SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
___________ TO _____________
COMMISSION FILE NUMBER 333-30761
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SDG&E-1
(Issuer of the Certificates)
SDG&E FUNDING LLC
(Exact name of registrant as specified in its Certificate of Formation)
DELAWARE 95-1184800
- -----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 ASH STREET, ROOM 111,
SAN DIEGO, CALIFORNIA 92101
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 696-2328
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
California Infrastructure and Economic Development Bank Special Purpose
Trust SDG&E-1 Rate Reduction Certificates, Series 1997-1: Class A-1
5.97% Certificates; Class A-2 6.04% Certificates; Class A-3 6.07%
Certificates; Class A-4 6.15% Certificates; Class A-5 6.19%
Certificates; Class A-6 6.31% Certificates; Class A-7 6.37% Certificates
(maturing serially from 1998 to 2007, and underlying SDG&E Funding LLC
Notes of the same respective classes)
- -----------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of February 28, 1999 was $0.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
PART I
ITEM 1. BUSINESS
GENERAL
SDG&E Funding LLC (the "Note Issuer") is a special-purpose,
single-member limited liability company organized under the laws of the
State of Delaware. San Diego Gas & Electric Company ("SDG&E"), as the
sole member of the Note Issuer, owns all of the equity securities of
the Note Issuer. The principal executive office of the Note Issuer is
located at 101 Ash Street, Room 111, San Diego, California 92101. Its
phone number is (619) 696-2328. The Note Issuer was organized in July
1997 for the limited purposes of holding and servicing the Transition
Property (as described below) and issuing notes secured by the
Transition Property and other limited collateral and related
activities, and is restricted by its organizational documents from
engaging in other activities. The Note Issuer's organizational
documents require it to operate in a manner such that it should not be
consolidated in the bankruptcy estate of SDG&E in the event SDG&E
becomes subject to such a proceeding.
The only material business conducted by the Note Issuer has
been the acquisition of Transition Property and the issuance on
December 16, 1997 of $658,000,000 in principal amount of the SDG&E
Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7 (the
"Notes"), with scheduled maturities ranging from one year to ten years
and final maturities ranging from three to twelve years. The specific
interest rate and maturity of each class of Notes is specified herein
under Note C of the Notes to Financial Statements attached hereto. The
Notes were issued pursuant to an Indenture between the Note Issuer and
Bankers Trust Company of California, N.A., as trustee (the
"Indenture"). The Note Issuer sold the Notes to the California
Infrastructure and Economic Development Bank Special Purpose Trust
SDG&E-1, a Delaware business trust (the "Trust"), which issued
certificates corresponding to each class of Notes (the "Certificates")
in a public offering.
The Note Issuer has no employees. It has entered into a
servicing agreement (the "Servicing Agreement") with SDG&E, pursuant to
which SDG&E is required to service the Transition Property on behalf of
the Note Issuer. In addition, the Note Issuer has entered into an
Administrative Services Agreement with SDG&E pursuant to which SDG&E
performs administrative and operational duties for the Note Issuer.
TRANSITION PROPERTY
The California Public Utilities Code (the "PU Code") provides
for the creation of "Transition Property." A financing order dated
September 3, 1997 (the "Financing Order") issued by the California
Public Utilities Commission (the "CPUC"), together with the related
Issuance Advice Letter, establishes, among other things, separate
nonbypassable charges (the "FTA Charges") payable by residential
electric customers and small commercial electric customers in an
aggregate amount sufficient to repay in full the Certificates, fund the
Overcollateralization Subaccount established under the Indenture and
pay all related costs and fees. Under the PU Code and the Financing
Order, the owner of the Transition Property is entitled to collect FTA
Charges until such owner has received amounts sufficient to retire all
outstanding series of Certificates and cover related fees and expenses
and the Overcollateralization Amount described in the Financing Order.
The Transition Property is a property right under California law that
includes, without limitation, ownership of the FTA Charges and any
adjustments thereto as described in the next paragraph.
In order to enhance the likelihood that actual collections
with respect to the Transition Property are neither more nor less than
the amount necessary to amortize the Notes in accordance with their
expected amortization schedules, pay all related fees and expenses, and
fund certain accounts established pursuant to the Indenture as
required, the Servicing Agreement requires SDG&E, as the servicer of
the Transition Property (in such capacity, the "Servicer"), to seek,
and the Financing Order and the PU Code require the CPUC to approve,
periodic adjustments to the FTA Charges. Such adjustments will be based
on actual collections with respect thereto and updated assumptions by
the Servicer as to future usage of electricity by specified customers,
future expenses relating to the Transition Property, the Notes and the
Certificates, and the rate of delinquencies and write-offs. The
Servicer anticipates filing for such adjustments annually beginning
with calendar year 1999.
THE TRUST
The Trust was organized in November 1997 solely for the
purpose of purchasing the Notes and issuing the Certificates. It will
not conduct any other material business activities.
ITEM 2. PROPERTIES
The Note Issuer has no tangible properties. Its primary
asset is the Transition Property described above in "Item 1. Business."
The Trust has no materially important physical properties. Its primary
assets are the Notes as described above in "Item 1. Business."
Collections related to the Transition Property and the related payments
on the Notes in 1998 are shown on the Statements of Cash Flows included
in this Annual Report.
ITEM 3. LEGAL PROCEEDINGS
On October 6, 1997 The Utility Reform Network ("TURN"), a
California consumer-advocacy group, filed an application for rehearing
with the CPUC seeking rehearing of the Financing Order, alleging that
the Financing Order was unlawful on various grounds. The CPUC denied
the application for rehearing on October 22, 1997. On November 24,
1997, TURN, Public Media Center, Consumers Union and Harvey Rosenfield
filed a petition for writ of review of the Financing Order with the
California Supreme Court. In connection with their petition for writ of
review, TURN and the other petitioners requested that the California
Supreme Court issue an interim writ or order suspending implementation
of the Financing Order until such time as the Court resolved the
petition for writ of review. On November 25, 1997, Pacific Gas and
Electric Company, San Diego Gas & Electric Company and Southern
California Edison Company jointly filed an opposition to the request
for an interim writ or order suspending implementation of the Financing
Order. On December 4, 1997, the California Supreme Court denied both
the request for an interim writ or order and the petition for writ of
review.
Various consumer groups filed a voter initiative with the
California Attorney General which sought, among other things, to
prohibit the collection of any customer charges for the Certificates
or, alternatively, require SDG&E to offset such charges with an equal
credit to customers. In February 1998, the California Secretary of
State released the title and summary prepared for the proposed
initiative by the office of the California Attorney General. The
initiative appeared on the November 1998 statewide ballot and was
defeated by the voters. If the initiative had been voted into law and
been upheld by the courts, it could have had a material adverse effect
on the Note Issuer and the holders of the Certificates.
No other legal proceedings affecting either the Note Issuer
or the Trust occurred in 1997 or 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted with respect to the Note Issuer pursuant to
Instruction I of Form 10-K.
No matters were submitted for a vote or consent of holders of
Certificates in 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) There is no established public trading market for the Note
Issuer's equity securities. All of the Note Issuer's equity is owned by
SDG&E. On August 11, 1997, SDG&E transferred $400,000 to the Note
Issuer as an initial capital contribution, and SDG&E made capital
contributions to the Note Issuer aggregating to $3,290,000. The sale of
such membership interest was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
The Note Issuer has made no other sales of unregistered securities.
The Indenture prohibits the Note Issuer from making any
distributions to the sole member from the amounts allocated to the Note
Issuer unless no default has occurred and is continuing thereunder and
the book value of the remaining equity of the Note Issuer, after giving
effect to such distribution, is equal to at least 0.5% of the original
principal amount of all series of Notes which then remains outstanding.
As of December 31, 1998, the original principal amount of all series of
Notes which then remained outstanding was $592,200,000. As of December
31, 1998, the Note Issuer has not made any distributions to SDG&E. The
Note Issuer intends to make distributions to the sole member from time
to time in the future as permitted by the Indenture.
The registered owner for each class of the Certificates is
Cede & Co., as nominee of The Depository Trust Company ("DTC"). DTC has
informed the Note Issuer that as of March 26, 1999, there were
approximately 100 beneficial holders of Certificates. The Certificates
are not registered and do not trade on any established trading market.
(b) The Note Issuer's Amendment No. 4 to the Registration
Statement No. 333-30761 on Form S-3, as filed with the Securities and
Exchange Commission (the "Commission") on November 21, 1997 (the
"Registration Statement") for the sale of the Notes and the
Certificates was declared effective by the Commission on November 24,
1997. The Certificates were offered for sale beginning on December 4,
1997. Certificates in the aggregate amount of $658,000,000 were sold on
December 16, 1997. In connection with the offering of the Certificates,
Morgan Stanley, Inc. and Lehman Brothers Inc. acted as the managing
underwriters. The Trust purchased the Notes from the Note Issuer on
December 16, 1997, pursuant to a private sale in the aggregate amount
of $658,000,000. Notes and Certificates in the aggregate principal
amount of $800,000,000 were registered and $658,000,000 have been
offered and sold to date. All of the Notes offered in the sale were
purchased. The amount of each class of Notes and Certificates
registered and the respective sale prices, which exclude the original
issue discount, are as follows:
<TABLE>
<CAPTION>
Class Principal Amount Registered Sale Price
- ------ --------------------------- ----------
<S> <C> <C>
Class A-1 Notes and Certificates $ 65,800,000.00 $ 65,797,058.74
Class A-2 Notes and Certificates 82,639,254.00 82,628,229.92
Class A-3 Notes and Certificates 66,230,948.00 66,218,105.82
Class A-4 Notes and Certificates 65,671,451.00 65,648,886.29
Class A-5 Notes and Certificates 96,537,839.00 96,536,159.24
Class A-6 Notes and Certificates 197,584,137.00 197,544,718.97
Class A-7 Notes and Certificates 83,536,371.00 83,481,128.40
--------------- ---------------
Total: $658,000,000.00 $657,854,287.38
=============== ===============
</TABLE>
The net offering proceeds to the Trust were $654,728,789: the
$658,000,000 received in the sale of the Certificates less $3,125,498 of
underwriting discount and commission, and $145,713 of original issue
discount. The Trust used all of the net proceeds from the sale of
Certificates to purchase the Notes from the Note Issuer. The net
offering proceeds to the Note Issuer were used to purchase the
Transition Property. Compensation paid to the independent director of
the Note Issuer was $3,800. Other than the payment to the independent
director, no additional net offering proceeds were used to pay, either
directly or indirectly, any director, officer or affiliate of the Note
Issuer.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to Instruction I of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of the Note Issuer's results of
operations is in an abbreviated format pursuant to Instruction I of Form
10-K.
As discussed above under "Item 1. Business", the Note Issuer
was established in July 1997 for limited purposes. As discussed above
under Item 5 (Market for Registrant's Common Equity and Related
Stockholder Matters), on December 16, 1997, the Note Issuer issued Notes
in order to purchase Transition Property. The Note Issuer is restricted
by its organizational documents from engaging in activities other than
those described in Item 1 (Business).
The Note Issuer expects to use collections with respect to the
Transition Property to make scheduled principal and interest payments on
the Notes. Interest income earned on the Transition Property is expected
to offset (1) interest expense on the Notes, (2) amortization of debt-
issuance expenses and the discount on the Notes and (3) the fees charged
by SDG&E for servicing the Transition Property and providing
administrative services to the Note Issuer. (These agreements are
discussed in greater detail in Note D to the Financial Statements
attached hereto.)
Collections of FTA Charges are currently meeting expectations.
For 1998, collections were sufficient to cover scheduled payments on the
Notes and related expenses. Excess collections will be applied toward
future payments on the Notes. Management believes that it is reasonable
to expect future collections of FTA Charges to be sufficient to make
scheduled payments on the Notes and pay related expenses on a timely
basis.
The Note Issuer has no computer systems of its own and relies on
certain systems of SDG&E for information. While there is the potential
for SDG&E's system to be unable to recognize the year 2000, SDG&E is in
the process of an extensive evaluation of its computer systems and an
enterprise-wide date-conversion project.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the Note Issuer or the Trust.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information
required to be filed hereunder are indexed on page 10 of this Annual
Report.
Since the Trust is a pass-through entity with no assets other
than the Notes, financial statements for the Trust are not included. In
addition, Exhibit 99.1 contains financial information regarding
collections of FTA Charges by the Servicer for the fourth quarter of
1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable with respect to the Note Issuer or the Trust.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to Instruction I of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to Instruction I of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to Instruction I of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted with respect to the Note Issuer pursuant to
Instruction I of Form 10-K.
Not applicable to the Trust.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this report:
1. Financial Statements.
The following financial statements of the Note Issuer and
report of independent accountants are included in Item 8:
Independent Auditors' Report
Statements of Operations and Changes in Member's Equity
Balance Sheets
Statements of Cash Flows
Notes to Financial Statements
2. Financial Statement Schedule.
None.
3. Exhibits.
The following exhibits are filed as a part of this report:
Exhibit Description
------- -----------
3.1 Certificate of Formation. (1)
3.2 Limited Liability Company Agreement. (1)
3.3 Amended and Restated Limited Liability Company Agreement. (1)
4.1 Note Indenture. (2)
4.2 Amended and Restated Declaration and Agreement of Trust. (1)
4.3 Series Supplement. (2)
4.4 Form of Note. (1)
4.5 First Supplemental Trust Agreement. (2)
4.6 Form of Rate Reduction Certificate. (2)
10.1 Transition Property Purchase and Sale Agreement. (2)
10.2 Transition Property Servicing Agreement. (2)
10.3 Note Purchase Agreement. (2)
10.4 Fee and Indemnity Agreement. (2)
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
99.1 Quarterly Servicer's Certificate dated December 23, 1998.
____________________________
(1) Incorporated by reference to the same-titled exhibit to the
Note Issuer and Trust's Registration Statement on Form S-3,
as amended, File No. 333-30761.
(2) Incorporated by reference to the same-titled exhibit to the
Note Issuer and Trust's Current Report on Form 8-K filed with
the Commission on December 23, 1997.
(b) Reports on 8-K.
The Note Issuer and Trust filed a Current Report on Form 8-K dated
November 4, 1998, discussing the defeat of the Voter Initiative which
sought to amend or repeal California's electric industry restructuring
legislation in various respects.
FINANCIAL STATEMENT INDEX
Independent Auditors' Report.............................. 11
Statements of Operations and Changes In Member's Equity... 12
Balance Sheets............................................ 13
Statements of Cash Flows.................................. 14
Notes to Financial Statements............................. 15
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of SDG&E Funding LLC:
We have audited the accompanying balance sheets of SDG&E Funding
LLC as of December 31, 1998 and 1997, and the related statements of
operations and changes in member's equity and cash flows for the
period from July 1, 1997 (inception) to December 31, 1997 and for the
year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of SDG&E Funding LLC as of
December 31, 1998 and 1997, and the results of their operations and
their cash flows for the period from July 1, 1997 (inception) to
December 31, 1997 and for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
January 27, 1999
<TABLE>
SDG&E FUNDING LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
(In thousands of dollars)
<CAPTION>
For the Period
For the From Inception
Year Ended (July 1, 1997) to
December 31, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
INCOME
- ------
Interest income $40,907 $ 8
Other income 1,122 --
------- -------
Total Income 42,029 8
------- -------
EXPENSES
- --------
Interest expense 41,366 --
Amortization of deferred
financing costs 642 --
Other expenses 24 5
------- -------
Total Expenses 42,032 5
------- -------
NET(LOSS)INCOME (3) 3
Member's equity, beginning
of period 3,293 3,290
------- -------
MEMBER'S EQUITY, DECEMBER 31 $ 3,290 $ 3,293
======= =======
</TABLE>
See notes to financial statements.
<TABLE>
SDG&E FUNDING LLC
BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
Balance at December 31 1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
- -------
Current Assets:
Cash and cash equivalents $ 565 $ 2,427
Interest receivable -- 8
Current portion of
transition property 65,800 65,800
-------------- --------------
Total Current Assets 66,365 68,235
Noncurrent Assets:
Transition property 519,404 585,204
Deferred financing costs 5,902 4,920
Restricted funds 9,939 3,190
-------------- --------------
TOTAL ASSETS $ 601,610 $ 661,549
============== ==============
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
Current Liabilities:
Current portion of
long-term debt $ 65,800 $ 65,800
Accounts payable and
accrued expenses 6,120 256
-------------- --------------
Total Current Liabilities 71,920 66,056
Long-term debt 526,400 592,200
-------------- --------------
Total Liabilities 598,320 658,256
Member's Equity 3,290 3,293
-------------- --------------
TOTAL LIABILITIES AND
MEMBER'S EQUITY $ 601,610 $ 661,549
============== ==============
</TABLE>
See notes to financial statements.
<TABLE>
SDG&E FUNDING LLC
STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<CAPTION>
For the Period
For the From Inception
Year Ended (July 1, 1997) to
December 31, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (3) $ 3
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of deferred financing costs 642 --
Decrease (increase) in interest receivable 8 (8)
Increase in accounts payable and
accrued expenses 5,864 256
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,511 251
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of underlying notes -- 654,729
Equity contribution from San Diego Gas & Electric -- 3,290
Collection of transition property from SDG&E 65,800 --
Payments on long-term debt (65,800) --
Incurrence of deferred financing costs (1,624) (1,649)
Increase in restricted funds (6,749) (3,190)
------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (8,373) 653,180
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of transition property -- (651,004)
-------- --------
NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (1,862) 2,427
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,427 --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 565 $ 2,427
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments $ 40,757 $ --
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Debt-issuance costs deducted from the note proceeds -- $ 3,125
======== ========
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
A. Nature of Operations
The financial statements include the accounts of SDG&E Funding LLC
(SDG&E Funding), a Delaware special-purpose limited-liability company,
whose sole member is San Diego Gas & Electric Company (San Diego Gas &
Electric), a provider of electric and natural gas services. San Diego
Gas & Electric is a wholly owned subsidiary of Sempra Energy. SDG&E
Funding was formed on July 1, 1997, in order to effect the issuance of
notes (the Underlying Notes) intended to support a 10-percent
electric-rate reduction. This reduction is provided to San Diego Gas &
Electric's residential and small commercial customers in connection
with the electric industry restructuring mandated by California
Assembly Bill 1890.
SDG&E Funding was organized for the limited purposes of issuing the
Underlying Notes and purchasing Transition Property. Transition
Property is the right to be paid a specified amount from a
nonbypassable charge levied on residential and small commercial
customers. The nonbypassable charge has been authorized by the
California Public Utility Commission (CPUC) pursuant to electric
restructuring legislation.
SDG&E Funding is restricted by its organizational documents from
engaging in any other activities. In addition, SDG&E Funding's
organizational documents require it to operate in such a manner that
it should not be consolidated in the bankruptcy estate of San Diego
Gas & Electric in the event that San Diego Gas & Electric becomes
subject to such a proceeding.
SDG&E Funding is legally separate from San Diego Gas & Electric. The
assets of SDG&E Funding are not available to creditors of San Diego
Gas & Electric or Sempra Energy. SDG&E Funding will cease to exist
upon the maturation or retirement of the Underlying Notes.
B. Summary of Accounting Policies
Restricted Funds
SDG&E Funding is required to maintain funds of approximately $3
million. These funds are to be used to make scheduled payments on the
Underlying Notes and to pay other expenses of SDG&E Funding in the
event that collections of the nonbypassable charge provide
insufficient funds to make such payments.
Unamortized Debt Issuance Expense
The expenses associated with the issuance of the Underlying Notes have
been capitalized and are being amortized over the life of the
Underlying Notes.
Income Taxes
SDG&E Funding is a single-member limited-liability company.
Accordingly, all federal income tax effects and all material State of
California franchise tax effects of SDG&E Funding's activities accrue
to San Diego Gas & Electric.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period. Actual
results could differ from these estimates.
C. Long Term Debt
In December 1997, SDG&E Funding issued $658 million of the Underlying
Notes to the California Infrastructure and Economic Development Bank
Special Purpose Trust (the Trust). The Trust, in turn, issued pass-
through certificates known as "rate-reduction bonds" with a original
principal amount equal to the original principal amount of the
Underlying Notes. SDG&E Funding used the proceeds from the Underlying
Notes to purchase the Transition Property from San Diego Gas &
Electric.
The Underlying Notes are secured solely by the Transition Property and
other assets of SDG&E Funding. Scheduled maturities and interest rates
for the Underlying Notes at December 31 are as follows:
Scheduled 1998 1997
Maturity Interest Amount Amount
Class Date Rate (Dollars in thousands)
- ---------------------------------------------------------------------
A-1 December 26, 1998 5.97% -- $ 65,800
A-2 March 25, 2000 6.04% $ 82,639 82,639
A-3 March 25, 2001 6.07% 66,231 66,231
A-4 March 25, 2002 6.15% 65,672 65,672
A-5 September 25, 2003 6.19% 96,538 96,538
A-6 September 25, 2006 6.31% 197,584 197,584
A-7 December 26, 2007 6.37% 83,536 83,536
----------- ----------
592,200 658,000
Less Current Portion (65,800) (65,800)
----------- -----------
Long-Term Debt $526,400 $592,200
=========== ===========
The carrying amounts and fair values of the Underlying Notes are $592
million and $607 million, respectively, at December 31, 1998, and $658
million each at December 31, 1997. The fair values of the Underlying
Notes are estimated based on quoted market prices for them or for
similar issues.
The source of repayment is a nonbypassable charge authorized by the
CPUC. This nonbypassable charge is collected by San Diego Gas &
Electric, as Servicer, from its residential and small commercial
customers. Collections of the nonbypassable charge are deposited on a
monthly basis by San Diego Gas & Electric in an account maintained by
the trustee (Bankers Trust Company). Each quarter such monies are used
to make principal and interest payments on the Underlying Notes. The
debt service requirements include an overcollateralization amount that
is retained for the benefit of the holders of the Underlying Notes.
Any amounts not required for debt service will be returned to SDG&E
Funding.
D. Significant Agreements and Related Party Transactions
Under a Transition Property Servicing Agreement, San Diego Gas &
Electric, as Servicer, is required to manage and administer the
Transition Property of SDG&E Funding and to collect the nonbypassable
charge from electric customers on behalf of SDG&E Funding. SDG&E
Funding pays a servicing fee equal to 0.25% of the outstanding
principal amount of the Underlying Notes. The Servicer is also
entitled to receive as compensation any interest earnings on
nonbypassable charge collections prior to remittance to the Trust and
any late payment charges collected from San Diego Gas & Electric's
customers.
The Trust was created for the limited purposes of purchasing the
Underlying Notes from SDG&E Funding, issuing the rate-reduction bonds,
and applying the proceeds from the Underlying Notes to the payment of
the rate-reduction bonds. Under a Fee and Indemnity Agreement, SDG&E
Funding is responsible for paying all fees and expenses incurred by
the Certificate Trustee (Bankers Trust Company) and the Delaware
Trustee (Bankers Trust Delaware).
E. 1998 Quarterly Financial Data (Unaudited)
Quarter ended
-----------------------------------------------
Dollars in millions March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------
Income $ 12,112 $ 10,172 $ 9,925 $ 9,820
Expenses 12,115 10,172 9,925 9,820
-----------------------------------------------
Net income (loss) $ ( 3) $ 0 $ 0 $ 0
===============================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SDG&E Funding LLC,
as Registrant
By: /s/ Charles A. McMonagle
------------------------------
Name: Charles A. McMonagle
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
- ---------- ----- ----
/s/ Charles A. McMonagle President, Chief Executive March 31, 1999
- ------------------------- Officer and Director
Charles A. McMonagle
/s/ James P. Trent Chief Financial Officer, March 31, 1999
- ------------------------ Chief Accounting Officer
James P. Trent and Director
/s/ Donald J. Puglisi Director March 31, 1999
- ------------------------
Donald J. Puglisi
17
18
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 333-30761 of SDG&E Funding LLC on Form S-3 of our
report dated January 27, 1999, appearing in this Annual Report on
Form 10-K of SDG&E Funding LLC for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED STATEMENT OF OPERATIONS, BALANCE
SHEET AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0001041864
<NAME> SDG&E FUNDING LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 565
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,365
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 601,610
<CURRENT-LIABILITIES> 71,920
<BONDS> 526,400
0 <F1>
0 <F1>
<COMMON> 0 <F1>
<OTHER-SE> 3,290 <F1>
<TOTAL-LIABILITY-AND-EQUITY> 601,610
<SALES> 0
<TOTAL-REVENUES> 42,029
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,366
<INCOME-PRETAX> (3)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3)
<EPS-PRIMARY> 0 <F1>
<EPS-DILUTED> 0 <F1>
<FN>
<F1> NO COMMON OR PREFERRED SHARES ISSUED AND OUTSTANDING.
EQUITY = MEMBER'S EQUITY
</TABLE>
EXHIBIT 99.1
Quarterly Servicer's Certificate
California Infrastructure and Economic Development Bank Special
Purpose Trust SDG&E-1
$658,000,000 Rate Reduction Certificates, Series 1997-1
Pursuant to Section 4.01(d)(ii) of the Transition Property Servicing
Agreement dated as of December 16, 1997 (the "Agreement") between
San Diego Gas & Electric Company, as Servicer, and SDG&E Funding
LLC, as Note Issuer, the Servicer does hereby certify as follows:
Capitalized terms used in the Quarterly Servicer's Certificate (the
"Quarterly Certificate") have their respective meanings as set forth
in the Agreement. References herein to certain section and
subsections are references to the respective sections of the
Agreement.
Collection Periods: Oct-98 through Dec-98
Distribution Date: 25-Dec-98
<TABLE>
1. COLLECTIONS ALLOCABLE AND AGGREGATE AMOUNTS AVAILABLE FOR THE
CURRENT DISTRIBUTION DATE:
<S> <C> <C>
i. Remittances for the first Collection Period Oct-98 $13,021,489.99
ii. Remittances for the second Collection Period Nov-98 $12,455,035.83
iii. Remittances for the third Collection Period Dec-98 $10,796,460.85
iv. Net Earnings on Collection Account $212,986.76
v. General Sub-Account Balance $36,485,973.43
vi. Reserve Sub-Account Balance $3,953,571.67
vii. Overcollateralization Sub-Account Balance $246,750.00
viii. Capital Sub-Account Balance $3,190,000.00
ix. Collection Account Balance $43,876,295.10
2. OUTSTANDING PRINCIPAL BALANCE AND COLLECTION ACCOUNT BALANCE
AS OF PRIOR DISTRIBUTION DATE:
i. Class A-1 Principal Balance $23,489,759.73
ii. Class A-2 Principal Balance $82,639,254.00
iii. Class A-3 Principal Balance $66,230,948.00
iv. Class A-4 Principal Balance $65,671,451.00
v. Class A-5 Principal Balance $96,537,839.00
vi. Class A-6 Principal Balance $197,584,137.00
vii. Class A-7 Principal Balance $83,536,371.00
viii. Rate Reduction Certificate Principal Balance $615,689,759.73
ix. Reserve Sub-Account Balance $3,953,571.67
x. Overcollateralization Sub-Account Balance $246,750.00
xi. Capital Sub-Account Balance $3,190,000.00
3. REQUIRED FUNDING/PAYMENTS AS OF CURRENT DISTRIBUTION DATE:
i. Scheduled Class A-1 Certificate Principal Balance $0.00
ii. Scheduled Class A-2 Certificate Principal Balance $82,639,254.00
iii. Scheduled Class A-3 Certificate Principal Balance $66,230,948.00
iv. Scheduled Class A-4 Certificate Principal Balance $65,671,451.00
v. Scheduled Class A-5 Certificate Principal Balance $96,537,839.00
vi. Scheduled Class A-6 Certificate Principal Balance $197,584,137.00
vii. Scheduled Class A-7 Certificate Principal Balance $83,536,371.00
viii. Scheduled Class A Certificate Principal Balance $592,200,000.00
ix. Required Class A-1 Coupon Payment $350,584.66
x. Required Class A-2 Coupon Payment $1,247,852.74
xi. Required Class A-3 Coupon Payment $1,005,054.64
xii. Required Class A-4 Coupon Payment $1,009,698.56
xiii. Required Class A-5 Coupon Payment $1,493,923.06
xiv. Required Class A-6 Coupon Payment $3,116,889.76
xv. Required Class A-7 Coupon Payment $1,330,316.71
xvi. Required Overcollateralization Funding $82,250.00
xvii. Required Capital Sub-Account Funding $0.00
4. ALLOCATION OF REMITTANCES AS OF CURRENT DISTRIBUTION DATE
PURSUANT TO 8.02(d)of INDENTURE:
i. Note Trustee, Delaware Trustee
and Certificate Trustee Fees $1,173.33
ii. Quarterly Servicing Fee $384,806.10
iii. Quarterly Administration Fee $25,000.00
iv. Operating Expenses (subject to $100,000 cap) $100,000.00
v. Quarterly Interest
1. Class A-1 Certificate Coupon Payment $350,584.66
2. Class A-2 Certificate Coupon Payment $1,247,852.74
3. Class A-3 Certificate Coupon Payment $1,005,054.64
4. Class A-4 Certificate Coupon Payment $1,009,698.56
5. Class A-5 Certificate Coupon Payment $1,493,923.06
6. Class A-6 Certificate Coupon Payment $3,116,889.76
7. Class A-7 Certificate Coupon Payment $1,330,316.71
vi. Principal Due and Payable as a Result of Event
of Default or on Final Maturity Date $0.00
vii. Quarterly Principal
1. Class A-1 Certificate Principal Payment $23,489,759.73
2. Class A-2 Certificate Principal Payment $0.00
3. Class A-3 Certificate Principal Payment $0.00
4. Class A-4 Certificate Principal Payment $0.00
5. Class A-5 Certificate Principal Payment $0.00
6. Class A-6 Certificate Principal Payment $0.00
7. Class A-7 Certificate Principal Payment $0.00
viii. Operating Expenses (in excess of $100,000) $170,249.37
ix. Funding of Overcollateralization Sub-Account
(to required level) $82,250.00
x. Funding of Capital Sub-Account (to required level) $0.00
xi. Net Earnings Released to Note Issuer $212,986.76
xii. Released to Note Issuer upon Series Retirement:
Overcollateralization Sub-Account $0.00
xiii. Released to Note Issuer upon Series Retirement:
Capital Sub-Account $0.00
xiv. Deposits to Reserve Sub-Account $2,465,428.01
xv. Released to Note Issuer upon Series Retirement:
Collection Account $0.00
5. OUTSTANDING PRINCIPAL BALANCE AND COLLECTION ACCOUNT BALANCE AS
OF CURRENT DISTRIBUTION DATE (after giving effect to payments to
be made on such distribution date):
i. Class A-1 Principal Balance $0.00
ii. Class A-2 Principal Balance $82,639,254.00
iii. Class A-3 Principal Balance $66,230,948.00
iv. Class A-4 Principal Balance $65,671,451.00
v. Class A-5 Principal Balance $96,537,839.00
vi. Class A-6 Principal Balance $197,584,137.00
vii. Class A-7 Principal Balance $83,536,371.00
viii. Rate Reduction Certificate Principal Balance $592,200,000.00
ix. Reserve Sub-Account Balance $6,418,999.68
x. Overcollateralization Sub-Account Balance $329,000.00
xi. Capital Sub-Account Balance $3,190,000.00
6. SUB-ACCOUNT DRAWS AS OF CURRENT DISTRIBUTION DATE(if
applicable, pursuant to Section 8.02(e) of Indenture):
i. Reserve Sub-Account $0.00
ii. Overcollateralization Sub-Account $0.00
iii. Capital Sub-Account $0.00
iv. Total Draws $0.00
7. SHORTFALLS IN INTEREST AND PRINCIPAL PAYMENTS AS OF CURRENT
DISTRIBUTION DATE:
i. Quarterly Interest
1. Class A-1 Certificate Coupon Payment $0.00
2. Class A-2 Certificate Coupon Payment $0.00
3. Class A-3 Certificate Coupon Payment $0.00
4. Class A-4 Certificate Coupon Payment $0.00
5. Class A-5 Certificate Coupon Payment $0.00
6. Class A-6 Certificate Coupon Payment $0.00
7. Class A-7 Certificate Coupon Payment $0.00
ii. Quarterly Principal
1. Class A-1 Certificate Principal Payment $0.00
2. Class A-2 Certificate Principal Payment $0.00
3. Class A-3 Certificate Principal Payment $0.00
4. Class A-4 Certificate Principal Payment $0.00
5. Class A-5 Certificate Principal Payment $0.00
6. Class A-6 Certificate Principal Payment $0.00
7. Class A-7 Certificate Principal Payment $0.00
8. SHORTFALLS IN REQUIRED SUB-ACCOUNT LEVELS AS OF CURRENT
DISTRIBUTION DATE:
i. Overcollateralization Sub-Account $0.00
ii. Capital Sub-Account $0.00
</TABLE>
9. DISTRIBUTIONS OF PRINCIPAL PER $1,000 OF ORIGINAL PRINCIPAL AMOUNT:
PRINCIPAL PER $1,000
ORIGINAL PRINCIPAL PRINCIPAL PAYMENT OF ORIGINAL PRINCIPAL
(A) (B) (B/A*1000)
i. Class A-1 $65,800,000.00 $23,489,759.73 $356.987230
ii. Class A-2 $82,639,254.00 $0.00 $0.000000
iii. Class A-3 $66,230,948.00 $0.00 $0.000000
iv. Class A-4 $65,671,451.00 $0.00 $0.000000
v. Class A-5 $96,537,839.00 $0.00 $0.000000
vi. Class A-6 $197,584,137.00 $0.00 $0.000000
vii. Class A-7 $83,536,371.00 $0.00 $0.000000
10. DISTRIBUTIONS OF INTEREST PER $1,000 OF ORIGINAL PRINCIPAL AMOUNT:
INTEREST PER $1,000
ORIGINAL PRINCIPAL PRINCIPAL PAYMENT OF ORIGINAL PRINCIPAL
(A) (B) (B/A*1000)
i. Class A-1 $65,800,000.00 $350,584.66 $5.328034
ii. Class A-2 $82,639,254.00 $1,247,852.74 $15.100000
iii. Class A-3 $66,230,948.00 $1,005,054.64 $15.175000
iv. Class A-4 $65,671,451.00 $1,009,698.56 $15.375000
v. Class A-5 $96,537,839.00 $1,493,923.06 $15.475000
vi. Class A-6 $197,584,137.00 $3,116,889.76 $15.775000
vii. Class A-7 $83,536,371.00 $1,330,316.71 $15.925000
IN WITNESS HEREOF, the undersigned has duly executed and delivered
this Quarterly Servicer's Certificate this 23rd day of December, 1998.
SAN DIEGO GAS & ELECTRIC COMPANY, as Servicer
by: /s/ James P. Trent
-----------------------------
title: Director, Financial Reporting
-------------------------------
