<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1997
REGISTRATION STATEMENT NO. 333-30715
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 5
TO
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 94-3274751
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
PG&E FUNDING LLC
245 MARKET STREET, ROOM 424
SAN FRANCISCO, CA 94105
(415) 972-5467
(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) 972-5467
(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, 50TH FLOOR 825 EIGHTH AVENUE
OLD FEDERAL RESERVE BANK BUILDING SAN FRANCISCO, CALIFORNIA 94104 NEW YORK, NEW YORK 10019
400 SANSOME STREET
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>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES TO AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rate Reduction
Certificates........... $3,500,000,000 100%(1) $3,500,000,000(1) $1,060,606.06
- ----------------------------------------------------------------------------------------------------
Notes................... $3,500,000,000(2) (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.
(3) Aggregate fee of $1,060,606.06 previously paid in connection with original
Registration Statement filed on July 3, 1997 and Amendment No. 3 filed on
November 10, 1997.
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>
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>
<S> <C>
Registration Statement Fee.................................... $1,060,606.06
Printing and Engraving Expenses............................... 100,000.00
Trustees' Fees and Expenses .................................. 30,000.00
Legal Fees and Expenses....................................... 3,100,000.00
Blue Sky Fees and Expenses.................................... 10,000.00
Accountants' Fees and Expenses................................ 200,000.00
Rating Agency Fees............................................ 350,000.00
Miscellaneous Fees and Expenses............................... 750,000.00
-------------
Total....................................................... $5,600,606.06
=============
</TABLE>
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 20 of the Amended
and Restated Limited Liability Company Agreement of the Registrant provides
that, to the full extent permitted by applicable law, the Registrant shall
indemnify any member, officer, director, employee or agent of the Registrant
and any employee, representative, agent or affiliate of the member
(collectively, "Covered Persons") for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Registrant and in a manner reasonably believed to
be within the scope of the authority conferred on such Covered Person by the
Amended and Restated Limited Liability Company Agreement, except that the
Registrant shall not indemnify any such Covered Person for any loss, damage or
claim incurred by such Covered Person by reason of such Covered Person's gross
negligence or 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 or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation or enterprise. 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 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
II-1
<PAGE>
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.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
+1.1 Form of Underwriting Agreement.
+3.1 Certificate of Formation.
+3.2 Limited Liability Company Agreement.
+3.3 Form of Amended and Restated Limited Liability Company Agreement.
+3.4 Amended and Restated 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 Richards, Layton & Finger, P.A.with respect to legality of
the Rate Reduction Certificates.
+5.3 Opinion of Richards, Layton & Finger, P.A. with respect to due
authorization of the Notes and the Indenture by the Note Issuer.
+8.1 Opinion of Brown & Wood LLP with respect to tax matters.
+8.2 Internal Revenue Service Revenue Ruling.
+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.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
+23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in its opinion
filed as Exhibit 5.1).
+23.2 Consent of Brown & Wood LLP (included in its opinions filed as Exhibits
8.1 and 99.8).
+23.3 Consent of Richards, Layton & Finger, P.A. (included in its opinions
filed as Exhibits 5.2 and 5.3).
+23.4 Consent of Arthur Andersen LLP.
+23.5 Consent of Brooke Bassett, Esq.
+25.1 Statement of Eligibility and Qualification of Note Trustee on Form T-1.
+25.2 Statement of Eligibility and Qualification of Certificate Trustee on
Form T-1.
+27 Financial Data Schedule.
+99.1 Application for Financing Order.
+99.2 Financing Order.
+99.3 Form of Issuance Advice Letter.
+99.4 Application to Infrastructure Bank (Exhibit A to Part I thereof is
incorporated by reference to Exhibit 99.1 of this Registration
Statement; Exhibits B, C, F, G, H, J, K and L to Part II thereof are
incorporated by reference to Exhibits 4.2, 3.3, 10.4, 4.1, 10.3, 10.1,
10.2 and 1.1 of this Registration Statement, respectively, and Exhibit
D to Part II thereof is incorporated by reference to Amendment No. 2 to
this Registration Statement).
+99.5 Form of Issuance Resolutions of Infrastructure Bank.
+99.6 Interim Opinion of CPUC.
99.7 Opinion of Brown & Wood LLP with respect to impairment of contracts.
+99.8 Opinion of Brown & Wood LLP with respect to Proposition 218.
+99.9 Form of opinion of Brooke Bassett, Esq. with respect to validity of
Issuance Resolutions.
</TABLE>
- --------
+Previously filed.
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 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.
II-3
<PAGE>
(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 such issue.
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 AMENDMENT NO. 5
TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN FRANCISCO, STATE OF CALIFORNIA,
ON NOVEMBER 20, 1997.
PG&E FUNDING LLC
AS REGISTRANT
/s/ Kent M. Harvey
By: _________________________________
Name: Kent M. Harvey
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to Registration Statement has been signed on November 20, 1997 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
(Principal Executive Officer)
/s/ Kent M. Harvey President and November 20, 1997
- -------------------------------- Director
KENT M. HARVEY
(Principal Financial Officer)
/s/ Gabriel B. Togneri Treasurer and November 20, 1997
- -------------------------------- Director
GABRIEL B. TOGNERI
(Principal Accounting Officer)
/s/ Christopher P. Johns Controller November 20, 1997
- --------------------------------
CHRISTOPHER P. JOHNS
/s/ Walter S. Levison Director November 20, 1997
- --------------------------------
WALTER S. LEVISON
(Principal Executive Officer)
/s/ Kent M. Harvey President and November 20, 1997
- -------------------------------- Director
KENT M. HARVEY
(Principal Financial Officer)
/s/ Gabriel B. Togneri Treasurer and November 20, 1997
- -------------------------------- Director
GABRIEL B. TOGNERI
(Principal Accounting Officer)
/s/ Christopher P. Johns Controller November 20, 1997
- --------------------------------
CHRISTOPHER P. JOHNS
/s/ Walter S. Levison Director November 20, 1997
- --------------------------------
WALTER S. LEVISON
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
+1.1 Form of Underwriting Agreement.
+3.1 Certificate of Formation.
+3.2 Limited Liability Company Agreement.
+3.3 Form of Amended and Restated Limited Liability Company
Agreement.
+3.4 Amended and Restated 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 Richards, Layton & Finger, P.A. with respect
to legality of the Rate Reduction Certificates.
+5.3 Opinion of Richards, Layton & Finger, P.A. with respect
to due authorization of the Notes and the Indenture by
the Note Issuer.
+8.1 Opinion of Brown & Wood LLP with respect to tax
matters.
+8.2 Internal Revenue Service Revenue Ruling.
+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 Consent of Brown & Wood LLP (included in its opinions
filed as Exhibits 8.1 and 99.8).
+23.3 Consent of Richards, Layton & Finger, P.A. (included in
its opinions filed as Exhibits 5.2 and 5.3).
+23.4 Consent of Arthur Andersen LLP.
+23.5 Consent of Brooke Bassett, Esq.
+25.1 Statement of Eligibility and Qualification of Note
Trustee on Form T-1.
+25.2 Statement of Eligibility and Qualification of
Certificate Trustee on Form T-1.
+27 Financial Data Schedule.
+99.1 Application for Financing Order.
+99.2 Financing Order.
+99.3 Form of Issuance Advice Letter.
+99.4 Application to Infrastructure Bank (Exhibit A to Part I
thereof is incorporated by reference to Exhibit 99.1 of
this Registration Statement; Exhibits B, C, F, G, H, J,
K and L to Part II thereof are incorporated by
reference to Exhibits 4.2, 3.3, 10.4, 4.1, 10.3, 10.1,
10.2 and 1.1 of this Registration Statement,
respectively, and Exhibit D to Part II thereof is
incorporated by reference to Amendment No. 2 to this
Registration Statement).
+99.5 Form of Issuance Resolutions of Infrastructure Bank.
+99.6 Interim Opinion of CPUC.
99.7 Opinion of Brown & Wood LLP with respect to impairment
of contracts.
+99.8 Opinion of Brown & Wood LLP with respect to Proposition
218.
+99.9 Form of opinion of Brooke Bassett, Esq. with respect to
validity of Issuance Resolutions.
</TABLE>
- --------
+Previously filed.
<PAGE>
November 20, 1997
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Moody's Investors Service
99 Church Street
New York, New York 10007
Standard & Poor's Ratings Services
26 Broadway, 20th Floor
New York, New York 10004
Re: California Infrastructure and Economic Development Bank
Special Purpose Trust PG&E-1
Rate Reduction Certificates
Dear Sirs:
We have acted as special counsel to California Infrastructure and Economic
Development Bank Special Purpose Trust PG&E-1, a business trust established
under Delaware law (the "Trust"), in connection with the proposed issuance by
the Trust of up to $3,500,000 principal amount of its Rate Reduction
Certificates (the "Certificates"). The Trust will be created and governed, and
the Certificates will be issued, pursuant to an Amended and Restated Declaration
and Agreement of Trust by and among California Infrastructure and Economic
Development Bank (the "Bank"), as Originator, Bankers Trust (Delaware), as
Delaware Trustee, and Bankers Trust Company of California N.A., as Certificate
Trustee. Upon issuance, the Certificates will represent a fractional undivided
beneficial interest in a corresponding Series or Class of Notes (the "Notes")
purchased by the Trust from PG&E Funding LLC (the "SPE"), together with all
payments on the Notes. The Notes will be secured by a security interest in
transition property (as described below) together with certain limited equity of
the SPE. Transition property is a property right created under Assembly Bill No.
1890 (Chapter 854, California Statutes of 1996), as amended by Senate Bill No.
477 (Chapter 275, California Statutes
<PAGE>
of 1997) (collectively, the "Restructuring Legislation"), pursuant to Financing
Order 97-09-055 issued by the California Public Utilities Commission (the
"CPUC") on September 3, 1997, and advice letters issued pursuant thereto,
representing the irrevocable right of Pacific Gas and Electric Company ("PG&E")
or its assignee to receive certain nonbypassable charges (as adjusted from time
to time) ("fixed transition amounts") on residential and small commercial
customers within PG&E's historical service territory. The Trust has been
designated by the Bank as a "special purpose trust" and the Certificates
constitute "rate reduction bonds" under the Restructuring Legislation. The
holders of beneficial interests of the Trust will be the Certificateholders.
We have assumed for the purpose of this opinion that the Certificates and
related documents are executed in substantially the form we have examined and
the transactions contemplated to occur under the Registration Statement
(referred to below) in fact occur in accordance with the terms thereof.
We have been asked whether the voters of the State of California (the
"State"), through exercise of their initiative power under California
Constitution Article II, Section 8, could amend the Restructuring Legislation or
otherwise enact legislation that would have the effect of substantially
impairing the rights of the owners of the Certificates. For the reasons set
forth below, we do not believe that the voters could do so.
The Restructuring Legislation provides, in pertinent part, that the State:
does hereby pledge and agree with the owners of transition property and
holders of rate reduction bonds that the state shall neither limit nor
alter the fixed transition amounts, transition property, financing orders,
and all rights thereunder until the obligations, together with the interest
thereon, are fully met and discharged, provided nothing contained in this
section shall preclude the limitation or alteration if and when adequate
provision shall be made by law for the protection of the owners and
holders. (California Public Utilities Code, Section 841(c)).
Section 10 of Article I of the United States Constitution provides, in
part, "No state shall . . . pass any law impairing the obligation of contracts"
(the "Federal Contract Clause"). Similarly, Section 9 of Article I of the
California Constitution provides, in part, "A . . . law impairing the
obligations of contracts may not be passed" (the "State Contract Clause"). The
Federal and State Contract Clauses protect contractual obligations from
impairment by enactment of state law, including State constitutional amendments.
Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978); United States
- --------------------------------------- -------------
Trust Co. of New York v. New Jersey, 431 U.S. 1, reh'g denied, 431 U.S. 975
- ----------------------------------- ------------
(1977); Los Angeles County v. Rockhold, 3 Cal.2d 192 (1935). Caselaw makes clear
------------------------------
that the principle precluding impairment of the contractual rights of
bondholders applies equally to the State legislature and the electorate
(utilizing its initiative powers). Continental Ill. Nat'l Bank & Trust Co. of
------------------------------------------
Chicago v. Washington, 696 F.2d 692, 700-01 (9th Cir. 1983). Clearly, any
- ---------------------
attempt by the State (or the voters) to repeal or amend the Restructuring
Legislation or enact other legislation which affects the transition property in
a manner that prevents the payment of the Certificates in a timely basis would
constitute a substantial impairment of the contractual rights of the
Certificateowners.
The courts, however, have held that the provisions of the Federal and State
Contract Clauses would not apply to state laws, the enactment of which
constitute a reasonable and necessary exercise of a state's sovereign power to
serve an important public purpose. See, e.g.,
--- ----
2
<PAGE>
United States Trust Co. of New York, supra, 421 U.S. at 1519-20. There have been
- ----------------------------------- -----
numerous cases in which legislative or popular concerns with the burden of
taxation or governmental charges have led to the adoption of legislation
reducing or eliminating taxes or charges that supported bonds or other
contractual obligations entered into by public instrumentalities. However, such
concerns have not been considered sufficient justification for a substantial
---
impairment of the security of such bonds or obligations provided by the taxes or
governmental charges involved. See, e.g., Ralls County Court v. United States,
--- ---- -----------------------------------
105 U.S. 733, 738 (1881); Rockhold, supra, 3 Cal.2d at 207-09. Instead, caselaw
---------------
suggests that the complete impairment of a municipal bond obligation will not be
tolerated, although a temporary impairment may be upheld if it can be shown to
be necessary to advance an important public interest, such as addressing the
concerns of a "great public calamity." See, e.g., Home Bldg. & Loan Ass'n v.
--- ---- --------------------------
Blaisdell, 290 U.S. 398, 439-41 (1934). In fact, the United States Supreme Court
- ---------
has consistently refused to permit complete destruction of a governmental
entity's obligation to repay a debt. As one commentator has noted: "Despite the
Supreme Court's general disinterest in the [Federal] Contract Clause, the Court
has invalidated virtually every legislative impairment of municipal or local
indebtedness that has come before it in the last fifty years. . . ." See Barton
---
H. Thompson, Jr., "The History of the Judicial Impairment 'Doctrine' and Its
Lessons for the Contract Clause," 44 Stan. L. Rev. 1373, 1463 (1992). While the
Certificates may have certain characteristics uncommon to more traditional
municipal obligations, challenges to the Certificates should nonetheless be
treated by the courts with the same critical scrutiny followed in prior binding
precedent.
Based upon such caselaw, absent a demonstration by the State of a "great
public calamity" that justifies a contractual impairment, it is our opinion that
neither the State nor the electorate through its initiative powers could repeal
or amend the Restructuring Legislation 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 repeal or amendment, or such action
or inaction, would substantially impair the rights of the Certificateholders.
We also have been asked whether the actual knowledge of the pendency of a
voter initiative by the Certificateholders at the time they purchase their
Certificate diminishes the protection afforded by the Federal and State Contract
Clauses. For the reasons presented below, we do not believe that it should.
In Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984), the
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United States Supreme Court expressly reserved the question of whether the
existence of notice or knowledge of the pendency of retroactive legislation is
relevant under the "Due Process Clause" of the United States Constitution. Id.
--
at 731-32. However, in that opinion, the Supreme Court also recognized that the
standards imposed on economic legislation by the Due Process Clause are "less
searching" than restrictions imposed on states by the Federal Contract Clause.
Consequently, although the existence of fair warning of a potentially impending
retroactive change of law may reduce or eliminate due process protection, this
does not appear to be true under the stricter limitations of the Federal
Contract Clause.
Finally, since the outcome of impending legislative changes is never
certain and there are strong policy reasons for permitting parties to contract
with reference to existing law without
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being deterred by uncertainties as to the outcome of impending legislative
changes or voter initiatives, a court should adopt the view that knowledge of
the pendency of a proposed voter initiative should not diminish the protection
afforded by the Federal Contract Clause (and, by analogy, the State Contract
Clause).
The opinions expressed above are based upon existing caselaw (none of which
addresses the specific facts presented herein), and do not constitute a
guarantee of the outcome of any particular litigation. Moreover, there can be no
assurance that, through the legislative or initiative process, a repeal or an
amendment of the Restructuring Legislation might not be approved. In such an
event, costly and time consuming litigation may ensue, adversely affecting, at
least temporarily, the price and liquidity of the Certificates.
We consent to the filing of this opinion as an exhibit to the SPE's
Registration Statement on Form S-3 (Registration No. 333-30715), to the use of
our name wherever appearing in such Registration Statement and any amendment
thereto and to the disclosure regarding this opinion in the related prospectus
and prospectus supplement. In giving the foregoing consent, however, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
We disclaim any obligation to update this opinion letter for events
occurring or coming to our attention after the date hereof.
Respectfully submitted,
/s/ Brown & Wood LLP
Brown & Wood LLP
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