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): June 24, 1998
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California Infrastructure and Economic Development Bank
Special Purpose Trust SDG&E-1
Rate Reduction Certificates, Series 1997-1
SDG&E FUNDING LLC
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(Exact name of registrant as specified in its charter)
DELAWARE 333-30761 95-1184800
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(State of incorporation (Commission (I.R.S. Employer
or organization) File Number) Identification No.
101 ASH STREET, ROOM 111, SAN DIEGO, CALIFORNIA 92101
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(Address of principal executive offices) (Zip Code)
(619) 696-2328
Registrant's telephone number, including area code-----------------
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(Former name or former address, if changed since last report.)
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FORM 8-K
Item 1. Changes in Control
Sempra Energy, on June 26, 1998, acquired all of the outstanding
voting securities of Enova Corporation, of which SDG&E Funding
LLC's parent, San Diego Gas & Electric Company, is a subsidiary.
The acquisition was effected in connection with a business
combination of Enova Corporation and Pacific Enterprises (the
corporate parent of Southern California Gas Company) effected as a
tax-free reorganization and accounted for as a pooling of interests
for financial reporting purposes. Sempra Energy was formed to
serve as a holding company for the two corporations in connection
with the combination and has not conducted any business activities
other than those incidental to the combination.
Enova Corporation owns all of the 116,583,358 outstanding shares of
San Diego Gas & Electric Company Common Stock. The shares owned by
Enova Corporation represent 98% of the votes related to the
outstanding voting shares of San Diego Gas & Electric Company. San
Diego Gas & Electric Company owns all of the equity securities of
SDG&E Funding LLC.
The Board of Directors of Sempra Energy consists of sixteen
members, eight of whom are and were at the time of business
combination directors of Enova Corporation (including six directors
of San Diego Gas & Electric Company) and eight of whom are and were
at the time of the business combination directors of Pacific
Enterprises (including seven of the eight directors of Southern
California Gas Company).
Upon the completion of the business combination, the authorized
number of directors of San Diego Gas & Electric Company was
increased to thirteen and seven additional directors were elected,
including Warren I. Mitchell (Chairman and President of Southern
California Gas Company), who was elected Chairman of the Board.
Each of the other six additional directors (Hyla H. Bertea, Herbert
L. Carter, Wilford D. Godbold, Jr., Ignacio E. Lozano, Jr.,
Richard J. Stegemeier and Diana L. Walker) is also a director of
Pacific Enterprises. All of the directors of San Diego Gas &
Electric Company (other than Mr. Mitchell) are also directors of
Sempra Energy and none (other than Mr. Mitchell) is an officer or
other employee of Sempra Energy or any of its subsidiaries.
It is contemplated that the authorized number of directors of San
Diego Gas & Electric Company will be further increased to fifteen
directors upon shareholder approval of a requisite bylaw amendment
and that two additional directors of Sempra Energy (Robert H.
Goldsmith, who is also a director of Enova Corporation, and William
G. Ouchi, who is also a director of Pacific Enterprises) will be
elected as directors of San Diego Gas & Electric Company. Upon
such election the Board of Directors of San Diego Gas & Electric
Company would consist of fourteen of the sixteen directors of
Sempra Energy (including all of the directors who are not officers
or other employees of Sempra Energy or its subsidiaries) and Mr.
Mitchell.
None of the above-mentioned people are members of Registrant's
Board of Directors and its membership is unchanged.
Item 5. Other Events.
As previously discussed under the caption "RECENT DEVELOPMENTS_
VOTER INITIATIVE" in the Prospectus Supplement dated December 4,
1997 (the "Prospectus") for the California Infrastructure and
Economic Development Bank Special Purpose Trust SDG&E-1, Rate
Reduction Certificates, Series 1997-1 (the "Certificates"), certain
California groups had previously submitted to the California State
Attorney General a proposed ballot initiative (the "Voter
Initiative") relating to the Certificates, which were issued in
December 1997.
In May 1998, the sponsors of the Voter Initiative commenced filing
of the Voter Initiative with various county election officials. On
June 24, 1998, the California Secretary of State officially
certified the Voter Initiative (Proposed Initiative No. SA 97 RF
0064) for the November 3, 1998 statewide election, based on the
required submission of petitions containing a sufficient number of
valid signatures.
The Voter Initiative seeks to amend or repeal Assembly Bill 1890,
Chapter 854, California Statutes of 1996 (as amended, the
"Statute") in various respects, including requiring utilities to
provide a 10% reduction in electricity rates charged to residential
and small commercial customers in addition to the 10% rate
reduction that was effect as of January 1, 1998. Among other
things, the Voter Initiative would prohibit a utility from
collecting the separate nonbypassable charges payable by
residential and small commercial customers (the "FTA Charges") for
the payment of rate reduction bonds, such as the Certificates, or
if such a prohibition were found to be unenforceable by a court of
competent jurisdiction, require the utility to offset any such FTA
Charge by crediting back to the customer the amount of such charge.
In addition, the Voter Initiative states that "any underwriter or
bond purchaser who purchases rate reduction bonds after November
15, 1997. . . shall be deemed to have notice of the [Voter
Initiative]."
On May 22, 1998, a group known as "Californians for Affordable and
Reliable Electric Services" ("CARES") filed a petition in the Third
District Court of Appeal (Californians for Affordable and Reliable
Electric Service v. Bill Jones, et al.) to invalidate the Voter
Initiative on the grounds that it represents an unconstitutional
impairment of contract rights, and that it is an unconstitutional
attempt to implement actions by statute that only can be done
through a state constitutional amendment. Members of CARES include
the California State Chamber of Commerce, the state's investor-
owned utilities (including San Diego Gas & Electric Company), and a
wide range of business, environmental and consumer groups. On July
2, the Third District Court of Appeal issued a one-sentence order
refusing to grant review of the CARES petition. Such ruling did
not represent a ruling on the merits of the arguments presented.
On July 6, CARES filed a petition in the California Supreme Court
seeking to overturn the Third District Court of Appeal's denial.
No assurance can be given as to whether the Voter Initiative will
be excluded form the November 1998 ballot.
As stated in the Prospectus Supplement under the caption "RECENT
DEVELOPMENTS - VOTER INITIATIVE," and in the Prospectus dated
December 4, 1997 for the Certificates under the caption "RISK
FACTORS - Unusual Nature of the Transition Property - Possible
State Amendment or Repeal of the Statute and Related Litigation,"
in connection with the issuance of the Certificates Brown & Wood
LLP provided an opinion that, 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 legislative process or California
voter initiative) if such repeal or amendment would substantially
impair the rights of the Certificateholders, absent a demonstration
by the State of California of a "great public calamity" that
justifies a contractual impairment. There have been numerous cases
in which legislative or popular concerns with the burden of
taxation or government 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. Brown & Wood LLP
opined further in connection with the issuance of the Certificates
that knowledge of the pendency of a proposed voter initiative by
prospective Certificateholders should not diminish the protection
afforded by the contracts clause of the United States Constitution
(and, by analogy, the Constitution of the State of California).
The opinions of Brown & Wood LLP were based upon analogous case
law; none of such cases addresses these particular circumstances
directly. The opinions of Brown & Wood LLP have not been reissued
since the Certificates were issued and do not constitute a
guarantee of the outcome of any particular litigation.
The qualification of the Voter Initiative for the November 1998
ballot could have a material adverse effect on the secondary market
for the Certificates, including the price and liquidity thereof.
The refusal of the Third District Court of Appeal to grant review
of the CARES petition could have a further material adverse effect
on the secondary market for the Certificates, including the price
and liquidity thereof. If the Voter Initiative is voted into law
and is not immediately overturned or is not stayed pending judicial
review of its merits, the collection of charges necessary to pay
the Certificates while the litigation is pending could be
precluded, which would adversely affect the Certificates, the
secondary market for the Certificates, including the pricing and
liquidity thereof, the dates of maturity thereof, and accordingly
the weighted average lives thereof. In addition, if the Voter
Initiative were to be voted into law and be upheld by the courts,
it could have a further material adverse effect on the
Certificates, the secondary market for the Certificates, including
the pricing and liquidity thereof, the dates of maturity thereof,
and the weighted average lives thereof, and the holders of the
Certificates could incur a loss on their investment.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
2.1 Agreement and Plan of Merger and Reorganization dated
as of October 12, 1996 and as amended January 13, 1997 among Enova
Corporation, Pacific Enterprises, Sempra Energy (then named Mineral
Energy Company), G Mineral Energy Sub and B Mineral Energy Sub
(filed as Annex A to the Joint Proxy Statement/Prospectus dated
February 7, 1997 included in the Registration Statement on Form S-4
(Registration Statement No. 333-21229) of Sempra Energy (then named
Mineral Energy Company) and incorporated hereby by reference).
23.1 Consent of Brown & Wood LLP (incorporated by
reference to Exhibits 99.7 and 99.8 to Amendment No. 4 to the
Registration Statement on Form S-3 of SDG&E Funding LLC No. 333-
30761)
99.1 Proposed Initiative (No. SA 97 RF 0064)
99.2 Opinions of Brown & Wood LLP (incorporated by
reference to Exhibits 99.7 and 99.8 to Amendment No. 4 to the
Registration Statement on Form S-3 of SDG&E Funding LLC No. 333-
30761)
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrants have duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SDG&E FUNDING LLC
(Registrant)
Date: July 7, 1998 By: /s/ James P. Trent
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James P. Trent
Chief Financial Officer and
Chief Accounting Officer
EXHIBIT 99.1
PROPOSED INITIATIVE NO. SA 97 RF 0064
THE UTILITY RATE REDUCTION AND REFORM ACT
SECTION I. 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 it 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.
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.
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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
Sections 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 payment, surcharge or 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 ASSESSMENT 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
Sections 367.1, 367.2, 368.1, and 840.1
Public Participation and Judicial Review For Consumer Protection
and Electric Company Accountability
Section 1170.5
(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 judgment 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 costs, 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 the nonbypassable charge referred to in
Sections 367 and 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 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.
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(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.
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