SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported)
October 15, 1998
CALIFORNIA INFRASTUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST PG&E-1
(Issuer of the Certificates)
PG&E FUNDING LLC
(Exact name of registrant as specified in charter)
Delaware 333-30715 94-3274751
- -------- --------- ----------
(State of (Commission File Number) (IRS Employer
incorporation) Identification No.)
245 Market Street, Room 424
San Francisco, California 94105
- ---------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(415) 972-5467
------------------------------------
(Registrant's telephone number,
including area code)
N/A
- ------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
Bankers Trust Company of California, N.A., as certificate
trustee of the California Infrastructure and Economic Development
Bank Special Purpose Trust PG&E-1 (the "Trust"), has informed
PG&E Funding LLC that it has transmitted to holders of
certificates issued by the Trust of record on October 14, 1998,
the letter regarding certain actions the trustee is taking related
to Proposition 9 to be voted on by California voters on November 3,
1998. A copy of the trustee's correspondence to certificate holders
is attached hereto as Exhibit 99.
ITEM 7. EXHIBITS
Exhibit 99 Letter dated October 14, 1998, from Bankers Trust
Company of California, N.A., as certificate
trustee of the California Infrastructure and
Economic Development Bank Special Purpose Trust
PG&E-1 (the "Trust") transmitted to holders of
certificates issued by the Trust, together with
attachments.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
PG&E FUNDING LLC
(Registrant)
Gabriel B. Togneri
Date: October 16, 1998 By: ____________________________
Name: Gabriel B. Togneri
Title: Treasurer
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
99 Letter dated October 14, 1998, from Bankers Trust
Company of California, N.A., as certificate
trustee of the California Infrastructure and
Economic Development Bank Special Purpose Trust
PG&E-1 (the "Trust") transmitted to holders of
certificates issued by the Trust, together with
attachments.
Exhibit 99
[Letterhead of Bankers Trust Company of California, N.A.]
October 14, 1998
To Certificateholders
Re: Amended and Restated Declaration and
Agreement of Trust dated as of
December 8, 1997
------------------------------------
Ladies and Gentlemen:
Reference is made to that certain (i) Amended and
Restated Declaration and Agreement of Trust dated as of December
8, 1997 (the "Trust Agreement") among the California
Infrastructure and Economic Development Bank (the "Originator"),
Bankers Trust Delaware (the "Delaware Trustee"), and Bankers
Trust Company of California, N.A. ("BT California"), as
certificate trustee (the "Certificate Trustee"), (ii) First
Supplemental Agreement of Trust dated as of December 8, 1997 (the
"First Supplemental Agreement") among the Originator, the
Delaware Trustee and the Certificate Trustee, (iii) Indenture
dated as of December 8, 1997 (the "Indenture") between PG&E
Funding LLC (the "Issuer") and BT California, as note trustee
<PAGE>
(the "Note Trustee"), (iv) Series Supplement dated as of
December 8, 1997 (the "Series Supplement") between the Issuer and
the Note Trustee, and (v) Transition Property Servicing
Agreement, dated as of December 8, 1997 (the "Servicing
Agreement") between the Issuer and Pacific Gas & Electric Company
(the "Servicer"). The Trust Agreement, First Supplemental
Agreement, Indenture, Series Supplement and Servicing Agreement
are collectively referred to herein as the "Agreements."
Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Agreements.
Purpose Of This Letter
- ----------------------
The purpose of this letter is to notify
Certificateholders that, on November 3, 1998, the electorate of
the State of California will vote on a Proposed Act (as defined
below), which, if passed and upheld by the courts, would impair
rights of Certificateholders and would lead to a default in the
payment of principal and interest on approximately $6 billion of
certificates, including the Certificates. A majority of the
electorate voting "yes" would pass the Proposed Act. The
certificates that would be impaired are those issued pursuant to
(i) the Trust Agreement and the First Supplemental Agreement,
(ii) the Amended and Restated Declaration and Agreement of Trust
dated as of December 11, 1997, and the First Supplemental
Agreement of Trust dated as of December 11, 1997 (the "SCE Trust
Agreement"), and (iii) the Amended and Restated Declaration and
Agreement of Trust dated as of December 16, 1997, and the First
<PAGE>
Supplemental Agreement of Trust dated as of December 16, 1997
(the "SDG&E Trust Agreement").
Because the Proposed Act, if passed and upheld by the
courts, would adversely affect Certificateholders, the
Certificate Trustee is requesting, pursuant to Section 5.03(b) of
the Trust Agreement, authorization and direction from
Certificateholders to commence suit to enforce the State Pledge,
to enjoin the implementation of Section 840.1 of the Proposed
Act, to collect monetary damages as a result of any breach of the
State Pledge, and to provide other appropriate relief. Under
Section 8.02(d)(i) of the Indenture, these costs should be
payable quarterly from amounts held in the Collection Account.
Moreover, Sections 5.06 and 5.04 of the Servicing Agreement
obligate the Servicer to indemnify the Certificate Trustee for
"all liabilities, obligations, losses, damages, payments, claims,
costs or expenses of any kind whatsoever" incurred in connection
with the Certificates, other than such expenses incurred as a
result of gross negligence or willful misconduct. Pursuant to
Section 6.02(e) of the Trust Agreement, the Certificate Trustee
requires indemnification by Certificateholders to the extent
these other amounts are not payable for such purposes, as
described more fully in the enclosed authorization and direction
letter (the "Authorization Letter").
The Proposed Act And
Consequences Of Its Passage
- ---------------------------
Under California law, the electorate has the right,
through its initiative powers, to propose statutes. The Utility
Rate Reduction and Reform Act (the "Proposed Act") has qualified
<PAGE>
for the ballot ("Initiative SA 97RF0064") and will be voted upon
by the electorate on November 3, 1998 ("Proposition 9"). A copy
of the Proposed Act is enclosed. If passed, the Proposed Act
could be construed to be effective on November 4, 1998 unless
stayed by a court.
The Proposed Act would add Section 840.1(a) to the
California Public Utilities Code, prohibiting utility taxes, bond
payments, surcharges or any other assessments to pay for
securitization bonds. Specifically, Section 840.1 provides:
"Section 840.1
--------------
Notwithstanding current Sections 840 through 847
of the Public Utilities Code:
(a) No electric corporation, affiliate of an
electric corporation or any other financing entity
shall assess or collect any utility tax, bond
payment, surcharge or any other assessment
authorized by a Public Utilities Commission
financing order issued pursuant to Sections 840
through 847 of the Public Utilities Code for the
purpose of paying principle [sic], interest or any
other costs of any bonds authorized by those
sections.
* * *
(c) Any electric corporation, affiliate of
an electric corporation or any other financing
entity which is subject to a financing order
issued under Section 841 that is determined by a
court of competent jurisdiction to be enforceable
despite subsection (a) of this section, shall
offset any utility tax, bond payment, surcharge,
or other assessment described in subsection (a)
collected from any customer with an equal credit
to be applied concurrently with the collection of
the utility tax, bond payment surcharge or other
assessment."
<PAGE>
Therefore, if passed by the electorate on November 3,
1998, the Proposed Act breaches the State Pledge by the State of
California.
The State Pledge is set forth in Section 11.01 of the
Trust Agreement and in Section 841(c) of the California Public
Utilities Code. Section 841(c) provides:
" . . . the State of California 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. The bank as
agent for the state is authorized to include this
pledge and undertaking for the state in these
obligations."
Thus, Section 841(c) provides that the State of
California will not limit or alter the revenue stream that was
created to pay principal and interest in respect of the
Certificates without making "adequate provision." The Proposed
Act would eliminate the revenue streams, but by its terms does
not make "adequate provision" for payment of principal or
interest on the Certificates.
If passed by the electorate on November 3, 1998, the
Proposed Act would breach the State Pledge. A breach by the
State of California of the State Pledge is included in the
definition of and constitutes an "Event of Default" in the Trust
Agreement. When there is an "Event of Default," the Certificate
Trustee can take all prudent actions, including instituting suits
<PAGE>
at law to enforce the State Pledge and to obtain appropriate
relief. Further, unless the State of California provides
sufficient revenues, a default in payment of principal and
interest to Certificateholders eventually would occur.
The Trust Agreement
- -------------------
Under Section 5.03(a) of the Trust Agreement, if there
is a failure to make payment of the principal of or interest on
any Note, then the Certificate Trustee, if directed in writing by
the Holders of a majority of the Outstanding Amount of the
Certificates of all Series, shall be entitled and empowered to
institute any suits, actions or proceedings at law, in equity or
otherwise, for the collection of the sums so due and unpaid on
such Note.
Similarly, under Section 5.03(b) of the Trust
Agreement, if there is a breach of the State Pledge by the State
of California, then the Certificate Trustee, if directed in
writing by the Holders of a majority of the Outstanding Amount of
the Certificates of all Series, shall be entitled and empowered
to institute any suits, actions or proceedings at law, in equity
or otherwise, to enforce the State Pledge and to collect any
monetary damages as a result of a breach thereof.
Pursuant to Section 6.02(e) of the Trust Agreement, the
Certificate Trustee is under no obligation to exercise any of the
rights or powers vested in it by the Trust Agreement at the
request or direction of any of the Certificateholders, unless
such Certificateholders shall have offered to the Certificate
Trustee reasonable security or indemnity satisfactory to it
<PAGE>
against the cost, expenses (including reasonable legal fees and
expenses) and liabilities that might be incurred by it in
compliance with such request or direction.
As noted above, when there is an "Event of Default"
under the terms of the Trust Agreement, the Certificate Trustee
can take all prudent actions, including instituting suits at law
to enforce the State Pledge and to obtain appropriate relief.
The Servicers
- -------------
Counsel for the Certificate Trustee has been informed
by counsel for each of Southern California Edison Company
("SCE"), Pacific Gas and Electric Company ("PG&E") and San Diego
Gas and Electric Company ("SDG&E"), that, in their respective
capacities as Servicers, they intend immediately to commence
litigation to have the Proposed Act declared unconstitutional
under the constitutions of both the State of California and the
United States, if it should be passed by the electorate on
November 3, 1998. Copies of letters from SCE, PG&E and SDG&E to
their respective Note Issuers are enclosed.
The Authorization Letter
- ------------------------
In order to protect the interests of the
Certificateholders in the event the Proposed Act is passed on
November 3, 1998, counsel for the Certificate Trustee, on behalf
of the Certificateholders, must commence (and have commenced)
preparations immediately to challenge the constitutionality of
the Proposed Act. Counsel for the Certificate Trustee, on behalf
of the Certificateholders, wants to be prepared, on November 4,
<PAGE>
1998, to challenge the constitutionality of the Proposed Act, to
seek an injunction against its enforcement while the legal
challenge is pursued in the courts and to seek other appropriate
relief.
Enclosed is an Authorization Letter from each
Certificateholder authorizing and directing BT California in its
capacity as Certificate Trustee, pursuant to Section 5.03(b) of
the Trust Agreement, to institute any suit to enforce the State
Pledge and to collect monetary damages as a result of any breach
thereof. As a condition to such direction, pursuant to Section
6.02(e) of the Trust Agreement, Certificateholders must agree to
indemnify BT California, Bankers Trust Delaware, their respective
officers, directors, agents and employees and their affiliates
and hold them harmless against any loss, liability, cost or
expense (including reasonable legal fees and expenses) arising
out of such suit to the extent amounts in the Collection Account
may be insufficient, and if indemnification from the Servicer is
unavailing for that purpose.
Please review the Authorization Letter and if you
decide to authorize and direct the Certificate Trustee to take
action, please sign and return it immediately, and not later than
5:00 p.m. Eastern Standard Time on November 2, 1998.
<PAGE>
If you have any questions with respect to the matters
described above, please contact the Information Agent, Morrow &
Co., Inc. at 1 (800) 662-5200, fax (212) 754-8300.
By: BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., as Certificate
Trustee
Enclosures: Authorization Letter
Letters from Servicers
Proposed Act
<PAGE>
Bankers Trust Company of California, N.A.
c/o Bankers Trust Company
Four Albany Street
New York, New York 10006
Bankers Trust (Delaware)
E.A. Delle Donne, Corporate Center
Montgomery Building
1011 Centre Road, Suite 200
Wilmington, Delaware 19805-1266
Re: Amended and Restated Declaration and
Agreement of Trust dated
as of December 8, 1997
----------------------------------------
Ladies and Gentlemen:
Reference is made to that certain (i) Amended and
Restated Declaration and Agreement of Trust dated as of December
8, 1997 (the "Trust Agreement") among the California
Infrastructure and Economic Development Bank (the "Originator"),
Bankers Trust Delaware (the "Delaware Trustee"), and Bankers
Trust Company of California, N.A. ("BT California"), as
certificate trustee (the "Certificate Trustee"), (ii) First
Supplemental Agreement of Trust dated as of December 8, 1997 (the
"First Supplemental Agreement") among the Originator, the
Delaware Trustee and the Certificate Trustee, (iii) Indenture
<PAGE>
dated as of December 8, 1997 (the "Indenture") between PG&E
Funding LLC (the "Issuer") and BT California, as note trustee
(the "Note Trustee"), (iv) the Series Supplement dated as of
December 8, 1997 (the "Series Supplement") between the Issuer and
the Note Trustee, and (v) the Transition Property Servicing
Agreement, dated as of December 8, 1997 (the "Servicing
Agreement") between the Issuer and Pacific Gas & Electric Company
(the "Servicer"). The Trust Agreement, First Supplemental
Agreement, Indenture, Series Supplement and Servicing Agreement
are collectively referred to herein as the "Agreements."
Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Agreements.
Each of the undersigned Certificateholders (the
"Certificateholders") hereby authorizes and directs BT California
in its capacity as Certificate Trustee, pursuant to Section
5.03(b) of the Trust Agreement, to institute any suits, actions
or proceedings at law, in equity or otherwise, to enforce the
State Pledge and to collect monetary damages as a result of any
breach thereof and to prosecute any such suit, action or
proceeding to judgment or final decree and to take any and all
actions consistent with the foregoing including the retention of
counsel or counsels as may be appropriate or necessary in
connection therewith. An "Event of Default" is defined in the
Trust Agreement to include a breach by the State of California of
the State Pledge. Independent of any authorization and direction
by Certificateholders, the Certificate Trustee can take all
prudent actions, including instituting suits at law to enforce
<PAGE>
the State Pledge and to obtain appropriate relief when there is
an "Event of Default" as defined in the Trust Agreement.
Under Section 8.02(d)(i) of the Indenture, the costs
associated with the implementation of the directions described
herein should be payable quarterly from amounts held in the
Collection Account. Moreover, Sections 5.06 and 5.04 of the
Servicing Agreement obligate the Servicer to indemnify the
Certificate Trustee for "all liabilities, obligations, losses,
damages, payments, claims, costs or expenses of any kind
whatsoever" incurred in connection with the Certificates, other
than such expenses incurred as a result of gross negligence or
willful misconduct. Pursuant to Section 6.02(e) of the Trust
Agreement, the Certificate Trustee requires indemnification by
Certificateholders to the extent these other amounts are not
payable for such purposes.
In connection with the foregoing, by its execution
hereof, each of the Certificateholders hereto severally, and not
jointly, in proportion to its percentage interest of the
aggregate principal amount of Certificates outstanding, hereby
agrees to indemnify BT California, Bankers Trust Delaware, their
respective officers, directors, agents and employees and their
affiliates (the "Indemnified Parties") and hold them harmless
against any loss, liability, cost or expense (including
reasonable legal fees and expenses) arising out of or in
connection with the implementation of the directions described
herein to the extent amounts in the Collection Account may be
insufficient, and if indemnification from the Servicer is
<PAGE>
unavailing for that purpose, provided however, that the foregoing
indemnity shall not extend to any loss, liability, costs or
expenses incurred by the Indemnified Parties arising out of or in
connection with the gross negligence or willful misconduct of the
Indemnified Parties. The Indemnified Parties, at the expense of
the Certificateholders, retain the right to representation by
counsel or multiple counsel of its own choosing in any action,
suit or any other proceeding brought against it in relation to
its execution of the directions set forth herein without
affecting the Indemnified Parties' right to indemnification
hereunder or waiving any rights afforded to it under the
Agreements, any related agreement or applicable law.
The provisions of this indemnity shall survive (i) the
resignation or removal of BT California, as Certificate Trustee,
(ii) the resignation or removal of BT California, as Note
Trustee, (iii) the resignation or removal of Bankers Trust
Delaware, as Delaware Trustee, (iv) the execution or termination
of these instructions, and (v) the termination of any of the
Agreements or any related agreement or agreements. The
Indemnified Parties shall promptly provide the Certificateholders
written notice of any such loss, liability, cost or expense, or
any pending or threatened claim or litigation of which the
Indemnified Parties has actual knowledge, provided, however,
failure to provide such notice shall in no way waive or limit the
Certificateholders' duties or obligations hereunder. The
indemnity set forth herein or the Indemnified Parties' election
to seek relief hereunder does not constitute a waiver of any
<PAGE>
rights, privileges, immunities and/or indemnities as provided to
it pursuant to the terms of the Agreements, and any related
agreement or under applicable law.
The terms and provisions of this letter shall be
governed by and construed in accordance with the internal laws of
the State of New York without regard to its conflict of laws
provisions. This letter may be countersigned in any number of
counterparts, each executed counterpart constituting an original,
but together only one instrument. Facsimile signatures shall be
deemed to be original signatures for all purposes hereunder.
Please return by not later than 5:00 p.m. Eastern
Standard Time on November 2, 1998 to:
Morrow & Co., Inc.
445 Park Avenue, Fifth Floor
New York, New York 10022
Phone: 1 (800) 662-5200
Facsimile: (212) 754-8300
__________________________
NAME OF BENEFICIAL OWNER
BY: __________________________
Name:
Title:
Phone No.:
Fax No.:
Date:
___________________________
NOMINEE NAME
<PAGE>
Please enter dollar amount of consent next to each class.
- ---------------------------------------------------------
California Infrastructure and Economic Development Bank Special
Purpose Trust PG&E-1, Series 1997-1 Rate Reduction Certificates
Class Cusip # Consented Amount
A-1 130335AA0 ________________
A-2 130335AB8 ________________
A-3 130335AC6 ________________
A-4 130335AD4 ________________
A-5 130335AE2 ________________
A-6 130335AF9 ________________
A-7 130335AG7 ________________
A-8 130335AH5 ________________
<PAGE>
[LETTERHEAD OF PACIFIC GAS AND ELECTRIC COMPANY]
October 5, 1998
PG&E Funding LLC
245 Market Street
Room 424
San Francisco, CA 94105
Re: Proposition 9
Ladies and Gentlemen:
On June 24, 1998, the California Secretary of State
announced that Proposition 9 had qualified for the November 3,
1998 ballot. At least one portion of Proposition 9, proposed
section 840.1 of the California Public Utilities Code, could have
serious adverse consequences for PG&E Funding LLC (the "Note
Issuer") and for holders of Rate Reduction Certificates issued by
the California Infrastructure and Economic Development Bank
Special Purpose Trust PG&E-1 (the "Certificates"). Proposed
section 840.1 would prohibit the assessment or collection of
fixed transition amounts for the purpose of paying principal or
interest on the Certificates. If Proposition 9 is approved by
the voters, proposed section 840.1 could be construed to take
effect on November 4, 1998, unless it is stayed by a court.
If Proposition 9 is approved by the voters, Pacific Gas
and Electric Company ("PG&E") intends to comply with its
obligations under section 5.02(d) of the Transition Property
Servicing Agreement by "tak[ing] such legal or administrative
actions . . . as may be reasonably necessary to block or overturn
any attempts to cause a repeal of, modification of or supplement
to the Statute or the Financing Order or the rights of holders of
Transition Property by legislative enactment, voter initiative or
constitutional amendment that would be adverse to
Certificateholders." Accordingly, if Proposition 9 is approved
by the voters, PG&E intends to commence litigation immediately to
cause section 840.1 declared unconstitutional.
As with any litigation, the ultimate result of any such
litigation is uncertain. PG&E believes that the chance of a
successful outcome will be maximized if Bankers Trust Company of
California, N.A., immediately appears in the litigation in its
capacity as Certificate Trustee on behalf of Certificateholders,
the parties most directly and immediately impacted by proposed
section 840.1.
Very truly yours,
/s/ KENT M. HARVEY
Senior Vice President, Treasurer
and Chief Financial Officer
cc: Bankers Trust Company of California, N.A.
c/o Bankers Trust Company
Corporate Trust and Agency Services
Four Albany Street
New York, NY 10006
Attention: Structured Finance Group
<PAGE>
[LETTERHEAD OF SOUTHERN CALIFORNIA EDISON COMPANY]
October 6, 1998
SCE Funding LLC
2244 Walnut Grove Ave., Room 180
Rosemead, CA 91770
Ladies and Gentlemen:
On June 24, 1998, the California Secretary of State
announced that Proposition 9 had qualified for the November 3,
1998 ballot. At least one portion of Proposition 9, proposed
Section 840.1 of the California Public Utilities Code, could have
serious adverse consequences for SCE Funding LLC (the "Note
Issuer") and for holders of Rate Reduction Certificates issued by
the California Infrastructure and Economic Development Bank
Special Purpose Trust SCE-1 (the "Certificates"). Proposed
Section 840.1 would prohibit the assessment or collection of
fixed transition amounts for the purpose of paying principal or
interest on the Certificates. If Proposition 9 is approved by
the voters, proposed Section 840.1 could be construed to take
effect on November 4, 1998, unless it is stayed by a court.
If Proposition 9 is approved by the voters, Southern
California Edison Company ("SCE") intends to comply with its
obligations under Section 5.02(d) of the Transition Property
Servicing Agreement by "tak[ing] such legal or administrative
actions . . . as may be reasonably necessary to block or overturn
any attempts to cause a repeal of, modification of or supplement
to the Statute or the Financing Order or the rights of holders of
Transition Property by legislative enactment, voter initiative or
constitutional amendment that would be adverse to
Certificateholders." Accordingly, if Proposition 9 is approved
by the voters, SCE intends to commence litigation immediately to
cause Section 840.1 to be declared unconstitutional.
As with any litigation, the ultimate result of any such
litigation is uncertain. SCE believes that the chance of a
successful outcome will be maximized if Bankers Trust Company of
California, N.A. immediately appears in the litigation in its
capacity as Certificate Trustee on behalf of Certificateholders,
the parties most directly and immediately impacted by proposed
Section 840.1.
<PAGE>
Very truly yours,
/s/ Theodore F. Craver, Jr.
Theodore F. Craver, Jr.
Senior Vice President and
Treasurer
cc: Bankers Trust Company of California, N.A.
c/o Bankers Trust Company
Corporate Trust and Agency Services
Four Albany Street
New York, NY 10006
Attention: Structured Finance Group
<PAGE>
[LETTERHEAD OF SAN DIEGO GAS AND ELECTRIC COMPANY]
October 6, 1998
SDG&E Funding LLC
101 Ash Street
Room 111
San Diego, CA 92101
Re: Proposition 9
Ladies and Gentlemen:
On June 24, 1998, the California Secretary of State announced
that Proposition 9 had qualified for the November 3, 1998 ballot.
At least one portion of Proposition 9, proposed section 840.1 of
the California Public Utilities Code, could have serious adverse
consequences for SDG&E Funding LLC (the "Note Issuer") and for
holders of Rate Reduction Certificates issued by the California
Infrastructure and Economic Development Bank Special Purpose
Trust SDG&E-1 (the "Certificates"). Proposed section 840.1 would
prohibit the assessment or collection of fixed transition amounts
for the purpose of paying principal or interest on the
Certificates. If Proposition 9 is approved by the voters,
proposed section 840.1 could be construed to take effect on
November 4, 1998, unless it is stayed by a court.
If Proposition 9 is approved by the voters, San Diego Gas and
Electric Company ("SDG&E) intends to comply with its obligations
under section 5.02(d) of the Transition Property Servicing
Agreement by "tak[ing] such legal or administrative actions . . .
as may be reasonably necessary to block or overturn any attempts
to cause a repeal of, modification of or supplement to the
Statute or the Financing Order or the rights of holders of
<PAGE>
Transition Property by legislative enactment, voter initiative or
constitutional amendment that would be adverse to
Certificateholders." Accordingly, if proposition 9 is approved
by the voters, SDG&E intends to commence litigation immediately
to cause section 840.1 declared unconstitutional.
<PAGE>
As with any litigation, the ultimate result of any such
litigation is uncertain. SDG&E believes that the chance of a
successful outcome will be maximized if Bankers Trust Company of
California, N.A., immediately appears in the litigation in its
capacity as Certificate Trustee on behalf of Certificateholders,
the parties most directly and immediately impacted by proposed
section 840.1
Sincerely yours,
Edwin L. Guiles
cc: Bankers Trust Company of California, N.A.
c/o Bankers Trust Company
Corporate Trust and Agency Services
Four Albany Street
New York, NY 10006
Attention: Structured Finance Group
<PAGE>
THE UTILITY RATE REDUCTION AND REFORM ACT
SECTION 1. FINDINGS AND DECLARATIONS
The people of California find and declare as follows:
The cost and dependability of California's electric utility
service are threatened by a new law that was intended to reduce
regulation of electric utility companies in this state.
Any change in the way electricity is sold should benefit all
electric utility customers, including residential and small
business customers, and should result in a fair and competitive
marketplace.
Instead of creating a fully competitive market for electricity,
the new law unfairly favors existing electric utility monopolies
by forcing customers to pay rates more than 40 percent higher
than the market price in order to bail out utilities for their
past bad investments.
As a result of this $28 billion bailout for electric utility
companies, the average California household will pay more than
$250 more per year for electricity than they would in a fully
competitive market.
Residential and small business customers should not be required
to bear the costs of bonds used by utility companies to pay for
past bad investments.
It is against public policy for residential and small business
customers to be required to pay for the imprudent and uneconomic
decisions of electric utility companies to invest in nuclear
power plants which the public did not want and which threaten the
health and safety of this state.
Under the new law, deregulation of electric utility companies may
result in marketing abuses that harm residential and small
business customers. Such abuses may include the selling of
information about these customers to other companies for profit.
Therefore, the People of California declare that it is necessary
to protect residential and small business customers from unfair
and unjustified taxes and surcharges that will force them to
subsidize electric utility companies. It is also necessary to
ensure that residential and small business customers directly
benefit from deregulation of electric utility companies.
SECTION 2. PURPOSE
The purpose of this chapter is to:
(1) Reduce residential and small commercial electricity rates by
20 percent to assure that these customers receive a direct
benefit from the transition to the competitive marketplace for
electricity.
(2) Prohibit taxes, surcharges, bond payments or any other
assessment from being added to electricity bills to pay off
utility companies' past bad investments in nuclear power
plants and other generation-related costs.
<PAGE>
(3) Prohibit bonds from being used to force residential and
small business customers to pay for past bad investments by
electric utility companies.
(4) Provide for fair and public review of California Public
Utilities Commission decisions related to electricity price
and services.
(5) Protect the privacy of utility customers and provide the
information consumers need to obtain low cost and high
quality electric service.
SECTION 3. THE FOLLOWING SECTIONS ARE ADDED TO THE PUBLIC
UTILITIES CODE:
ELECTRIC UTILITY RATE REDUCTION
Section 368.1
(a) No later than January 1, 1999, electricity rates for
residential and small commercial customers shall be reduced
so that these customers receive rate reductions of at least
20 percent on their total electricity bill as compared to the
rate schedules in effect for these customers on June 10, 1996.
(b) The rate reductions described in subsection (a) shall be
achieved through cutting payments to electric corporations for
their nuclear and other uneconomic generation costs as
described in Section 367.1 and 367.2.
(c) No utility tax, bond payment, surcharge, or any other
assessment in any form shall be levied against any electric
utility customer to pay for the rate reductions described in
subsections (a) and (b).
PROHIBITION AGAINST UTILITY TAXES, BOND PAYMENTS, SURCHARGES OR
ANY OTHER ASSESSMENTS TO PAY FOR NUCLEAR POWER PLANTS
Section 367.1
(a) Effective immediately, costs for nuclear generation plants
and related assets and obligations shall not be paid for by
electric utility customers, except to the extent that such costs
are recovered by the sale of electricity at competitive market
prices as reflected in independent Power Exchange revenues or
in contracts with the Independent System Operator.
(b) No utility tax, bond payments, surcharge, or any other
assessment in any form shall be levied against any electric
utility customer for the recovery of nuclear costs described
in subsection (a).
(c) This section shall not apply to reasonable nuclear
decommissioning costs as referenced in Section 379 of the
Public Utilities Code.
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LIMITATION ON UTILITY TAXES, BOND PAYMENTS, SURCHARGES, AND ANY
OTHER ASSESSMENTS TO PAY FOR ELECTRIC UTILITY COMPANY INVESTMENTS
IN NON-NUCLEAR GENERATION ASSETS
Section 367.2
(a) Effective immediately, costs for non-nuclear generation
plants and related assets and obligations shall not be
recovered from electric utility customers under the cost
recovery mechanism provided for by sections 367 through 376
of the Public Utilities Code except to the extent that such
costs are recovered by the sale of electricity at
competitive market rates from independent Power Exchange
revenues or from contracts with the Independent System
Operator, unless the electric utility first demonstrates to
the satisfaction of the Commission at a public hearing that
failure to recover such costs would deprive it of the
opportunity to earn a fair rate of return.
(b) This section shall not apply to costs associated with
renewable non-nuclear electricity generation facilities
described in Section 381(c)(3), or to costs associated with
power purchases from qualifying facilities pursuant to the
Public Utility Regulatory Policies Act of 1978 and related
commission decisions.
PROHIBITION AGAINST UTILITY TAXES, BOND PAYMENTS, SURCHARGES, AND
ANY OTHER ASSESSMENTS TO PAY FOR SECURITIZATION BONDS
Section 840.1
Notwithstanding current Sections 840 through 847 of the Public
Utilities Code:
(a) No electric corporation, affiliate of an electric
corporation or any other financing entity shall assess or
collect any utility tax, bond payment, surcharge, or any other
assessment authorized by a Public Utilities Commission
financing order issued pursuant to Sections 840 through 847
of the Public Utilities Code for the purpose of paying
principle, interest or any other costs of any bonds authorized
by those sections.
(b) The Public Utilities Commission shall not issue any
financing order pursuant to Sections 840 through 847 after the
effective date of this measure.
(c) Any electric corporation, affiliate of an electric
corporation or any other financing entity which is subject to a
financing order issued under Section 841 that is determined by a
court of competent jurisdiction to be enforceable despite
subsection (a) of this section, shall offset any utility tax,
bond payment, surcharge, or other assessment described in
subsection (a) collected from any customer with an equal credit
to be applied concurrently with the collection of the utility
tax, bond payment, surcharge or other assessment.
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Section 841.1
Any underwriter or bond purchaser who purchases rate reduction
bonds after November 24, 1997 issued pursuant to current Sections
840 through 847 shall be deemed to have notice of the provisions
of Section 367.1, 367.2, 368.1, and 840.1.
PUBLIC PARTICIPATION AND JUDICIAL REVIEW FOR CONSUMER PROTECTION
AND ELECTRIC COMPANY ACCOUNTABILITY
Section 1701.5
(a) Any action or proceeding of the Public Utilities Commission
pursuant to Section 367.1, 367.2, 368.1 and 840.1 of the
Public Utilities Code shall require a public hearing where
evidence is taken by and discretion is vested in the Public
Utilities Commission.
(b) Any change to the amount of above-market costs for non-
nuclear generation plants and related assets and obligations
being recovered from utility customers shall only be made after
the electrical corporation has provided notice to the public
pursuant to Section 454 of the Public Utilities Code.
(c) Any action or proceeding to attack, review, set aside, void
or annul a determination, finding, or decision of the Public
Utilities Commission relating to electric restructuring under
Chapter 2.3 of Part I of Division 1 of the Public Utilities
Code and financing of transition costs as described in Article
5.5 of Chapter 4 of Part 1 of Division 1 of the Public Utilities
Code shall be in accordance with the provisions of Section
1094.5 of the Code of Civil Procedure. In any such action the
writ of mandate shall lie from the court of appeals to the
Public Utilities Commission. The court shall not exercise its
independent judgement but shall only determine whether the
determination, finding or decision of the Public Utilities
Commission is supported by substantial evidence in light of
the whole record.
ELECTRIC UTILITY CUSTOMER PRIVACY PROTECTION
Section 394.1
The confidentiality of residential and small commercial customer
information shall be fully protected as provided by law. No
entity providing electricity services including an electric
corporation shall provide information about a residential or
small commercial customer to any third party without the express
written consent of the customer.
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ELECTRIC UTILITY CUSTOMER INFORMATION
Section 393
The Public Utilities Commission shall require each electric
utility or electric service provider to provide such information
or materials with each utility bill issued to residential and
small commercial customers as the Commission determines to be
necessary to assist consumers in obtaining low cost, high quality
electric service options, including electric service options that
reduce environmental impacts such as those that rely on renewable
energy sources and to protect consumers' interest in all matters
concerning safe and dependable delivery of electric service.
DEFINITIONS
Section 330.1 Definitions of Charges
(a) "Utility tax," "bond payments," "surcharge," "assessment" or
"involuntary payment" mean any charge that serves to permit an
electric corporation to recover the value of uneconomic assets
from ratepayers, and includes but is not limited to a "fixed
transition amount" as defined by Section 840(d), and the
"competition transition charge" that is the nonbypassable
charge referred to in Sections 367 to 376, inclusive.
(b) For purposes of Sections 330.1, 367.1, 367.2, 368.1, 393 and
840.1, the terms "electric utility," "electric utility
company," and "electric corporation" have the same meaning
as the term "electrical corporation" as defined in Section
218 of the Public Utilities Code.
REPEAL OF EXISTING LAW
Sections 367(a), 368(d), 368(h) of the Public Utilities Code are
repealed.
SECTION 4. INITIATIVE INTEGRITY
(a) This act shall be broadly construed and applied in order to
fully promote its underlying purposes, and to be consistent
with the United States Constitution and the Constitution of
the State of California. If any provision of this initiative
conflicts directly or indirectly with any other provisions of
law, including but not limited to the cost recovery mechanism
provided for by Sections 367 through 376 of the Public
Utilities Code, or any other statute previously enacted by the
Legislature, it is the intent of the voters that those other
provisions shall be null and void to the extent that they are
inconsistent with this initiative and are hereby repealed.
(b) No provision of this act may be amended by the Legislature
except to further the purpose of that provision by a statute
passed in each house by
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roll call vote entered in the journal,two thirds of the
membership concurring, or by a statute that becomes effective
only when approved by the electorate. No amendment by the
Legislature shall be deemed to further the purposes of this
act unless it furthers the purpose of the specific
provision of this act that is being amended. In any judicial
action with respect to any legislative amendment, the court
shall exercise its independent judgment as to whether or not
the amendment satisfies the requirements of this subsection.
(c) If any provision of this act or the application thereof to
any person or circumstances is held invalid, that invalidity
shall not effect other provisions or applications of the act
that can be given effect in the absence of the invalid
provision or application. To this end, the provisions of this
act are severable.
(d) It is the will of the People that any legal challenges to
the validity of any provision of this act be acted upon by the
courts upon an expedited basis.
