for United
States federal income tax purposes or a foreign person 50% or more of whose
gross income is effectively connected with the conduct of a trade or business
within the United States for a specified three-year period are currently subject
to certain information reporting requirements, unless the payee is an exempt
recipient or such broker has evidence in its records that the payee is not a
United States Person and no actual knowledge that such evidence is false and
certain other conditions are met. Temporary Treasury regulations indicate that
such payments are not currently subject to backup withholding. Under current
Treasury regulations, payments of the proceeds of a sale to or through the
United States office of a broker will be subject to information reporting and
backup withholding unless the payee certifies under penalties of perjury as to
his or her status as a non-United States Person and certain other qualifications
(and no agent of the broker who is responsible for receiving or reviewing such
statement has actual knowledged that it is incorrect) and provides his or her
name and address or the payee otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Certificateholder would be allowed as a refund or a credit against such
Certificateholder's U.S. federal income tax, provided that the required
information is furnished to the IRS.
STATE AND LOCAL TAXATION
CALIFORNIA TAXATION
In the opinion of Special Counsel, interest and OID on the Certificates
will be exempt from California personal income tax, but not exempt from the
California franchise tax applicable to banks and corporations. Gain or loss, if
any, resulting from an exchange or redemption of Certificates will be recognized
in the year of the exchange or redemption. Present California law taxes both
long-term and short-term capital gains at the rates applicable to ordinary
income. Interest on indebtedness incurred or continued by a Certificateholder
in connection with the purchase of Certificates will not be deductible for
California personal income tax purposes.
OTHER STATES
The discussion above does not address the taxation of the Trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
Certificates under any state or local tax law other than that of the State of
California. Each investor should consult its own tax adviser regarding state
and local tax consequences.
ERISA CONSIDERATIONS
ERISA and/or Section 4975 of the Code impose certain requirements on
employee benefit plans and certain other plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and certain collective
investment funds or insurance company general or separate accounts in which such
plans, accounts or arrangements are invested, that are subject to the fiduciary
responsibility and prohibited transaction provisions of ERISA and/or Section
4975 of the Code (collectively, "PLANS"), and on persons who are fiduciaries
with respect to Plans, in connection with the investment of assets that are
treated as "plan assets" of any Plan for purposes of applying Title I of ERISA
and Section 4975 of the Code ("PLAN ASSETS"). ERISA imposes on Plan fiduciaries
certain general fiduciary requirements, including those of investment prudence
and diversification and the requirement that a Plan's
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<PAGE>
investments be made in accordance with the documents governing the Plan.
Generally, any person who has discretionary authority or control respecting the
management or disposition of Plan Assets, and any person who provides investment
advice with respect to Plan Assets for a fee or other consideration, is a
fiduciary with respect to such Plan Assets.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons who have certain specified relationships to a
Plan or its Plan Assets ("parties in interest" under ERISA and "disqualified
persons" under the Code (collectively, "PARTIES IN INTEREST")), unless a
statutory or administrative exemption is available. Parties in Interest and
Plan fiduciaries that participate in a prohibited transaction may be subject to
penalties imposed under ERISA and/or excise taxes imposed pursuant to Section
4975 of the Code, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
Any fiduciary or other Plan investor considering whether to purchase the
Certificates of any Class or Series on behalf or with Plan Assets of any Plan
should consult with its legal advisors and refer to the related Prospectus
Supplement for guidance regarding the ERISA Considerations applicable to the
Certificates offered thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA), are not subject to the requirements of ERISA or Section 4975 of the
Code. Accordingly, except as provided in the applicable Prospectus Supplement,
assets of such plans may be invested in the Certificates of any Class or Series
without regard to the ERISA considerations described herein, subject to the
provisions of other applicable federal and state law. However, any such plan
that is qualified and exempt from taxation under Sections 401(a) and 501(a) of
the Code is subject to the prohibited transaction rules set forth in Section 503
of the Code.
USE OF PROCEEDS
The Trust will use the net proceeds received from each sale of a Series of
Certificates to purchase the related Note or Notes from the Note Issuer. The
Note Issuer will use such proceeds to purchase the Transition Property from the
Seller. The Seller will use such proceeds for general corporate purposes.
PLAN OF DISTRIBUTION
The Certificates of each Series may be sold to or through underwriters
named in the related Prospectus Supplement (the "UNDERWRITERS") by a negotiated
firm commitment underwriting and public reoffering by the Underwriters or such
other underwriting arrangement as may be specified in the related Prospectus
Supplement or may be offered or placed either directly or through agents. The
Note Issuer and the Trust intend that Certificates will be offered through such
various methods from time to time and that offerings may be made concurrently
through more than one of such methods or that an offering of a particular Series
of Certificates may be made through a combination of such methods.
The distribution of Certificates may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
In connection with the sale of the Certificates, Underwriters or agents may
receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell Certificates to certain dealers at prices less a
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<PAGE>
concession. Underwriters may allow and such dealers may reallow a concession to
certain other dealers. Underwriters, dealers and agents that participate in the
distribution of the Certificates of a Series may be deemed to be underwriters
and any discounts or commissions received by them from the Trust and any profit
on the resale of the Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act. Any such Underwriters or
agents will be identified, and any such compensation received from the Trust
will be described, in the related Prospectus Supplement.
Under agreements which may be entered into by the Trust, Underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Trust against certain liabilities, including
liabilities under the Securities Act.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
RATINGS
It is a condition of issuance of each Class of Certificates that at the
time of issuance such Class receive the rating indicated in the related
Prospectus Supplement from at least one Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any Certificate, and,
accordingly, there can be no assurance that the ratings assigned to any Class of
Certificates upon initial issuance will not be lowered or withdrawn by a Rating
Agency at any time thereafter. If a rating of any Class of Certificates is
revised or withdrawn, the liquidity of such Class of Certificates may be
adversely affected. In general, ratings address credit risk and do not
represent any assessment of the rate of FTA Collections.
LEGAL MATTERS
Certain legal matters relating to the Notes and certain federal income tax
consequences of the issuance of the Notes will be passed upon by Orrick,
Herrington & Sutcliffe LLP, San Francisco, California, counsel to the Seller and
the Note Issuer. Certain legal matters relating to the Certificates and certain
federal income tax consequences of the issuance of the Certificates will be
passed upon by Brown & Wood LLP, San Francisco, California, counsel to the
Trust. Certain legal matters relating to the Certificates will be passed upon
by Cravath, Swaine & Moore, New York, New York, counsel to the Underwriters.
67
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
------------------------------
<TABLE>
<S> <C>
Act.................................................................... 32
Actual FTA Collections................................................. 38
Administrator.......................................................... 16
Advice Letters......................................................... 12
Annual Accountant's Report............................................. 39
Bankruptcy Code........................................................ 23
Base Calculation Model................................................. 27
Basic Documents........................................................ 50
Book-Entry Certificates................................................ 17
Calculation Date....................................................... 28
Cede................................................................... 17
CEDEL.................................................................. 57
CEDEL Participants..................................................... 59
Certificate Account.................................................... 52
Certificate Business Day............................................... 53
Certificate Event of Default........................................... 14, 53
Certificate Trustee.................................................... 8
Certificateholders..................................................... 3
Certificates........................................................... 1, 8
Class.................................................................. 1, 9
Closing Date........................................................... 29
Code................................................................... 18
Collateral............................................................. 49
Collection Account..................................................... 45
Collection Period...................................................... 15
Commission............................................................. 3
Cooperative............................................................ 59
Customers.............................................................. 11
Default................................................................ 54
Definitive Certificates................................................ 60
Delaware Business Trust Act............................................ 24
Delaware Trustee....................................................... 8
Depositaries........................................................... 57
Distribution Date...................................................... 13
DTC.................................................................... 3, 17
Eligible Institution................................................... 45
Eligible Investments................................................... 45
ERISA.................................................................. 18
Estimated FTA Collections.............................................. 38
Euroclear.............................................................. 57
Euroclear Operator..................................................... 59
Euroclear Participants................................................. 59
Event of Default....................................................... 15
Excess Remittance...................................................... 38
Exchange Act........................................................... 3
Fee Agreement.......................................................... 32
FERC................................................................... 21
Final Maturity Date.................................................... 42
Financing Order........................................................ 11
Financing Order Anniversary............................................ 29
FTA Charge............................................................. 11
FTA Collections........................................................ 12
FTA Payments........................................................... 12
holder................................................................. 58
Indirect Participants.................................................. 17
Infrastructure Bank.................................................... 1, 8
Initial Transition Property............................................ 29
IRS.................................................................... 62
ISO.................................................................... 21
Issuance Advice Letter................................................. 11
Monthly Servicer's Certificate......................................... 39
Moody's................................................................ 23
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
Non-U.S. Certificateholder............................................. 62
Note Collateral........................................................ 43
Note Event of Default.................................................. 14, 47
Note Indenture......................................................... 42
Note Interest Rate..................................................... 42
Note Issuer............................................................ 1, 8
Noteholder............................................................. 42
Notes.................................................................. 1, 7
OID.................................................................... 62
Operating Expenses..................................................... 16
Overcollateralization Amount........................................... 43
Participants........................................................... 17
Parties in Interest.................................................... 66
Payment Date........................................................... 13
PG&E................................................................... 1, 8
Plan Assets............................................................ 65
Plans.................................................................. 65
Proposition 218........................................................ 20
PU Code................................................................ 11
PX..................................................................... 21
Quarterly Administration Fee........................................... 46
Quarterly Interest..................................................... 46
Quarterly Principal.................................................... 46
Quarterly Servicer's Certificate....................................... 50
Rate Freeze Period..................................................... 26
Rating Agency.......................................................... 17
Rating Agency Condition................................................ 42
Record Date............................................................ 13
Registration Statement................................................. 3
Remittance Date........................................................ 38
Remittance Shortfall................................................... 38
Rules.................................................................. 58
S&P.................................................................... 23
Sale Agreement......................................................... 8
Scheduled Final Distribution Date...................................... 13
Scheduled Maturity Date................................................ 42
Securities Act......................................................... 3
Seller................................................................. 1, 8
Series................................................................. 1, 9
Series Issuance Date................................................... 42
Servicer............................................................... 1, 8
Servicer Business Day.................................................. 15
Servicer Defaults...................................................... 40
Servicing Agreement.................................................... 8
Servicing Fee.......................................................... 17
Small Commercial Customers............................................. 27
Special Counsel........................................................ 61
Special Distribution Date.............................................. 52
Special Payments....................................................... 52
Statute................................................................ 7
Subsequent Transfer Date............................................... 29
Subsequent Transition Property......................................... 29
Termination Date....................................................... 13
Terms and Conditions................................................... 59
Transition Costs....................................................... 11
Transition Property.................................................... 12
True-Up Mechanism Advice Letter........................................ 12
True-Up Mechanism Calculation Model.................................... 29
Trust.................................................................. 1, 8
Trust Agreement........................................................ 8
U.S. Certificateholder................................................. 62
U.S. Person............................................................ 62
Underwriters........................................................... 66
Utilities.............................................................. 7
Withholding Agent...................................................... 64
</TABLE>
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[LEFT INTENTIONALLY BLANK]
70
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PART II
=======
ITEM 14. Other Expenses of Issuance and Distribution.
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<CAPTION>
<S> <C>
Registration Statement Fee............................. $303.03
Printing and Engraving Expenses........................ *
Trustees' Fees and Expenses............................ *
Legal Fees and Expenses................................ *
Blue Sky Fees and Expenses............................. *
Accountants' Fees and Expenses......................... *
Rating Agency Fees..................................... *
Miscellaneous Fees and Expenses........................ *.
---------
Total.............................................. $ *.
=========
</TABLE>
_________________________
* To be filed by amendment.
ITEM 15. Indemnification of Directors and Officers.
Section 18-108 of the Delaware Limited Liability Company Act provides that
subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a limited liability company may and has the
power to indemnify and hold harmless any member or other person from and against
any and all claims and demands whatsoever. Section 17 of the Limited Liability
Company Agreement of the Registrant provides that, to the full extent permitted
by applicable law, the Registrant shall indemnify any member or officer of the
Registrant for any loss, damage or claim incurred by such member or officer by
reason of any act or omission performed or omitted in good faith on behalf of
the Registrant in a manner reasonably believed to be within the scope of the
authority conferred on such member or officer by the Limited Liability Company
Agreement, except that the Registrant shall not indemnify any such member or
officer for any loss, act or omission incurred by such member or officer by
reason of willful misconduct with respect to such acts or omissions.
Section 317 of the California Corporation Law (the "California Law")
provides that a corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any proceeding or action by
reason of the fact that he or she is or was a director, officer, employee or
other agent of such corporation. Section 317 also grants authority to a
corporation to include in its articles of incorporation indemnification
provisions in excess of that permitted in Section 317, subject to certain
limitations.
Article SIXTH of the Articles of Incorporation of Pacific Gas and Electric
Company (the "Member") authorizes the Member to provide indemnification of
directors and officers through bylaws, resolutions, agreements with agents, vote
of shareholders or disinterested directors, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California Law,
subject only to the applicable limits set forth in Section 204 of the California
Law. The Registrant believes that the
II-1
<PAGE>
officers of the Registrant are serving at the request of the Member and are
therefore entitled to such indemnity from the Member.
The Board of Directors of the Member has adopted a resolution implementing
the authority granted in Article SIXTH of the Articles of Incorporation. The
resolution provides for the indemnification of any director and officer of the
Member for any threatened, pending or completed action, suit or proceeding to
the fullest extent permissible under California Law and the Articles of
Incorporation, subject to the terms of any agreement between the Member and such
a person; provided that, no such person shall be indemnified: (i) except to the
extent that the aggregate of losses to be indemnified exceeds the amount of such
losses for which the director or officer is paid pursuant to any director's or
officer's liability insurance policy maintained by the Member; (ii) for any suit
or judgment resulting from an accounting of profits made through the purchase or
sale of securities of the Member pursuant to Section 16(b) of the Securities
Exchange Act of 1934; (iii) if a court of competent jurisdiction determines that
the indemnification is unlawful; (iv) for any acts or omissions involving
intentional misconduct or knowing and culpable violation of law; (v) for acts or
omissions that the director or officer believes to be contrary to the best
interests of the Member or its shareholders, or that involve the absence of good
faith; (vi) for any transaction from which the director or officer derived an
improper personal benefit; (vii) for acts or omissions that show a reckless
disregard for the director's or officer's duty to the Member or its shareholders
in circumstances in which the director or officer was aware, or should have been
aware, in the ordinary course of performing his or her duties, of a risk of
serious injury to the Member or its shareholders; (viii) for acts or omissions
that constitute an unexcused pattern of inattention that amount to an abdication
of the director's or officer's duties to the Member or its shareholders; (ix)
for costs, charges, expenses, liabilities and losses arising under Section 310
or 316 of the California Law; or (x) as to circumstances in which indemnity is
expressly prohibited by Section 317. The exclusions set forth in clauses (iv)
through (x) above shall apply only to indemnification for acts, omissions or
transactions involving breach of duty to the Member or its shareholders. The
resolution also provides that the Member shall indemnify any director or officer
in connection with (a) a proceeding (or part thereof) initiated by him or her
only if such proceeding (or part thereof) was authorized by the Board of
Directors or (b) a proceeding (or part thereof), other than a proceeding by or
in the name of the Member to procure a judgment in its favor, only if any
settlement of such a proceeding is approved in writing by the Member.
Indemnification shall cover all costs, charges, expenses, liabilities and
losses, including, without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes, or penalties and amounts paid or to be paid in settlement,
reasonably incurred or suffered by the director or officer.
The Member has directors' and officers' liability insurance policies in
force insuring directors and officers of the Member and its subsidiaries.
II-2
<PAGE>
ITEM 16. Exhibits.
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Formation.
3.2 Limited Liability Company Agreement.
*4.1 Form of Note Indenture.
*4.2 Form of Trust Agreement.
*4.3 Form of Note.
*4.4 Form of Rate Reduction Certificate.
*5.1 Opinion of Orrick, Herrington & Sutcliffe LLP with respect to legality
of the Notes.
*5.2 Opinion of Brown & Wood LLP with respect to legality of the Rate
Reduction Certificates.
*8.1 Opinion of Brown & Wood LLP with respect to tax matters.
*10.1 Form of Transition Property Purchase and Sale Agreement.
*10.2 Form of Transition Property Servicing Agreement.
*10.3 Form of Note Purchase Agreement.
*10.4 Form of Fee and Indemnity Agreement.
*23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in its opinion
filed as Exhibit 5.1).
*23.2 Consents of Brown & Wood LLP (included in its opinions filed as
Exhibits 5.2 and 8.1).
*99.1 Application for Financing Order.
*99.2 Financing Order.
*99.3 Form of Issuance Advice Letter.
*99.4 Application to Infrastructure Bank.
*99.5 Order of Infrastructure Bank.
__________
*To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant on behalf of the California Infrastructure and
Economic Development Bank Special Purpose Trust PG&E-1 (the "Trust") hereby
undertakes as follows:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement; (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement (Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement.); (iii) to include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; provided, however, that (a)(1)(i) and (a)(1)(ii) will not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed pursuant to Section 13 or
II-3
<PAGE>
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering hereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934), with respect to the Trust that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of each
issue.
(d) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California, on July 2, 1997.
PG&E FUNDING LLC
as Registrant
By: /s/ Kent M. Harvey
----------------------------------------------
Name: Kent M. Harvey
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on July 2, 1997 by the following persons
in the capacities indicated.
Signature Title
--------- -----
Pacific Gas and Electric Company, Member
as Member
By: /s/ Kent M. Harvey
-----------------------------------
Kent M. Harvey
Senior Vice President, Treasurer
and Chief Financial Officer
/s/ Kent M. Harvey President
--------------------------------------
Kent M. Harvey (Principal Executive Officer)
/s/ Gabriel B. Togneri Treasurer
--------------------------------------
Gabriel B. Togneri (Principal Financial Officer)
/s/ Christopher P. Johns Controller
--------------------------------------
Christopher P. Johns (Principal Accounting Officer)
II-5
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF FORMATION
OF
PG&E FUNDING LLC
This Certificate of Formation of PG&E Funding LLC (the "LLC"), dated
as of July 1, 1997, is being duly executed and filed by James G. Leyden, Jr., as
an authorized person, to form a limited liability company under the Delaware
Limited Liability Company Act (6 Del.C. (S) 18-101, et seq.)
------ -- ---
FIRST. The name of the limited liability company formed hereby is
PG&E Funding LLC.
SECOND. The address of the registered office of the LLC in the State
of Delaware is c/o RL&F Service Corp., One Rodney Square, 10th Floor, Tenth and
King Streets, Wilmington, New Castle County, Delaware 19801.
THIRD. The name and address of the registered agent for service of
process on the LLC in the State of Delaware is RL&F Service Corp., One Rodney
Square, 10th Floor, Tenth and King Streets, Wilmington, New Castle County,
Delaware 19801.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
/s/ James G. Leyden, Jr.
------------------------
Name: James G. Leyden, Jr.
Authorized Person
<PAGE>
EXHIBIT 3.2
LIMITED LIABILITY COMPANY AGREEMENT
OF
PG&E FUNDING LLC
This Limited Liability Company Agreement (this "Agreement") of PG&E Funding
LLC (the "Company"), is entered into by Pacific Gas and Electric Company, a
California corporation, as the sole member (the "Initial Member"). As used in
this Agreement, the term "Member" means the Initial Member, and includes any
person or entity admitted as an additional member of the Company or a substitute
member of the Company pursuant to the provisions of this Agreement.
The Initial Member, by execution of this Agreement, hereby forms a limited
liability company pursuant to and in accordance with the Delaware Limited
Liability Company Act (6 Del.C. (S) 18-101, et seq.), as amended from time to
------ -- ---
time (the "Act"), and hereby agrees as follows:
1. Name. The name of the limited liability company formed hereby is
----
PG&E Funding LLC.
2. Certificates. James G. Leyden, Jr., as an authorized person
------------
within the meaning of the Act, shall execute, deliver and file the Certificate
of Formation with the Secretary of State of the State of Delaware. Upon the
filing of the Certificate of Formation with the Secretary of State of the State
of Delaware, his powers as an authorized person shall cease and the Member shall
thereafter be designated as an authorized person within the meaning of the Act.
The Member or an Officer (as hereinafter defined) shall execute, deliver and
file any other certificates (and any amendments and/or restatements thereof)
necessary for the Company to qualify to do business in a jurisdiction in which
the Company may wish to conduct business.
3. Purpose. The Company is formed for the object and purpose of,
-------
and the nature of the business to be conducted and promoted by the Company is,
engaging in any lawful act or activity for which limited liability companies may
be formed under the Act.
4. Powers. In furtherance of its purposes, but subject to all of
------
the provisions of this Agreement, the Company shall have the power and is hereby
authorized to:
a. acquire by purchase, lease, contribution of property or
otherwise, own, hold, sell, convey, transfer or dispose of any real or personal
property which may be necessary,
<PAGE>
convenient or incidental to the accomplishment of the purpose of the Company;
b. act as a trustee, executor, nominee, bailee, director,
officer, agent or in some other fiduciary capacity for any person or entity and
to exercise all of the powers, duties, rights and responsibilities associated
therewith;
c. take any and all actions necessary, convenient or appropriate
as trustee, executor, nominee, bailee, director, officer, agent or other
fiduciary, including the granting or approval of waivers, consents or amendments
of rights or powers relating thereto and the execution of appropriate documents
to evidence such waivers, consents or amendments;
d. operate, purchase, maintain, finance, improve, own, sell,
convey, assign, mortgage, lease or demolish or otherwise dispose of any real or
personal property which may be necessary, convenient or incidental to the
accomplishment of the purposes of the Company;
e. borrow money and issue evidences of indebtedness in
furtherance of any or all of the purposes of the Company, and secure the same by
mortgage, pledge or other lien on the assets of the Company;
f. invest any funds of the Company pending distribution or
payment of the same pursuant to the provisions of this Agreement and open and
maintain checking and savings accounts with banks and savings institutions;
g. prepay in whole or in part, refinance, recast, increase,
modify or extend any indebtedness of the Company and, in connection therewith,
execute any extensions, renewals or modifications of any mortgage or security
agreement securing such indebtedness;
h. enter into, perform and carry out contracts of any kind,
including, without limitation, contracts with any Member or any person or entity
affiliated with the Member, necessary to, in connection with, convenient to, or
incidental to the accomplishment of the purposes of the Company;
i. employ or otherwise engage employees, managers, contractors,
advisors, attorneys and consultants and pay reasonable compensation for such
services;
j. enter into partnerships, limited liability companies, trusts,
associations, corporations or other ventures with other persons or entities in
furtherance of the purposes of the Company; and
k. do such other things and engage in such other activities
related to the foregoing as may be necessary,
2
<PAGE>
convenient or incidental to the conduct of the business of the Company, and have
and exercise all of the powers and rights conferred upon limited liability
companies formed pursuant to the Act.
5. Principal Business Office. The principal business office of the
-------------------------
Company shall be located at such location as may hereafter be determined by the
Member.
6. Registered Office. The address of the registered office of the
-----------------
Company in the State of Delaware is c/o RL&F Service Corp., One Rodney Square,
10th Floor, Tenth and King Streets, Wilmington, New Castle County, Delaware
19801.
7. Registered Agent. The name and address of the registered agent
----------------
of the Company for service of process on the Company in the State of Delaware is
RL&F Service Corp., One Rodney Square, 10th Floor, Tenth and King Streets,
Wilmington, New Castle County, Delaware 19801.
8. Members. The name and the mailing address of the Initial Member
-------
are set forth on Schedule A attached hereto.
9. Limited Liability. Except as otherwise provided by the Act, the
-----------------
debts, obligations and liabilities of the Company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the
Company, and the Member shall not be obligated personally for any such debt,
obligation or liability of the Company solely by reason of being a member of the
Company.
10. Capital Contributions. The Initial Member is deemed admitted as
---------------------
the Member of the Company upon its execution and delivery of this Agreement.
The Initial Member shall contribute the amount of cash to the Company as listed
on Schedule A attached hereto.
11. Additional Contributions. The Initial Member is not required to
------------------------
make any additional capital contribution to the Company. However, a Member may
make additional capital contributions to the Company at any time. To the extent
the Member makes an additional capital contribution to the Company, the Member
shall revise Schedule A of this Agreement.
12. Allocation of Profits and Losses. The Company's profits and
--------------------------------
losses shall be allocated to the Member.
13. Distributions. Distributions shall be made to the Member at the
-------------
times and in the aggregate amounts determined by the Member. Notwithstanding
any provision to the contrary contained in this Agreement, the Company shall not
make a distribution to any Member on account of its interest in the Company if
such distribution would violate Section 18-607 of the Act or other applicable
law.
3
<PAGE>
14. Management. In accordance with Section 18-402 of the Act,
----------
management of the Company shall be vested in the Member. The Member shall have
the power to do any and all acts necessary, convenient or incidental to or for
the furtherance of the purposes described herein, including all powers,
statutory or otherwise, possessed by members of a limited liability company
under the laws of the State of Delaware. The Member has the authority to bind
the Company. The Member may act by written consent.
15. Officers. The Member may, from time to time as it deems
--------
advisable, appoint officers of the Company (the "Officers") and assign in
writing titles (including, without limitation, President, Vice President,
Secretary, and Treasurer) to any such person. Unless the Member decides
otherwise, if the title is one commonly used for officers of a business
corporation formed under the Delaware General Corporation Law, the assignment of
such title shall constitute the delegation to such person of the authorities and
duties that are normally associated with that office. Any delegation pursuant
to this Section 15 may be revoked at any time by the Member. An Officer may be
removed with or without cause by the Member.
16. Other Business. The Member may engage in or possess an interest
--------------
in other business ventures (unconnected with the Company) of every kind and
description, independently or with others. The Company shall not have any
rights in or to such independent ventures or the income or profits therefrom by
virtue of this Agreement.
17. Exculpation and Indemnification. No Member or Officer shall be
-------------------------------
liable to the Company or any other person or entity who has an interest in the
Company for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Member or Officer in good faith on behalf of the
Company and in a manner reasonably believed to be within the scope of the
authority conferred on such Member or Officer by this Agreement, except that a
Member or Officer shall be liable for any such loss, damage or claim incurred by
reason of such Member's or Officer's willful misconduct. To the full extent
permitted by applicable law, a Member or Officer shall be entitled to
indemnification from the Company for any loss, damage or claim incurred by such
Member or Officer by reason of any act or omission performed or omitted by such
Member or Officer in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of the authority conferred on such
Member or Officer by this Agreement, except that no Member or Officer shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Member or Officer by reason of willful misconduct with respect to such acts
or omissions; provided, however, that any indemnity under this Section 17 shall
-------- -------
be provided out of and to the extent of Company assets only, and no Member shall
have personal liability on account thereof.
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<PAGE>
18. Assignments. A Member may assign in whole or in part its limited
-----------
liability company interest in the Company with the written consent of the
Member. If a Member transfers all of its interest in the Company pursuant to
this Section, the transferee shall be admitted to the Company upon its execution
of an instrument signifying its agreement to be bound by the terms and
conditions of this Agreement. Such admission shall be deemed effective
immediately prior to the transfer, and, immediately following such admission,
the transferor Member shall cease to be a member of the Company.
19. Resignation. A Member may resign from the Company with the
-----------
written consent of the Initial Member. If a Member is permitted to resign
pursuant to this Section, an additional member of the Company shall be admitted
to the Company, subject to Section 20, upon its execution of an instrument
signifying its agreement to be bound by the terms and conditions of this
Agreement. Such admission shall be deemed effective immediately prior to the
resignation, and, immediately following such admission, the resigning Member
shall cease to be a member of the Company.
20. Admission of Additional Members. One (1) or more additional
-------------------------------
members of the Company may be admitted to the Company with the written consent
of the Member.
21. Dissolution.
-----------
a. The Company shall dissolve, and its affairs shall be wound up
upon the first to occur of the following: (i) the written consent of the Member,
(ii) the retirement, resignation or dissolution of the Member or the occurrence
of any other event which terminates the continued membership of the Member in
the Company unless the business of the Company is continued in a manner
permitted by the Act, or (iii) the entry of a decree of judicial dissolution
under Section 18-802 of the Act.
b. The bankruptcy of the Member will not cause the Member to
cease to be a member of the Company and upon the occurrence of such an event,
the business of the Company shall continue without dissolution.
c. In the event of dissolution, the Company shall conduct only
such activities as are necessary to wind up its affairs (including the sale of
the assets of the Company in an orderly manner), and the assets of the Company
shall be applied in the manner, and in the order of priority, set forth in
Section 18-804 of the Act.
22. Separability of Provisions. Each provision of this Agreement
--------------------------
shall be considered separable and if for any reason any provision or provisions
herein are determined to be invalid, unenforceable or illegal under any existing
or future law, such invalidity, unenforceability or illegality shall not
5
<PAGE>
impair the operation of or affect those portions of this Agreement which are
valid, enforceable and legal.
23. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the Member with respect to the subject matter hereof.
24. Governing Law. This Agreement shall be governed by, and
-------------
construed under, the laws of the State of Delaware (without regard to conflict
of laws principles), all rights and remedies being governed by said laws.
25. Amendments. This Agreement may not be modified, altered,
----------
supplemented or amended except pursuant to a written agreement executed and
delivered by the Member.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Agreement as of the 1st day of July, 1997.
PACIFIC GAS AND ELECTRIC COMPANY
By: /s/ Kent M. Harvey
------------------
Name: Kent M. Harvey
Title: Senior Vice President,
Treasurer and Chief
Financial Officer
6
<PAGE>
Schedule A
to PG&E Funding LLC Limited Liability Company Agreement
MEMBER
- ------
<TABLE>
<CAPTION> Agreed Value of Percentage
Name Mailing Address Capital Contribution Interest
---- --------------- -------------------- ----------
<S> <C> <C> <C>
Pacific Gas and Electric 77 Beale Street $5,000 100%
Company San Francisco, California 94105
</TABLE>
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