P R O S P E C T U S S U P P L E M E N T
(TO PROSPECTUS DATED APRIL 27, 2000)
PECO ENERGY TRANSITION TRUST
ISSUER
PECO ENERGY COMPANY
SELLER AND SERVICER
SERIES 2000-A
$1,000,000,000 TRANSITION BONDS
THE ISSUER WILL ISSUE:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Principal Amount $110,000,000 $140,000,000 $398,838,452 $351,161,548
Price $109,989,924 $139,869,255 $397,848,455 $350,362,936
(99.99084%) (99.90661%) (99.75178%) (99.77258%)
Underwriter's Discounts and Commissions $ 220,000 $ 420,000 $ 1,994,192 $ 1,755,808
(0.20%) (0.30%) (0.50%) (0.50%)
Proceeds to the Issuer $109,769,924 $139,449,255 $395,854,263 $348,607,128
Bond Rate 7.180% 7.300% 7.625% 7.650%
Interest Paid Semi-Annual Semi-Annual Semi-Annual Semi-Annual
Optional Redemption* No No No No
First Payment Date September 1, 2000 September 1, 2000 September 1, 2000 September 1, 2000
Expected Final Payment Date September 1, 2001 September 1, 2002 March 1, 2009 September 1, 2009
Class Termination Date September 1, 2003 September 1, 2004 March 1, 2010 March 1, 2010
</TABLE>
* All Series 2000-A Bonds are subject to optional redemption in whole once the
outstanding principal balance has been reduced to less than or equal to 5% of
the initial principal balance.
BEFORE YOU PURCHASE THESE SECURITIES, YOU SHOULD CAREFULLY CONSIDER THE
RISK FACTORS BEGINNING ON PAGE 17 IN THE ACCOMPANYING PROSPECTUS.
o THESE SECURITIES ARE OBLIGATIONS OF PECO ENERGY TRANSITION TRUST ONLY AND ARE
SECURED ONLY BY THE ASSETS OF PECO ENERGY TRANSITION TRUST.
o PECO ENERGY TRANSITION TRUST IS A SPECIAL PURPOSE ENTITY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
There currently is no secondary market for the Series 2000-A Bonds, and there is
no assurance that one will develop.
SALOMON SMITH BARNEY
BANC ONE CAPITAL MARKETS, INC. FIRST UNION SECURITIES, INC.
BANC OF AMERICA SECURITIES LLC CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO. JANNEY MONTGOMERY SCOTT LLC
BARCLAYS CAPITAL BNY CAPITAL MARKETS, INC.
MELLON FINANCIAL MARKETS, LLC
PRUDENTIAL SECURITIES PRYOR, COUNTS & CO., INC. TD SECURITIES
The date of this prospectus supplement is April 27, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE TO FIND INFORMATION IN THESE DOCUMENTS.............................................. S-1
SUMMARY OF TERMS.......................................................................... S-2
Securities Offered...................................................................... S-3
Introduction............................................................................ S-4
The Collateral.......................................................................... S-5
Interest................................................................................ S-5
Principal............................................................................... S-5
Collection Account and Subaccounts...................................................... S-5
Credit Enhancement...................................................................... S-6
Optional Redemption..................................................................... S-6
Mandatory Redemption.................................................................... S-6
Intangible Transition Charge Adjustment Process......................................... S-6
Tax Status.............................................................................. S-7
ERISA Considerations.................................................................... S-7
Servicer's and Issuer's Address and Telephone Number of Principal Executive Office...... S-7
RISK FACTORS.............................................................................. S-8
THE SERIES 2000-A BONDS................................................................... S-8
General................................................................................. S-8
Distributions to the Series 2000-A Subaccount........................................... S-8
Distributions from the Series 2000-A Subaccount......................................... S-8
Interest................................................................................ S-9
Principal............................................................................... S-12
Optional Redemption..................................................................... S-17
Mandatory Redemption.................................................................... S-17
Overcollateralization................................................................... S-17
Other Credit Enhancement................................................................ S-21
Reports to Holders of Series 2000-A Bonds............................................... S-21
DESCRIPTION OF INTANGIBLE TRANSITION PROPERTY............................................. S-22
The Intangible Transition Charges....................................................... S-22
Rate Class Descriptions................................................................. S-23
Adjustments to the Intangible Transition Charges........................................ S-25
DESCRIPTION OF PECO ENERGY'S BUSINESS..................................................... S-26
SERVICING................................................................................. S-26
Monthly Servicing Fee................................................................... S-26
Servicer Advances....................................................................... S-26
UNDERWRITING THE SERIES 2000-A BONDS...................................................... S-27
RATINGS................................................................................... S-28
GLOSSARY OF DEFINED TERMS................................................................. S-29
</TABLE>
<PAGE>
WHERE TO FIND INFORMATION IN THESE DOCUMENTS
We provide information to you about the transition bonds in two separate
documents that progressively provide more detail:
(a) the accompanying prospectus, which provides general information,
some of which may not apply to your series of transition bonds,
and
(b) this prospectus supplement, which describes the specific terms of
your series of transition bonds.
This prospectus supplement and the accompanying prospectus together contain
complete information about the offering of your series of transition bonds. You
are urged to read both documents. In particular, you should read the information
under the heading "Risk Factors" beginning on page 17 of the accompanying
prospectus.
This supplement begins with several sections describing these securities:
o Summary of Terms provides important amounts, dates and other terms
of your series of transition bonds,
o The Series 2000-A Bonds describes the key structural features of
your series of transition bonds, and
o Description of Intangible Transition Property describes the
intangible transition charges that provide the source for payment of
your series of transition bonds and refers you to the sections in
the accompanying prospectus where you can find further information
about the intangible transition charges and other collateral for the
transition bonds.
As you read through these sections, cross-references will direct you to
more information in the accompanying prospectus. You can also directly reference
key topics by looking at the table of contents in this prospectus supplement and
the accompanying prospectus.
This prospectus supplement and the accompanying prospectus may be used by
the underwriters in connection with offers and sales related to market-making
transactions in your series of transition bonds. The underwriters may act as
principal or agent in those transactions. Those sales will be made at prices
related to prevailing market prices at the time of sale.
YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS. THE ISSUER HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT.
TO UNDERSTAND THE STRUCTURE AND PAYMENT TERMS OF THESE SECURITIES, YOU
MUST CAREFULLY READ THE ACCOMPANYING PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN THEIR ENTIRETY.
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<PAGE>
SUMMARY OF TERMS
The following section is only a summary of selected information and does
not provide you with all the information you will need to make your investment
decision. There is more detailed information in this prospectus supplement and
in the accompanying prospectus. To understand all of the terms of the offering
of the transition bonds, carefully read this entire document and the
accompanying prospectus.
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<PAGE>
SECURITIES OFFERED
SERIES 2000-A TRANSITION BONDS
$1,000,000,000
ISSUER: PECO ENERGY TRANSITION TRUST
SELLER AND SERVICER: PECO ENERGY COMPANY
BOND TRUSTEE: THE BANK OF NEW YORK
PRICING DATE: APRIL 27, 2000
SERIES ISSUANCE DATE: MAY 2, 2000
CLEARANCE AND SETTLEMENT: DTC/CLEARSTREAM/EUROCLEAR
<TABLE>
<CAPTION>
Initial Class Principal Balance Bond Rate % of Total Series Principal
------------------------------- ------------ ---------------------------
<S> <C> <C> <C>
Class A-1 $ 110,000,000 7.180% 11.00%
Class A-2 $ 140,000,000 7.300% 14.00%
Class A-3 $ 398,838,452 7.625% 39.88%
Class A-4 $ 351,161,548 7.650% 35.12%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Monthly Servicing Fee: Either 1/12 of 0.25% of the outstanding principal balance of the Series 2000-A Bonds as long as
intangible transition charges are included in electric bills sent to customers or 1/12 of 1.50% of the
outstanding principal balance of the Series 2000-A Bonds if intangible transition charges are not
included in electric bills sent to customers.
Anticipated Ratings: S&P/Fitch IBCA AAA
Moody's Aaa
Credit Enhancement: o Intangible transition charge adjustments,
o Overcollateralization for all series of transition bonds, funded over the life of the Series 2000-A
Bonds and expected to reach 2% of the initial principal balance of all series of transition bonds by
the expected final payment date of the Class A-4 Bonds, and
o Capital of the issuer, with an additional amount funded upon the issuance of this series equal to $5
million, for a total of approximately $25 million available to all series of transition bonds.
Payment Dates: March 1 and September 1 of each year or, if not a business day, the next business day.
First Payment Date: September 1, 2000
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
------------------------ ------------------------ ------------------------ ------------------------
Expected Final
Payment Date:* September 1, 2001 September 1, 2002 March 1, 2009 September 1, 2009
Termination Date: September 1, 2003 September 1, 2004 March 1, 2010 March 1, 2010
Optional Redemption: All Series 2000-A Bonds are subject to optional redemption in whole once the outstanding principal
balance of the Series 2000-A Bonds has been reduced to less than or equal to 5% of the initial
principal balance.
Mandatory Redemption: All Series 2000-A Bonds are subject to mandatory redemption in whole if the seller is obligated to pay
liquidated damages for the breach of specified representations and warranties under the sale
agreement.
Record Date: Close of business on the day prior to any payment date.
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
------------------------ ------------------------ ------------------------ ------------------------
CUSIP Numbers: 705220 AH4 705220 AJ0 705220 AK7 705220 AL5
</TABLE>
* The expected final payment date is the date upon which the issuer expects to
make the final payment on your Series 2000-A Bond. However, the final payment on
your Series 2000-A Bond may be made after that date. Your Series 2000-A Bond
will not be in default unless it is not paid in full by its termination date set
forth above.
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<PAGE>
INTRODUCTION
The Pennsylvania Electricity Generation Customer Choice and Competition Act
was enacted in 1996 and provides for the restructuring of the electric industry
in Pennsylvania, including retail competition for generation services. Prior to
enactment of the Pennsylvania Competition Act, electric utilities, such as PECO
Energy Company (referred to as PECO Energy throughout this prospectus supplement
and the accompanying prospectus), invested in various generation-related assets,
such as electric generating facilities--including nuclear power plants--and
power purchase contracts with third-party generators of electricity, to help
meet their duties to serve the public as regulated utilities. The electric
utilities recovered these investments by charging their customers the regulated
rates approved by the Pennsylvania Public Utility Commission.
One of the effects of the deregulation of electricity generation is that
rates are determined by market forces. These market rates may not be high enough
to allow the utilities to recover their investments in generation-related
assets. Accordingly, the utilities may incur a loss in value of their
generation-related assets as a result of the transition from a regulated
environment to competition for electric generation services.
The Pennsylvania Competition Act provides for utilities to recover the
anticipated loss in value of their generation-related assets, known as stranded
costs, by including a new type of charge in their customers' bills. These new
charges are known as competitive transition charges. Utilities are authorized to
securitize the right to recover all or a portion of these charges through the
issuance of transition bonds, such as the securities described in this
prospectus supplement. This right is known as intangible transition property.
Once intangible transition property is securitized, the utility's right to
recover its stranded costs through the competitive transition charges is
replaced by the intangible transition property holder's right to recover the
costs associated with the issuance, credit enhancing and servicing of the
transition bonds through intangible transition charges included in customers'
electric bills. Intangible transition charges reduce the amount of competitive
transition charges and, if necessary, PECO Energy's variable distribution rates,
in order that all charges to customers fit within the applicable rate caps.
Intangible transition property was created by the Pennsylvania Competition
Act and qualified rate orders issued by the Pennsylvania Public Utility
Commission on May 14, 1998 and March 16, 2000. The first order authorized $4
billion of intangible transition property which PECO Energy sold to PECO Energy
Transition Trust in connection with the issuance of the Series 1999-A Bonds on
March 25, 1999. The second order, referred to in this prospectus supplement and
the accompanying prospectus as the 2000 QRO, authorized an additional $1 billion
of intangible transition property, which PECO Energy will sell to PECO Energy
Transition Trust in connection with the issuance of the Series 2000-A Bonds. All
of the intangible transition property held by PECO Energy Transition Trust,
together with other assets, will serve as collateral for all transition bonds
issued under the indenture, including the Series 2000-A Bonds and the Series
1999-A Bonds. Intangible transition property represents the irrevocable right to
collect intangible transition charges from customers to recover:
o a portion of PECO Energy's stranded costs, and
o an amount sufficient to provide for any credit enhancement, to fund
any reserves, and to pay interest, premiums, if any, costs of
defeasance, servicing fees and other fees, costs and charges
relating to transition bonds.
Intangible transition charges are nonbypassable. Customers cannot avoid
paying them even if they purchase electricity generation services from a
supplier other than PECO Energy.
On the series issuance date, PECO Energy will sell the intangible
transition property authorized by the 2000 QRO and the right to receive the
proceeds of that intangible transition property to PECO Energy Transition Trust.
PECO Energy Transition Trust has pledged all its property, including that
intangible transition property, to the bond trustee as the collateral for the
Series 2000-A Bonds under the indenture. PECO Energy Transition Trust's other
property that makes up the collateral for these securities is described in this
summary under the subcaption "The Collateral."
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<PAGE>
For more information on the Pennsylvania Competition Act, intangible
transition property and intangible transition charges, you should review the
material under the captions entitled "Risk Factors," "The Pennsylvania
Competition Act," "PECO Energy's Restructuring Plan" and "The Qualified Rate
Orders and the Intangible Transition Charges" in the accompanying prospectus.
The following is a summary of other specific matters related to these
securities:
THE COLLATERAL
The Series 2000-A Bonds as well as all other transition bonds issued under the
indenture will be secured by the collateral, primarily consisting of:
o all the issuer's right, title and interest in and to the intangible
transition property authorized by the qualified rate orders and sold by PECO
Energy to the issuer under the intangible transition property sale
agreement,
o collections of intangible transition charges arising from the intangible
transition property authorized by the qualified rate orders that are
remitted to the issuer under the master servicing agreement among the
issuer, the servicer and other issuers of transition bonds that meet
specified criteria,
o the issuer's rights under the intangible transition property sale agreement,
except for specified provisions for indemnification of the issuer,
o the issuer's rights under the master servicing agreement, except for
specified provisions for indemnification of the issuer, and
o specified bank accounts of the issuer and all amounts or investment property
in these accounts, other than cash amounts payable to the issuer or the
servicer described in the accompanying prospectus.
The intangible transition charges collected by the servicer will be allocated
among all series of transition bonds issued by PECO Energy Transition Trust and
any other issuer (which includes the Series 2000-A Bonds and the Series 1999-A
Bonds) on a Pro Rata basis, as described under the caption "The Series 2000-A
Bonds--General."
For a more detailed description of the collateral for the transition bonds, you
should review the material under the captions "The Qualified Rate Orders and the
Intangible Transition Charges" and "The Indenture--Security" in the accompanying
prospectus. For a summary of the terms of the intangible transition property
sale agreement, see "The Sale Agreement" in the accompanying prospectus. For a
summary of the terms of the master servicing agreement, see "The Master
Servicing Agreement" in the accompanying prospectus. For a more detailed
description of the allocation of intangible transition charges among series of
transition bonds, see "The Series 2000-A Bonds--General" in this prospectus
supplement.
INTEREST
Holders of each class of this series are expected to receive interest at the
bond rate for that class as set forth on the cover of this prospectus
supplement.
Interest on the Series 2000-A Bonds will be calculated on the basis of a 360-day
year of twelve 30-day months. For the first payment date, interest will accrue
from the issuance date.
You should also review the material under the caption "The Series 2000-A
Bonds--Interest" in this prospectus supplement.
PRINCIPAL
On each payment date, to the extent of available funds, the bond trustee will
make principal payments in accordance with the expected amortization schedule
set forth under the caption "The Series 2000-A Bonds--Principal" in this
prospectus supplement. The actual amount of principal paid on any payment date
on your Series 2000-A Bond may be less than the amount set forth in the expected
amortization schedule for that payment date.
Other than in the event of a redemption or acceleration upon an event of
default, in no event will the principal paid to any class on any payment date be
greater than the amount necessary to reduce the principal balance of that class
to the amount specified in the expected amortization schedule for that class and
that payment date.
COLLECTION ACCOUNT AND SUBACCOUNTS
PECO Energy Transition Trust has established a collection account in the bond
trustee's name to hold amounts remitted by the servicer of the collateral
securing all series of transition bonds,
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<PAGE>
including the Series 1999-A Bonds and the Series 2000-A Bonds. The collection
account is comprised of the following subaccounts:
o a general subaccount,
o an overcollateralization subaccount,
o a reserve subaccount,
o a capital subaccount,
o a class subaccount, for each class that bears a floating interest rate, and
o a series subaccount for each series of transition bonds.
In addition, there will be one or more defeasance subaccounts if required by the
indenture for the Series 2000-A Bonds, and subaccounts for the deposit of
certain loss amounts and interest may also be established, if necessary.
Withdrawals from and deposits to these subaccounts will be made as described
under "The Indenture--Allocations and Payments" in the accompanying prospectus.
CREDIT ENHANCEMENT
Overcollateralization. Overcollateralization is the pledge by the issuer of
collateral, in this case intangible transition property, in excess of what is
expected to be needed to cover the repayment of all series of transition bonds.
The overcollateralization for all series of transition bonds will be funded over
the life of the Series 2000-A Bonds and is expected to reach 2% of the initial
principal balance of all series of transition by the expected maturity date of
the Class A-4 Bonds.
Additional Credit Enhancement. In addition, capital of the issuer (equal to
.50% of the initial principal balance of all series of transition bonds) is
available to make payments on any series of transition bonds as described in the
accompanying prospectus.
Furthermore, intangible transition charges will be subject to periodic review
and adjustment, as described below under "Adjustments to the Intangible
Transition Charges."
You should also review the material under the captions "The Transition
Bonds--Credit Enhancement" and "The Indenture--Allocations and Payments" in the
accompanying prospectus.
OPTIONAL REDEMPTION
The Series 2000-A Bonds may be redeemed in whole once the outstanding principal
balance of the Series 2000-A Bonds has been reduced to less than or equal to 5%
of the initial principal balance.
You should also review the material under the caption "The Series 2000-A
Bonds--Optional Redemption" in this prospectus supplement.
MANDATORY REDEMPTION
Except as provided below, if the seller is obligated to pay liquidated damages
under the sale agreement, the Series 2000-A Bonds will be subject to mandatory
redemption in whole at a redemption price equal to the principal balance of the
Series 2000-A Bonds plus interest at the applicable bond rate accrued to the
redemption date.
If the seller is obligated to pay liquidated damages for a breach of a
representation and warranty which relates to one or more of the qualified rate
orders, but not all of the qualified rate orders, then:
o the amount of liquidated damages will include the then outstanding principal
amount of only the series of transition bonds issued in connection with the
affected qualified rate order or orders as of the redemption date, plus
accrued interest to the redemption date, and
o only the series of transition bonds issued in connection with the affected
qualified rate order or orders will be subject to mandatory redemption.
For more information about mandatory redemption, liquidated damages and
indemnification payments by the seller, you should refer to the material under
the caption "The Sale Agreement--Representations and Warranties of the Seller"
in the accompanying prospectus.
INTANGIBLE TRANSITION CHARGE ADJUSTMENT PROCESS
PECO Energy, as servicer of the intangible transition property on behalf of the
issuer, will make adjustments to the intangible transition charges it bills to
customers, upon approval by the Pennsylvania Public Utility Commission, if PECO
Energy:
(1) collects insufficient intangible transition charges, or
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<PAGE>
(2) collects excess amounts of intangible transition charges,
in order:
(1) to make timely payments on all series of transition bonds,
(2) to pay fees, costs and charges associated with the transition bonds, and
(3) to fund the overcollateralization subaccount to its required level.
The following table summarizes the adjustment frequency of the intangible
transition charges:
ADJUSTMENT DATE
Annual Adjustments.............................................5/14/00 - 5/14/09
Monthly Adjustments of
Series 2000-A Bonds...................................1/14/09-Termination Date
The annual adjustments through May 14, 2008 are expected to be implemented on or
prior to August 12 of the same year. The monthly adjustments are expected to be
implemented 30 days after a request for the adjustments is filed with the
Pennsylvania Public Utility Commission.
For a more detailed description of the intangible transition charge adjustment
process, you should review the material under the caption "Description of
Intangible Transition Property--Adjustments to the Intangible Transition
Charges" in this prospectus supplement and the material under the caption "The
Qualified Rate Orders and the Intangible Transition Charges--The Intangible
Transition Charges--The Intangible Transition Charge Adjustment Process" in the
accompanying prospectus.
TAX STATUS
In the opinion of Ballard Spahr Andrews & Ingersoll, LLP, special tax counsel to
PECO Energy and the issuer:
o Interest received by a holder of these transition bonds who is a United
States taxpayer will be subject to federal income tax.
o A holder of the Series 2000-A Bonds will realize a gain from the sale of the
Series 2000-A Bonds to the extent that the proceeds of the sale exceed the
holder's tax basis in these transition bonds. If the holder is a United
States taxpayer, then:
(1) the gain will be fully taxable, and
(2) the gain may qualify as long-term capital gain if such holder held the
securities for more than one year.
o If the holder of the Series 2000-A Bonds is not a United States taxpayer,
interest income and any gain realized by such holder, generally, will be
exempt from United States federal income and withholding tax.
The issuer recommends that all prospective investors consult their tax advisors
regarding the federal income tax consequences of the ownership and disposition
of the Series 2000-A Bonds in light of their particular circumstances, as well
as the effect of any foreign, state, local or other laws.
For further information regarding the application of U.S. federal and state
income tax laws, you should see the sections captioned "United States Taxation"
and "Material Commonwealth of Pennsylvania Tax Matters" in the accompanying
prospectus.
ERISA CONSIDERATIONS
Employee benefit plans are permitted to purchase transition bonds.
You should also review the material under the caption "ERISA Considerations" in
the accompanying prospectus.
SERVICER'S AND ISSUER'S MAILING ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICE
The mailing address of PECO Energy is P.O. Box 8699, Philadelphia, Pennsylvania
19101, and its telephone number is (215) 841-4000. The mailing address of the
issuer is c/o First Union Trust Company, National Association, One Rodney
Square, 920 King Street, Wilmington, Delaware 19801, and its telephone number is
(302) 888-7532.
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<PAGE>
RISK FACTORS
For a discussion of the material risks associated with an investment in the
Series 2000-A Bonds, you should review the discussion under "Risk Factors,"
which begins on page 17 of the accompanying prospectus.
THE SERIES 2000-A BONDS
GENERAL
The Series 2000-A Bonds will be issued and secured under a base indenture
dated as of March 1, 1999 between the issuer and The Bank of New York, as bond
trustee, as supplemented by the Series 2000-A supplemental indenture to that
base indenture.
Some terms used in this prospectus supplement are defined in the glossary
of defined terms located on page S-29 of this prospectus supplement or in the
glossary of defined terms located on page 113 of the accompanying prospectus.
The Series 2000-A Bonds will be issued on the series issuance date in
denominations of $1,000 and integral multiples of $1,000 and will be comprised
of the classes listed above under "Summary of Terms--Securities Offered."
Interest and principal relating to the Series 2000-A Bonds will be paid
through The Depository Trust Company or, if the Series 2000-A Bonds are no
longer in book-entry form, will be payable at the offices of The Bank of New
York at 101 Barclay Street, New York, New York 10286. Generally, payment will be
made by check mailed first-class, postage prepaid to a holder's address as it
appears on the transition bond register on each record date. For Series 2000-A
Bonds registered on a record date in the name of the nominee of Cede & Co.,
payments will be made by wire transfer in immediately available funds to the
account designated by that nominee. The final installment of principal and
premium, if any, payable with respect to any Series 2000-A Bond will be payable,
after prior notice to the holder, only upon presentation and surrender of the
Series 2000-A Bond at a place specified in that notice.
DISTRIBUTIONS TO THE SERIES 2000-A SUBACCOUNT
The issuer has already issued one series of transition bonds, the Series
1999-A Bonds, and may issue additional series in the future, as discussed under
"The Transition Bonds" in the accompanying prospectus.
On each date the servicer is required to remit collections of intangible
transition charges, it will allocate those collections between the issuer and
any other issuer that issues transition bonds secured by intangible transition
property sold by the seller in accordance with their respective Percentages (as
defined in the glossary in the accompanying prospectus). On each monthly
allocation date for each series of transition bonds issued under the indenture,
after the payment of specified fees and expenses, the bond trustee will allocate
amounts on deposit in the general subaccount of the collection account Pro Rata
(as defined in the glossary in the accompanying prospectus) based on each
series' proportion of the total allocated principal and interest of all series
to each series subaccount for the payment of interest on and principal of each
series of transition bonds issued under the indenture. Monthly allocation dates
fall on the 6th day of each calendar month, or if that day is not a business
day, the following business day.
For a more detailed description of the allocation of intangible transition
charges among series of transition bonds issued under the indenture, see "The
Indenture--Allocations and Payments" in the accompanying prospectus.
DISTRIBUTIONS FROM THE SERIES 2000-A SUBACCOUNT
Amounts distributed from the series subaccount as described in "The
Indenture--Allocations and Payments" in the accompanying prospectus will be
applied among the classes of the Series 2000-A Bonds on each payment date as
follows:
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(1) interest, to each class on a pro rata basis based on the amount of
interest payable to that class as described under "--Interest" in
this section, and
(2) principal, to each class as described under "--Principal" in this
section.
INTEREST
Interest on each class of the Series 2000-A Bonds will accrue from the
series issuance date at the respective bond rates indicated in the section at
the beginning of this prospectus supplement entitled "Summary of
Terms--Securities Offered." The interest will be payable on each payment date,
commencing September 1, 2000, to the persons in whose names the Series 2000-A
Bonds of each class are registered at the close of business on the applicable
record date.
Interest on the Series 2000-A Bonds will be calculated on the basis of a
360-day year of twelve 30-day months.
The interest accrual period for any payment date shall be the period from
and including the preceding payment date--or, in the case of the first payment
date, from and including the series issuance date--to and excluding that payment
date.
The record date for any payment date shall be the close of business on the
business day prior to that payment date.
The allocated interest balance on the series issuance date and on each
monthly allocation date for the Series 1999-A Bonds and the Series 2000-A Bonds
is shown below. These balances are used for the allocation of funds from the
general subaccount to the series subaccounts on each monthly allocation date.
There are no consequences if the full amount of these allocations is not made on
any monthly allocation date. In addition, these balances may change from time to
time with the issuance of each new series, the redemption or refunding of a
class or series and each periodic adjustment to the intangible transition
charges.
TABLE 1
MONTHLY ALLOCATED INTEREST BALANCE
<TABLE>
<CAPTION>
SERIES 1999-A SERIES 2000-A
MONTHLY ALLOCATED MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE INTEREST BALANCE INTEREST BALANCE
- ----------------------- ----------------- -----------------
<S> <C> <C>
June 1, 2000...................................................... 54,773,155 11,335,047
July 1, 2000...................................................... 74,147,273 15,344,430
August 1, 2000.................................................... 96,067,995 19,880,821
September 1, 2000................................................. 120,426,364 24,921,671
October 1, 2000................................................... 18,481,972 5,860,167
November 1, 2000.................................................. 38,248,044 12,127,490
December 1, 2000.................................................. 57,056,531 18,091,187
January 1, 2001................................................... 75,535,807 23,950,499
February 1, 2001.................................................. 96,181,318 30,496,670
March 1, 2001..................................................... 118,888,816 37,696,645
April 1, 2001..................................................... 20,097,011 6,198,559
May 1, 2001....................................................... 39,331,983 12,131,238
June 1, 2001...................................................... 57,288,698 17,669,661
July 1, 2001...................................................... 75,248,118 23,208,919
August 1, 2001.................................................... 94,816,425 29,244,409
September 1, 2001................................................. 116,642,830 35,976,368
October 1, 2001................................................... 20,248,735 6,026,170
November 1, 2001.................................................. 39,801,705 11,845,275
December 1, 2001.................................................. 57,706,543 17,173,884
January 1, 2002................................................... 75,156,802 22,367,208
February 1, 2002.................................................. 93,876,303 27,938,266
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
SERIES 1999-A SERIES 2000-A
MONTHLY ALLOCATED MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE INTEREST BALANCE INTEREST BALANCE
- ----------------------- ----------------- -----------------
<S> <C> <C>
March 1, 2002..................................................... 113,396,591 33,747,645
April 1, 2002..................................................... 18,905,548 5,391,423
May 1, 2002....................................................... 36,931,116 10,531,897
June 1, 2002...................................................... 53,735,009 15,323,977
July 1, 2002...................................................... 70,531,740 20,114,015
August 1, 2002.................................................... 88,829,758 25,332,185
September 1, 2002................................................. 109,242,841 31,153,522
October 1, 2002................................................... 19,263,456 5,254,639
November 1, 2002.................................................. 37,458,297 10,217,783
December 1, 2002.................................................. 53,982,437 14,725,198
January 1, 2003................................................... 70,051,906 19,108,589
February 1, 2003.................................................. 87,187,183 23,782,708
March 1, 2003..................................................... 104,985,335 28,637,645
April 1, 2003..................................................... 16,933,396 4,957,627
May 1, 2003....................................................... 33,077,588 9,684,198
June 1, 2003...................................................... 48,125,238 14,089,731
July 1, 2003...................................................... 63,157,599 18,490,788
August 1, 2003.................................................... 79,534,714 23,285,552
September 1, 2003................................................. 97,815,459 28,637,645
October 1, 2003................................................... 16,602,488 5,272,012
November 1, 2003.................................................. 32,227,893 10,233,758
December 1, 2003.................................................. 46,388,513 14,730,371
January 1, 2004................................................... 60,150,046 19,100,257
February 1, 2004.................................................. 74,855,358 23,769,833
March 1, 2004..................................................... 90,184,948 28,637,645
April 1, 2004..................................................... 14,188,458 4,956,412
May 1, 2004....................................................... 27,719,033 9,683,008
June 1, 2004...................................................... 40,331,559 14,088,905
July 1, 2004...................................................... 52,930,041 18,489,896
August 1, 2004.................................................... 66,656,018 23,284,751
September 1, 2004................................................. 81,979,464 28,637,645
October 1, 2004................................................... 13,825,498 5,376,048
November 1, 2004.................................................. 26,621,471 10,351,765
December 1, 2004.................................................. 38,153,344 14,835,936
January 1, 2005................................................... 49,347,286 19,188,703
February 1, 2005.................................................. 61,270,860 23,825,187
March 1, 2005..................................................... 73,646,984 28,637,645
April 1, 2005..................................................... 11,290,218 4,957,630
May 1, 2005....................................................... 22,053,824 9,684,020
June 1, 2005...................................................... 32,086,584 14,089,489
July 1, 2005...................................................... 42,108,967 18,490,401
August 1, 2005.................................................... 53,028,309 23,285,176
September 1, 2005................................................. 65,217,711 28,637,645
October 1, 2005................................................... 10,410,459 5,250,289
November 1, 2005.................................................. 20,089,619 10,131,763
December 1, 2005.................................................. 28,833,918 14,541,759
January 1, 2006................................................... 37,329,143 18,826,142
February 1, 2006.................................................. 46,675,559 23,539,803
March 1, 2006..................................................... 56,783,741 28,637,645
April 1, 2006..................................................... 8,200,255 4,952,684
May 1, 2006....................................................... 16,029,147 9,681,077
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
SERIES 1999-A SERIES 2000-A
MONTHLY ALLOCATED MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE INTEREST BALANCE INTEREST BALANCE
- ----------------------- ----------------- -----------------
<S> <C> <C>
June 1, 2006...................................................... 23,328,024 14,089,359
July 1, 2006...................................................... 30,609,693 18,487,247
August 1, 2006.................................................... 38,544,841 23,279,815
September 1, 2006................................................. 47,415,904 28,637,645
October 1, 2006................................................... 7,104,285 5,389,289
November 1, 2006.................................................. 13,656,536 10,359,806
December 1, 2006.................................................. 19,555,206 14,834,519
January 1, 2007................................................... 25,282,535 19,179,254
February 1, 2007.................................................. 31,391,481 23,813,481
March 1, 2007..................................................... 37,750,806 28,637,645
April 1, 2007..................................................... 4,793,004 4,972,495
May 1, 2007....................................................... 9,354,338 9,704,644
June 1, 2007...................................................... 13,601,410 14,110,761
July 1, 2007...................................................... 17,830,263 18,497,979
August 1, 2007.................................................... 22,439,957 23,280,298
September 1, 2007................................................. 27,603,921 28,637,645
October 1, 2007................................................... 3,469,735 5,638,132
November 1, 2007.................................................. 6,535,649 10,620,078
December 1, 2007.................................................. 9,247,885 15,027,315
January 1, 2008................................................... 11,870,672 19,289,203
February 1, 2008.................................................. 14,681,247 23,856,237
March 1, 2008..................................................... 17,623,750 28,637,645
April 1, 2008..................................................... 1,493,236 4,824,756
May 1, 2008....................................................... 2,914,128 9,415,760
June 1, 2008...................................................... 4,237,066 13,690,269
July 1, 2008...................................................... 5,553,962 17,945,258
August 1, 2008.................................................... 6,989,625 22,583,990
September 1, 2008................................................. 8,598,598 27,782,697
October 1, 2008................................................... -- 4,877,526
November 1, 2008.................................................. -- 9,506,354
December 1, 2008.................................................. -- 13,704,594
January 1, 2009................................................... -- 17,786,861
February 1, 2009.................................................. -- 22,162,157
March 1, 2009..................................................... -- 26,731,395
April 1, 2009..................................................... -- 2,333,212
May 1, 2009....................................................... -- 4,552,848
June 1, 2009...................................................... -- 6,619,322
July 1, 2009...................................................... -- 8,676,449
August 1, 2009.................................................... -- 10,918,982
September 1, 2009................................................. -- 13,431,929
</TABLE>
S-11
<PAGE>
PRINCIPAL
On each payment date, the bond trustee shall, as of the related record date
and subject to the availability of funds in the Series 2000-A subaccount, make
principal payments on each class of Series 2000-A Bonds in accordance with the
expected amortization schedule.
Available funds in the Series 2000-A subaccount will be allocated in a
sequential manner, to the extent funds are available, as follows:
(1) To the holders of the Series 2000-A Bonds, Class A-1, until this
class is retired in full,
(2) To the holders of the Series 2000-A Bonds, Class A-2, until this
class is retired in full,
(3) To the holders of the Series 2000-A Bonds, Class A-3, until this
class is retired in full, and
(4) To the holders of the Series 2000-A Bonds, Class A-4, until this
class is retired in full.
The principal payment on any class on a payment date will not be greater
than the amount necessary to reduce the class principal balance of that class to
the amount specified in the expected amortization schedule for that class and
payment date unless an acceleration of payments following an event of default or
a redemption occurs.
Class principal balance means the initial principal balance of a class,
reduced by principal previously distributed to that class in accordance with the
terms of the indenture.
The entire unpaid principal amount for any class of the Series 2000-A Bonds
will be due and payable on the applicable class termination date.
Upon acceleration of payments following a default under the indenture,
principal payments on each class of each series of transition bonds will be made
on a pro rata basis based on the respective outstanding principal balance for
each class and each series of transition bonds as of the prior payment date.
S-12
<PAGE>
TABLE 2
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING CLASS PRINCIPAL BALANCES
<TABLE>
<CAPTION>
ISSUANCE OR PAYMENT DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 SERIES 2000-A
- ------------------------ ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Series Issuance Date............... 110,000,000 140,000,000 398,838,452 351,161,548 1,000,000,000
September 1, 2000.................. 110,000,000 140,000,000 398,838,452 351,161,548 1,000,000,000
March 1, 2001...................... 62,081,417 140,000,000 398,838,452 351,161,548 952,081,417
September 1, 2001.................. 0 140,000,000 398,838,452 351,161,548 890,000,000
March 1, 2002...................... 0 68,928,136 398,838,452 351,161,548 818,928,136
September 1, 2002.................. 0 0 398,838,452 351,161,548 750,000,000
March 1, 2003...................... 0 0 398,838,452 351,161,548 750,000,000
September 1, 2003.................. 0 0 398,838,452 351,161,548 750,000,000
March 1, 2004...................... 0 0 398,838,452 351,161,548 750,000,000
September 1, 2004.................. 0 0 398,838,452 351,161,548 750,000,000
March 1, 2005...................... 0 0 398,838,452 351,161,548 750,000,000
September 1, 2005.................. 0 0 398,838,452 351,161,548 750,000,000
March 1, 2006...................... 0 0 398,838,452 351,161,548 750,000,000
September 1, 2006.................. 0 0 398,838,452 351,161,548 750,000,000
March 1, 2007...................... 0 0 398,838,452 351,161,548 750,000,000
September 1, 2007.................. 0 0 398,838,452 351,161,548 750,000,000
March 1, 2008...................... 0 0 376,413,585 351,161,548 727,575,133
September 1, 2008.................. 0 0 348,838,452 351,161,548 700,000,000
March 1, 2009...................... 0 0 0 351,161,548 351,161,548
September 1, 2009.................. 0 0 0 0 0
March 1, 2010...................... 0 0 0 0 0
</TABLE>
For various reasons, the actual class principal balance of any class of the
Series 2000-A Bonds may not be reduced to the amounts indicated in the foregoing
table on any payment date. Accordingly, the actual reductions in class principal
balances may be delayed from those indicated in the table. See "Risk Factors" in
the accompanying prospectus for various factors which may, individually or in
the aggregate, affect the rates of reduction of the class principal balances of
any class of the Series 2000-A Bonds.
S-13
<PAGE>
The allocated principal balance as of the series issuance date and on each
monthly allocation date for the Series 1999-A Bonds and the Series 2000-A Bonds
is shown below. These balances are used for the allocation of funds from the
general subaccount to the series subaccounts on each monthly allocation date.
There are no consequences if the full amount of the allocations is not made on
any monthly allocation date. In addition, these balances may change from time to
time with the issuance of each new series, the redemption or refunding of a
class or series and each adjustment to the intangible transition charges.
TABLE 3
MONTHLY ALLOCATED PRINCIPAL BALANCE
<TABLE>
<CAPTION>
SERIES 1999-A SERIES 2000-A
MONTHLY ALLOCATED MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- ----------------- -----------------
<S> <C> <C>
June 1, 2000................................................................ 25,522,575 --
July 1, 2000................................................................ 34,550,307 --
August 1, 2000.............................................................. 44,764,677 --
September 1, 2000........................................................... 56,114,914 --
October 1, 2000............................................................. 12,742,766 7,449,228
November 1, 2000............................................................ 26,370,879 15,416,018
December 1, 2000............................................................ 39,338,766 22,996,849
January 1, 2001............................................................. 52,079,673 30,444,990
February 1, 2001............................................................ 66,314,133 38,766,241
March 1, 2001............................................................... 81,970,272 47,918,583
April 1, 2001............................................................... 18,182,276 10,696,336
May 1, 2001................................................................. 35,584,643 20,933,865
June 1, 2001................................................................ 51,830,539 30,491,060
July 1, 2001................................................................ 68,078,882 40,049,695
August 1, 2001.............................................................. 85,782,825 50,464,636
September 1, 2001........................................................... 105,529,728 62,081,417
October 1, 2001............................................................. 24,564,614 12,690,993
November 1, 2001............................................................ 48,285,165 24,945,912
December 1, 2001............................................................ 70,006,297 36,167,856
January 1, 2002............................................................. 91,175,960 47,104,891
February 1, 2002............................................................ 113,885,394 58,837,428
March 1, 2002............................................................... 137,566,298 71,071,864
April 1, 2002............................................................... 24,194,726 11,928,692
May 1, 2002................................................................. 47,263,281 23,302,150
June 1, 2002................................................................ 68,768,374 33,904,776
July 1, 2002................................................................ 90,264,303 44,502,883
August 1, 2002.............................................................. 113,681,530 56,048,246
September 1, 2002........................................................... 139,805,552 68,928,136
October 1, 2002............................................................. 42,068,043 --
November 1, 2002............................................................ 81,802,418 --
December 1, 2002............................................................ 117,888,272 --
January 1, 2003............................................................. 152,981,202 --
February 1, 2003............................................................ 190,401,673 --
March 1, 2003............................................................... 229,269,747 --
April 1, 2003............................................................... 41,631,031 --
May 1, 2003................................................................. 81,321,793 --
June 1, 2003................................................................ 118,316,685 --
July 1, 2003................................................................ 155,273,993 --
August 1, 2003.............................................................. 195,537,398 --
September 1, 2003........................................................... 240,480,910 --
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
SERIES 1999-A SERIES 2000-A
MONTHLY ALLOCATED MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- ----------------- -----------------
<S> <C> <C>
October 1, 2003............................................................. 48,113,365 --
November 1, 2003............................................................ 93,395,183 --
December 1, 2003............................................................ 134,432,110 --
January 1, 2004............................................................. 174,312,497 --
February 1, 2004............................................................ 216,927,921 --
March 1, 2004............................................................... 261,352,478 --
April 1, 2004............................................................... 44,386,331 --
May 1, 2004................................................................. 86,714,583 --
June 1, 2004................................................................ 126,170,860 --
July 1, 2004................................................................ 165,583,207 --
August 1, 2004.............................................................. 208,522,740 --
September 1, 2004........................................................... 256,459,702 --
October 1, 2004............................................................. 51,366,795 --
November 1, 2004............................................................ 98,908,531 --
December 1, 2004............................................................ 141,753,668 --
January 1, 2005............................................................. 183,343,267 --
February 1, 2005............................................................ 227,643,718 --
March 1, 2005............................................................... 273,625,557 --
April 1, 2005............................................................... 46,519,428 --
May 1, 2005................................................................. 90,869,041 --
June 1, 2005................................................................ 132,207,326 --
July 1, 2005................................................................ 173,502,856 --
August 1, 2005.............................................................. 218,494,153 --
September 1, 2005........................................................... 268,718,517 --
October 1, 2005............................................................. 54,965,994 --
November 1, 2005............................................................ 106,070,813 --
December 1, 2005............................................................ 152,239,676 --
January 1, 2006............................................................. 197,093,461 --
February 1, 2006............................................................ 246,441,430 --
March 1, 2006............................................................... 299,811,439 --
April 1, 2006............................................................... 53,531,949 --
May 1, 2006................................................................. 104,639,614 --
June 1, 2006................................................................ 152,287,292 --
July 1, 2006................................................................ 199,822,633 --
August 1, 2006.............................................................. 251,623,940 --
September 1, 2006........................................................... 309,534,984 --
October 1, 2006............................................................. 62,708,586 --
November 1, 2006............................................................ 120,544,443 --
December 1, 2006............................................................ 172,611,228 --
January 1, 2007............................................................. 223,165,610 --
February 1, 2007............................................................ 277,088,472 --
March 1, 2007............................................................... 333,221,391 --
April 1, 2007............................................................... 56,457,982 --
May 1, 2007................................................................. 110,187,067 --
June 1, 2007................................................................ 160,214,372 --
July 1, 2007................................................................ 210,027,088 --
August 1, 2007.............................................................. 264,325,809 --
September 1, 2007........................................................... 325,153,425 --
October 1, 2007............................................................. 57,972,501 4,414,971
November 1, 2007............................................................ 109,197,941 8,316,111
December 1, 2007............................................................ 154,514,114 11,767,222
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
SERIES 1999-A SERIES 2000-A
MONTHLY ALLOCATED MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- ----------------- ------------------
<S> <C> <C>
January 1, 2008............................................................. 198,335,769 15,104,517
February 1, 2008............................................................ 245,295,003 18,680,759
March 1, 2008............................................................... 294,458,481 22,424,867
April 1, 2008............................................................... 48,718,971 4,788,710
May 1, 2008................................................................. 95,077,585 9,345,415
June 1, 2008................................................................ 138,240,316 13,587,989
July 1, 2008................................................................ 181,205,950 17,811,190
August 1, 2008.............................................................. 228,046,496 22,415,265
September 1, 2008........................................................... 280,541,519 27,575,133
October 1, 2008............................................................. -- 63,650,577
November 1, 2008............................................................ -- 124,055,689
December 1, 2008............................................................ -- 178,841,742
January 1, 2009............................................................. -- 232,114,368
February 1, 2009............................................................ -- 289,210,957
March 1, 2009............................................................... -- 348,838,452
April 1, 2009............................................................... -- 60,999,018
May 1, 2009................................................................. -- 119,028,704
June 1, 2009................................................................ -- 173,054,180
July 1, 2009................................................................ -- 226,835,267
August 1, 2009.............................................................. -- 285,463,581
September 1, 2009........................................................... -- 351,161,548
</TABLE>
S-16
<PAGE>
OPTIONAL REDEMPTION
The Series 2000-A Bonds may be redeemed in whole on any payment date
commencing with the payment date on which the outstanding principal balance of
the Series 2000-A Bonds, after giving effect to payments that would otherwise be
made on that date, has been reduced to less than or equal to 5% of the initial
principal balance of the Series 2000-A Bonds. Notice of redemption will be given
by the issuer to the bond trustee and Standard & Poor's Rating Services, Moody's
Investors Service Inc. and Fitch IBCA, Inc. On or prior to the date notice of
redemption is given, the issuer will deposit with the bond trustee the
redemption price, plus accrued interest to the redemption date, for the Series
2000-A Bonds.
MANDATORY REDEMPTION
Except as provided below, if the seller, PECO Energy, is obligated to pay
liquidated damages under the sale agreement, the Series 2000-A Bonds will be
subject to mandatory redemption in whole. The redemption price will equal the
principal balance thereof plus interest at the applicable bond rate, accrued to
the redemption date.
If the seller is obligated to pay liquidated damages for a breach of a
representation and warranty which relates to one or more of the qualified rate
orders, but not all of the qualified rate orders, then:
o the amount of liquidated damages will include the then outstanding
principal amount of only the series of transition bonds issued in
connection with the affected qualified rate order or orders as of the
redemption date, plus accrued interest to the redemption date, and
o only the series of transition bonds issued in connection with the
affected qualified rate order or orders will be subject to mandatory
redemption.
The seller will be obligated to pay liquidated damages as described in "The Sale
Agreement--Representations and Warranties of the Seller" in the accompanying
prospectus.
OVERCOLLATERALIZATION
The amount of overcollateralization for all series of transition bonds will
be funded over the life of the Series 2000-A Bonds and is expected to reach 2%
of the initial principal balance of all series of transition bonds by the
expected maturity date of the Class A-4 Bonds. The intangible transition charges
will be calculated at, and periodically adjusted to, a level that is designed to
collect the overcollateralization amount ratably over the expected life of each
series of transition bonds. Amounts of intangible transition charges collected
in any period in order to fund overcollateralization amounts will be available
for all series of transition bonds on a pro rata basis without any preference.
The calculated overcollateralization level for each payment date related to
the Series 1999-A Bonds and the Series 2000-A Bonds and the monthly allocated
overcollateralization balance for each monthly allocation date, in each case as
of the date of this prospectus supplement, are set forth below. The balances in
Table 4A below are for the allocation of funds from the general subaccount on
each monthly allocation date. There are no consequences if the full amount of
these allocations is not made on any monthly allocation date. In addition, these
balances may change from time to time with the issuance of each new series, the
redemption or refunding of a class or series and each periodic adjustment to the
intangible transition charges. If amounts on deposit in the general subaccount,
the interest deposit subaccount (for the payment of Interest), the loss
subaccount and the reserve subaccount are insufficient to make scheduled
distributions to the series subaccounts and to pay expenses of the issuer, the
bond trustee and the servicer and other related fees and expenses, the bond
trustee will draw on amounts in the overcollateralization subaccount on each
monthly allocation date.
For a more detailed description of overcollateralization, see the material
under the captions "The Transition Bonds--Credit Enhancement" and "The
Indenture--Allocations and Payments" in the accompanying prospectus.
S-17
<PAGE>
TABLE 4
CALCULATED OVERCOLLATERALIZATION LEVEL
<TABLE>
<CAPTION>
SERIES 1999-A AND
SERIES 2000-A
CALCULATED
OVERCOLLATERALIZATION
ISSUANCE OR PAYMENT DATE LEVEL
- ------------------------ ---------------------
<S> <C>
Series Issuance Date..................................................... 8,421,053
September 1, 2000........................................................ 13,684,211
March 1, 2001............................................................ 18,947,369
September 1, 2001........................................................ 24,210,527
March 1, 2002............................................................ 29,473,685
September 1, 2002........................................................ 34,736,842
March 1, 2003............................................................ 40,000,000
September 1, 2003........................................................ 45,263,158
March 1, 2004............................................................ 50,526,316
September 1, 2004........................................................ 55,789,474
March 1, 2005............................................................ 61,052,632
September 1, 2005........................................................ 66,315,790
March 1, 2006............................................................ 71,578,948
September 1, 2006........................................................ 76,842,106
March 1, 2007............................................................ 82,105,264
September 1, 2007........................................................ 87,368,421
March 1, 2008............................................................ 92,631,579
September 1, 2008........................................................ 97,894,737
March 1, 2009............................................................ 98,947,369
September 1, 2009........................................................ 100,000,000
</TABLE>
TABLE 4A
MONTHLY ALLOCATED OVERCOLLATERALIZATION BALANCE
<TABLE>
<CAPTION>
SERIES 1999-A AND
SERIES 2000-A
MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE OVERCOLLATERALIZATION BALANCE
- ----------------------- -----------------------------
<S> <C>
June 1, 2000...................................................... 10,814,879
July 1, 2000...................................................... 11,661,613
August 1, 2000.................................................... 12,619,644
September 1, 2000................................................. 13,684,211
October 1, 2000................................................... 14,502,400
November 1, 2000.................................................. 15,377,436
December 1, 2000.................................................. 16,210,080
January 1, 2001................................................... 17,028,149
February 1, 2001.................................................. 17,942,117
March 1, 2001..................................................... 18,947,369
April 1, 2001..................................................... 19,854,186
May 1, 2001....................................................... 20,722,107
June 1, 2001...................................................... 21,532,349
July 1, 2001...................................................... 22,342,714
August 1, 2001.................................................... 23,225,676
September 1, 2001................................................. 24,210,527
October 1, 2001................................................... 25,150,346
November 1, 2001.................................................. 26,057,872
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
SERIES 1999-A AND
SERIES 2000-A
MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE OVERCOLLATERALIZATION BALANCE
- ----------------------- -----------------------------
<S> <C>
December 1, 2001.................................................. 26,888,902
January 1, 2002................................................... 27,698,834
February 1, 2002.................................................. 28,567,675
March 1, 2002..................................................... 29,473,685
April 1, 2002..................................................... 30,384,526
May 1, 2002....................................................... 31,252,971
June 1, 2002...................................................... 32,062,558
July 1, 2002...................................................... 32,871,799
August 1, 2002.................................................... 33,753,370
September 1, 2002................................................. 34,736,842
October 1, 2002................................................... 35,702,564
November 1, 2002.................................................. 36,614,714
December 1, 2002.................................................. 37,443,107
January 1, 2003................................................... 38,248,707
February 1, 2003.................................................. 39,107,738
March 1, 2003..................................................... 40,000,000
April 1, 2003..................................................... 40,911,136
May 1, 2003....................................................... 41,779,807
June 1, 2003...................................................... 42,589,476
July 1, 2003...................................................... 43,398,322
August 1, 2003.................................................... 44,279,526
September 1, 2003................................................. 45,263,158
October 1, 2003................................................... 46,232,073
November 1, 2003.................................................. 47,143,965
December 1, 2003.................................................. 47,970,374
January 1, 2004................................................... 48,773,491
February 1, 2004.................................................. 49,631,687
March 1, 2004..................................................... 50,526,316
April 1, 2004..................................................... 51,437,228
May 1, 2004....................................................... 52,305,904
June 1, 2004...................................................... 53,115,640
July 1, 2004...................................................... 53,924,474
August 1, 2004.................................................... 54,805,695
September 1, 2004................................................. 55,789,474
October 1, 2004................................................... 56,777,509
November 1, 2004.................................................. 57,691,969
December 1, 2004.................................................. 58,516,090
January 1, 2005................................................... 59,316,062
February 1, 2005.................................................. 60,168,176
March 1, 2005..................................................... 61,052,632
April 1, 2005..................................................... 61,963,768
May 1, 2005....................................................... 62,832,406
June 1, 2005...................................................... 63,642,063
July 1, 2005...................................................... 64,450,883
August 1, 2005.................................................... 65,332,089
September 1, 2005................................................. 66,315,790
October 1, 2005................................................... 67,280,712
November 1, 2005.................................................. 68,177,852
December 1, 2005.................................................. 68,988,341
January 1, 2006................................................... 69,775,745
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
SERIES 1999-A AND
SERIES 2000-A
MONTHLY ALLOCATED
MONTHLY ALLOCATION DATE OVERCOLLATERALIZATION BALANCE
- ------------------------ -----------------------------
<S> <C>
February 1, 2006.................................................. 70,642,043
March 1, 2006..................................................... 71,578,948
April 1, 2006..................................................... 72,489,175
May 1, 2006....................................................... 73,358,181
June 1, 2006...................................................... 74,168,355
July 1, 2006...................................................... 74,976,619
August 1, 2006.................................................... 75,857,419
September 1, 2006................................................. 76,842,106
October 1, 2006................................................... 77,832,574
November 1, 2006.................................................. 78,746,078
December 1, 2006.................................................. 79,568,462
January 1, 2007................................................... 80,366,957
February 1, 2007.................................................. 81,218,657
March 1, 2007..................................................... 82,105,264
April 1, 2007..................................................... 83,019,131
May 1, 2007....................................................... 83,888,827
June 1, 2007...................................................... 84,698,604
July 1, 2007...................................................... 85,504,907
August 1, 2007.................................................... 86,383,824
September 1, 2007................................................. 87,368,421
October 1, 2007................................................... 88,404,623
November 1, 2007.................................................. 89,320,228
December 1, 2007.................................................. 90,130,210
January 1, 2008................................................... 90,913,480
February 1, 2008.................................................. 91,752,830
March 1, 2008..................................................... 92,631,579
April 1, 2008..................................................... 93,545,582
May 1, 2008....................................................... 94,415,302
June 1, 2008...................................................... 95,225,066
July 1, 2008...................................................... 96,031,131
August 1, 2008.................................................... 96,909,893
September 1, 2008................................................. 97,894,737
October 1, 2008................................................... 98,086,805
November 1, 2008.................................................. 98,269,079
December 1, 2008.................................................. 98,434,398
January 1, 2009................................................... 98,595,150
February 1, 2009.................................................. 98,767,441
March 1, 2009..................................................... 98,947,369
April 1, 2009..................................................... 99,130,218
May 1, 2009....................................................... 99,304,166
June 1, 2009...................................................... 99,466,111
July 1, 2009...................................................... 99,627,324
August 1, 2009.................................................... 99,803,066
September 1, 2009................................................. 100,000,000
</TABLE>
S-20
<PAGE>
OTHER CREDIT ENHANCEMENT
Reserve Subaccount. Collections of intangible transition charges available
on any payment date above that amount necessary to pay the:
(1) amounts payable for expenses of the bond trustee, the issuer
trustee and the servicer and other fees and expenses,
(2) amounts distributable to the transition bondholders of all series
for principal and interest on the next payment date, and
(3) amounts allocable to the overcollateralization subaccount
will be allocated to the reserve subaccount. As of March 31, 2000, the balance
in the reserve subaccount was $9,893,502.
On each monthly allocation date, the bond trustee is required to draw on
amounts in the reserve subaccount, if any, to the extent amounts available in
the general subaccount, the interest deposit account (for the payment of
Interest) and the loss subaccount are insufficient to make scheduled payments to
the transition bondholders of all series, meet credit enhancement funding
requirements and pay expenses of the issuer, the bond trustee, the issuer
trustee, the servicer and other specified fees and expenses. See "The
Indenture--Allocations and Payments" in the accompanying prospectus.
Capital Subaccount. Upon the issuance of the Series 2000-A Bonds, the
issuer will deposit the required capital amount of $5 million in the capital
subaccount. As of March 31, 2000, the balance in the capital subaccount was
$20,015,965. On each monthly allocation date, the bond trustee is required to
draw on amounts in the capital subaccount, if any, to the extent amounts
available in the general subaccount, the interest deposit subaccount (for the
payment of Interest), the loss subaccount, the reserve subaccount and the
overcollateralization subaccount are insufficient to make scheduled payments to
the transition bondholders of all series of transition bonds, meet credit
enhancement funding requirements and pay expenses of the issuer, the bond
trustee, the issuer trustee and the servicer and other specified fees and
expenses.
REPORTS TO HOLDERS OF SERIES 2000-A BONDS
On or prior to each payment date, the bond trustee is required to prepare
and provide statements to the holders of record of the Series 2000-A Bonds.
These statements will be available to the beneficial owners of the Series 2000-A
Bonds upon request to the bond trustee or the servicer. The financial
information provided will not be examined or reported upon by any independent
public accountant and no independent public accountant will give an opinion on
this financial information.
For a more detailed description of the statements provided to the holders
of record of the Series 2000-A Bonds, you should review the material under the
caption "The Indenture--Reports to Transition Bondholders" in the accompanying
prospectus.
S-21
<PAGE>
DESCRIPTION OF INTANGIBLE TRANSITION PROPERTY
THE INTANGIBLE TRANSITION CHARGES
PECO Energy's customers currently belong to one of three customer
categories for purposes of adjusting intangible transition charges. These
categories are: residential, small commercial and industrial and large
commercial and industrial. Each customer category is further divided into rate
classes. The qualified transition expenses authorized in PECO Energy's two
qualified rate orders issued by the Pennsylvania Public Utility Commission are
to be recovered from customers in each of PECO Energy's separate rate classes.
The intangible transition charges are calculated by determining the total amount
of intangible transition charges required to be billed to each customer rate
class, based on current estimates of usage and payment patterns, in order to
generate collections of intangible transition charges sufficient to ensure
timely recovery of qualified transition expenses in accordance with the expected
amortization schedules. This amount is then expressed as a percentage of total
projected revenue per rate class. This percentage is applied to each customer's
total bill within the applicable rate class. The resulting dollar amount on a
customer's bill after the application of such percentage is the intangible
transition charge payable by that customer.
The intangible transition charges, as periodically adjusted, will first
reduce competitive transition charges, then to the extent intangible transition
charges exceed those amounts, will reduce variable distribution charges. To the
extent that total revenues are affected by changes in usage, number of
customers, the rate of delinquencies and write-offs or other factors,
collections of intangible transition charges will vary. Variations in
collections of intangible transition charges will be addressed by recalculating
the percentages applied to customers' bills on each calculation date. See Tables
5 and 6 and "--Adjustments to Intangible Transition Changes" in this section and
"The Qualified Rate Orders and the Intangible Transition Charges--The Intangible
Transition Charges--The Intangible Transition Charge Adjustment Process" in the
accompanying prospectus.
The unbundled customer bills that were sent out with billing cycles
beginning January 1, 1999 separately identified charges for generation,
transmission and distribution and other services. When intangible transition
charges are billed to customers, those charges are applied to total projected
revenue per rate class, exclusive of transmission, energy, capacity and fixed
distribution charges. This is reflected in the calculation of intangible
transition charges. The cash flow from intangible transition charges will be
allocated among the transferred intangible transition property held by the
issuer and intangible transition property held by other issuers of transition
bonds to which intangible transition property is sold, based on their respective
Percentages at the time these intangible transition charges were billed.
See "The Qualified Rate Orders and the Intangible Transition Charges--The
Intangible Transition Charges--The Intangible Transition Charge Adjustment
Process" in the accompanying prospectus.
The following table sets forth the average monthly bill, including gross
receipts tax, and the average monthly intangible transition charges, including
gross receipts tax, billed for calendar year 1999 and upon issuance of the
Series 2000-A Bonds for each rate category.
TABLE 5
AVERAGE INTANGIBLE TRANSITION CHARGES
<TABLE>
<CAPTION>
PROJECTED MONTHLY
CALENDAR YEAR 1999 INTANGIBLE CHARGES
AVERAGE MONTHLY INITIALLY BILLED AFTER
CALENDAR YEAR 1999 INTANGIBLE TRANSITION ISSUANCE OF
CUSTOMER CATEGORY AVERAGE MONTHLY BILL CHARGES SERIES 2000-A BONDS
- ----------------- -------------------- --------------------- ----------------------
<S> <C> <C> <C>
Residential....................................... $ 76.95 $ 9.74 $ 11.52
Small Commercial and Industrial................... $ 359.63 $ 78.03 $ 85.24
Large Commercial and Industrial................... $18,041.54 $4,492.98 $ 6,193.33
</TABLE>
S-22
<PAGE>
The following are estimates of projected average intangible transition
charges--expressed as a percentage of variable distribution charges and
competitive transition charges applicable to each rate class--that will be
imposed on customers in each customer category beginning with the bill rendered
approximately ten days after the series issuance date of the Series 2000-A
Bonds. These percentages, as well as the dollar amounts in the prior sentences,
include the intangible transition charges imposed in connection with the Series
1999-A Bonds.
TABLE 6
PROJECTED AVERAGE INTANGIBLE TRANSITION CHARGES
FOR THE PERIOD MAY 8, 2000 TO AUGUST 14, 2000
RESIDENTIAL CUSTOMERS
<TABLE>
<CAPTION>
ITC
RATE CLASS PERCENTAGE
- ---------- ----------
<S> <C>
Rate R.................................................................. 19.81%
Rate R-H................................................................ 25.24%
Rate OP................................................................. 0.00%
</TABLE>
SMALL COMMERCIAL AND INDUSTRIAL CUSTOMERS
<TABLE>
<CAPTION>
ITC
RATE CLASS PERCENTAGE
- ---------- ----------
<S> <C>
Rate GS................................................................. 45.31%
Rate POL................................................................ 0.00%
Rate SL-P............................................................... 0.00%
Rate SL-S............................................................... 0.00%
Rate SL-E............................................................... 0.00%
Rate TL................................................................. 43.29%
Rate BLI(1)............................................................. 0.00%
</TABLE>
LARGE COMMERCIAL AND INDUSTRIAL CUSTOMERS
<TABLE>
<CAPTION>
ITC
RATE CLASS PERCENTAGE
- ---------- ----------
<S> <C>
Rate PD................................................................. 48.61%
Rate HT................................................................. 59.22%
Rate EP................................................................. 47.90%
</TABLE>
- ------------------
(1) No intangible transition charges are or will be imposed on Rate BLI
customers.
RATE CLASS DESCRIPTIONS
PECO Energy's customer base is currently divided into three categories for
purposes of adjusting intangible transition charges: residential, small
commercial and industrial, and large commercial and industrial. Rate categories
and classes within those categories are created by the Pennsylvania Public
Utility Commission and are subject to change. These changes will be reflected in
any adjustment request filed with the Pennsylvania Public Utility Commission by
the servicer. The current rate classes (indicated above) have remained unchanged
since April 20, 1990. These rate classes are:
S-23
<PAGE>
Residential Rate Classes:
Rate R--Residential Service: Residential service is available in the
entire territory of PECO Energy to single private family dwellings for the
domestic requirements of family members, which service is supplied through
one meter. This rate class (and Rate R-H) also includes payment-troubled
low income customers receiving discounted rates under the Customer
Assistance Program, Rate CAP.
Rate R-H--Residential Heating Service: Residential heating service is
available to single private family dwellings (or to a multiple dwelling
unit building consisting of two to five dwelling units, whether occupied or
not) for domestic requirements when such service is supplied through one
meter and where the dwelling is heated by specified types of electric space
heating systems.
Rate OP--Off-Peak Service: Available in conjunction with other
residential service rates, Rates R and R-H and, in specified cases, Rate
GS, for a customer receiving delivery at certain voltage levels during
off-peak periods.
Small Commercial and Industrial Rate Classes:
Rate GS--General Service: Electric delivery service available through
a single metering installation for offices, professional, commercial or
industrial establishments, governmental agencies, and other applications
outside the scope of the residential service rate schedules.
Rate POL--Private Outdoor Lighting: Available in conjunction with Rate
GS for the outdoor lighting of sidewalks, driveways, yards, lots and
similar places, outside the scope of service under Rate SL-P, SL-S and
SL-E.
Rate SL-P--Street Lighting in the City of Philadelphia: Available only
to a governmental agency, municipal, state or federal, for outside lighting
of streets, highways, bridges, parks or similar places, including
directional highway signs at locations where other outdoor lighting service
is established hereunder, for the safety and convenience of the public
within the City of Philadelphia.
Rate SL-S--Street Lighting--Suburban Divisions: Available for the
outdoor lighting of streets, highways, bridges, parks and similar places
for the safety and convenience of the public in Suburban Divisions.
Rate SL-E--Street Lighting Customer-Owned Facilities: Available to any
governmental agency outside of the City of Philadelphia for outdoor
lighting of streets, highways, bridges, parks or similar places, including
directional highway signs at locations where outdoor lighting service is
established for the safety and convenience of the public where all of the
utilization facilities are installed, owned and maintained by a
governmental agency.
Rate TL--Traffic Lighting: Available to any municipality using PECO
Energy's standard delivery service for electric traffic signal lights
installed, owned and maintained by the municipality.
Rate BLI--Borderline Interchange: Available under reciprocal
agreements to neighboring electric utilities for resale in their adjacent
territory. No intangible transition charges will be imposed on Rate BLI
customers.
Large Commercial and Industrial Rate Classes:
Rate PD--Primary-Distribution Power: Untransformed electric delivery
service available from the primary supply lines of PECO Energy's
distribution system where the customer installs, owns and maintains any
transforming, switching and other receiving equipment required.
Rate HT--High-Tension Power: Untransformed electric delivery service
from PECO Energy's standard high-tension lines, where the customer
installs, owns and maintains, any transforming, switching and other
receiving equipment required. Excludes certain special contracts.
Rate EP--Electric Propulsion: This rate is available only to the
National Rail Passenger Corporation and to the Southeastern Pennsylvania
Transportation Authority for untransformed electric delivery service from
PECO Energy's standard high-tension lines, where the customer installs,
owns and maintains any transforming, switching and other receiving
equipment required and where the service is supplied for the operation of
electrified transit and railroad systems and appurtenances.
S-24
<PAGE>
ADJUSTMENTS TO THE INTANGIBLE TRANSITION CHARGES
The actual collections of intangible transition charges are intended to be
neither more nor less than the amount necessary to pay the principal of the
transition bonds of each series in accordance with the expected amortization
schedule, to pay interest on each series and to fund the related expenses and
reserves. In order to enhance the likelihood that the appropriate amount of
intangible transition charges will be collected, the master servicing agreement
requires the servicer to seek, and the Pennsylvania Competition Act and PECO
Energy's two qualified rate orders require the Pennsylvania Public Utility
Commission to approve, annual adjustments to the intangible transition charges
within 90 days of the request and does not set forth any procedure for approval
in a shorter time period. There can be no assurance that the Pennsylvania Public
Utility Commission will approve adjustments any more frequently.
These adjustments will be based on actual collections of intangible
transition charges and updated assumptions by the servicer as to projected
future usage of electricity by customers, expected delinquencies and write-offs
and future expenses relating to all series of transition bonds. In addition,
PECO Energy's qualified rate orders provide that, commencing in the final
calendar year of collections of intangible transition charges for any series of
transition bonds, adjustments may be made quarterly or, if necessary, monthly.
See "The Master Servicing Agreement--Servicing Procedures--Intangible Transition
Charge Adjustment Process" in the accompanying prospectus.
The following table reflects information regarding the adjustments to the
intangible transition charges assessed on each rate class within the customer
categories that have been implemented since the first adjustment date for the
Series 1999-A Bonds on May 14, 1999:
TABLE 7
ADJUSTMENTS TO INTANGIBLE TRANSITION CHARGES
<TABLE>
<CAPTION>
INTANGIBLE TRANSITION CHARGES
SERIES 1999-A MAY 14, 1999 SERIES 2000-A
ISSUANCE DATE (FIRST ADJUSTMENT DATE) ISSUANCE DATE
------------- ----------------------- -------------
<S> <C> <C> <C>
RESIDENTIAL CUSTOMERS
RATE CLASS
- ----------
Rate R........................................................ 26.52% 19.06% 19.81%
Rate R-H...................................................... 27.94% 20.03% 25.24%
Rate OP....................................................... 0.00% 0.00% 0.00%
SMALL COMMERCIAL AND INDUSTRIAL CUSTOMERS
<CAPTION>
RATE CLASS
- ----------
<S> <C> <C> <C>
Rate GS....................................................... 51.93% 36.30% 45.31%
Rate POL...................................................... 0.00% 0.00% 0.00%
Rate SL-P..................................................... 0.00% 0.00% 0.00%
Rate SL-S..................................................... 0.00% 0.00% 0.00%
Rate SL-E..................................................... 0.00% 0.00% 0.00%
Rate TL....................................................... 46.37% 33.08% 43.29%
Rate BLI(1)................................................... 0.00% 0.00% 0.00%
LARGE COMMERCIAL AND INDUSTRIAL CUSTOMERS
<CAPTION>
RATE CLASS
- ----------
<S> <C> <C> <C>
Rate PD....................................................... 53.68% 37.94% 48.61%
Rate HT....................................................... 61.95% 43.38% 59.22%
Rate EP....................................................... 51.17% 36.88% 47.90%
</TABLE>
- ------------------
(1) No intangible transition charges are or will be imposed on Rate BLI
customers.
S-25
<PAGE>
DESCRIPTION OF PECO ENERGY'S BUSINESS
For a discussion of PECO Energy, you should review the material under the
caption "The Seller and Servicer" in the accompanying prospectus.
SERVICING
MONTHLY SERVICING FEE
On each monthly allocation date, the servicer is entitled to receive the
monthly servicing fee in an amount equal to:
o one-twelfth of 0.25% of the outstanding principal balance of all series
of transition bonds for so long as intangible transition charges are
included in electric bills otherwise sent to customers, and
o one-twelfth of 1.50% of the outstanding principal balance of all series
of transition bonds if intangible transition charges are not included in
electric bills otherwise sent to customers but instead, are billed
separately to customers.
The monthly servicing fee, together with any portion of the monthly
servicing fee that remains unpaid from prior monthly allocation dates, will be
paid solely to the extent funds are available for this purpose as described
under "The Indenture--Allocations and Payments" in the accompanying prospectus.
The monthly servicing fee will be paid prior to the distribution of any amounts
of interest on and principal of any series of transition bonds. The servicer
will be entitled to retain as additional compensation net investment income on
intangible transition charges received by the servicer prior to remittance of
the intangible transition charges to the collection account and the portion of
late fees, if any, paid by customers relating to the intangible transition
charges.
SERVICER ADVANCES
The servicer will not make any advances of interest or principal on the
Series 2000-A Bonds.
S-26
<PAGE>
UNDERWRITING THE SERIES 2000-A BONDS
Subject to the terms and conditions set forth in the underwriting agreement
among PECO Energy, the issuer and the underwriters named below, for whom Salomon
Smith Barney Inc. is acting as the representative, the issuer has agreed to sell
to the underwriters, and the underwriters have severally agreed to purchase, the
principal amounts of the Series 2000-A Bonds set forth opposite each
underwriter's name below:
<TABLE>
<CAPTION>
NAME CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Salomon Smith Barney Inc....................... $ 64,900,000 $ 82,600,000 $235,314,687 $207,185,313
Banc One Capital Markets, Inc.................. 8,250,000 10,500,000 29,912,884 26,337,116
First Union Securities, Inc.................... 8,250,000 10,500,000 29,912,884 26,337,116
Banc of America Securities LLC................. 5,500,000 7,000,000 19,941,923 17,558,077
Credit Suisse First Boston Corporation......... 5,500,000 7,000,000 19,941,923 17,558,077
Goldman, Sachs & Co............................ 5,500,000 7,000,000 19,941,923 17,558,077
Janney Montgomery Scott LLC.................... 5,500,000 7,000,000 19,941,923 17,558,077
Barclays Capital............................... 1,100,000 1,400,000 3,988,385 3,511,615
BNY Capital Markets, Inc....................... 1,100,000 1,400,000 3,988,385 3,511,615
Mellon Financial Markets, LLC.................. 1,100,000 1,400,000 3,988,385 3,511,615
Prudential Securities Incorporated............. 1,100,000 1,400,000 3,988,385 3,511,615
Pryor, Counts & Co., Inc....................... 1,100,000 1,400,000 3,988,385 3,511,615
TD Securities (USA) Inc........................ 1,100,000 1,400,000 3,988,385 3,511,615
------------ ------------ ------------ ------------
Total.......................................... $110,000,000 $140,000,000 $398,838,452 $351,161,548
============ ============ ============ ============
</TABLE>
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to take and to pay for all of the Series 2000-A Bonds
offered hereby, if any are taken.
The Underwriters' Sales Price for the Series 2000-A Bonds. The underwriters
propose to offer the Series 2000-A Bonds in part directly to retail purchasers
at the initial public offering prices set forth on the cover page of this
prospectus supplement, and in part to some securities dealers at a price less a
concession not in excess of:
o 0.120 percent of the principal amount of the Series 2000-A Class A-1
Bonds,
o 0.180 percent of the principal amount of the Series 2000-A Class A-2
Bonds,
o 0.300 percent of the principal amount of the Series 2000-A Class A-3
Bonds and
o 0.300 percent of the principal amount of the Series 2000-A Class A-4
Bonds.
The underwriters may allow and the dealers may reallow a concession to some
brokers and dealers not in excess of:
o 0.100 percent of the principal amount of the Series 2000-A Class A-1
Bonds,
o 0.125 percent of the principal amount of the Series 2000-A Class A-2
Bonds,
o 0.250 percent of the principal amount of the Series 2000-A Class A-3
Bonds and
o 0.250 percent of the principal amount of the Series 2000-A Class A-4
Bonds.
After the Series 2000-A Bonds are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
underwriters.
No Assurance as to Resale Price or Resale Liquidity for the Series 2000-A
Bonds. The Series 2000-A Bonds are a new issue of securities with no established
trading market. No series of transition bonds is currently listed on a
securities exchange, and the Series 2000-A Bonds also will not be listed on any
securities exchange. The issuer has been advised by the underwriters that they
intend to make a market in the
S-27
<PAGE>
Series 2000-A Bonds but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Series 2000-A Bonds.
Various Types of Underwriter Transactions Which May Affect the Price of the
Series 2000-A Bonds. The underwriters may engage in overallotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with
respect to the Series 2000-A Bonds in accordance with Regulation M under the
Securities Exchange Act of 1934. Overallotment transactions involve syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the Series 2000-A Bonds so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Series 2000-A Bonds in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when the Series 2000-A Bonds originally sold by the
syndicate member are purchased in a syndicate covering transaction. These
overallotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the prices of the Series 2000-A Bonds to
be higher than they would otherwise be in the absence of these transactions.
None of PECO Energy, the issuer, the issuer trustee or the bond trustee or any
of the underwriters represent that the underwriters will engage in any of these
transactions or that these transactions, once commenced, will not be
discontinued without notice at any time.
In the ordinary course of business, each underwriter and its affiliates
have engaged and may engage in investment banking and commercial banking
transactions with the issuer and its affiliates, including PECO Energy. In
addition, each underwriter may from time to time take positions in the Series
2000-A Bonds.
The issuer and PECO Energy have agreed to indemnify the several
underwriters against some liabilities, including liabilities under the
Securities Act of 1933.
RATINGS
It is a condition of any underwriter's obligation to purchase that the
Series 2000-A Bonds be rated "AAA" by Standard & Poor's, "AAA" by Fitch IBCA and
"Aaa" by Moody's, which, in each case, is in one of the four highest rating
categories of that rating agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
agency. No person is obligated to maintain the ratings on any of the Series
2000-A Bonds, and, accordingly, there can be no assurance that the ratings
assigned to any class of the Series 2000-A Bonds upon initial issuance will not
be revised or withdrawn by a rating agency at any time thereafter. If a rating
of any class of the Series 2000-A Bonds is revised or withdrawn, the liquidity
of that class of the Series 2000-A Bonds may be adversely affected. In general,
ratings address credit risk and do not represent any assessment of any
particular rate of principal payments on the Series 2000-A Bonds other than
payment in full of each class of the Series 2000-A Bonds by the applicable class
termination date and the ability to make timely interest payments.
S-28
<PAGE>
GLOSSARY OF DEFINED TERMS
Set forth below is a glossary of defined terms used in this prospectus
supplement.
"2000 QRO" means the qualified rate order issued by the Pennsylvania Public
Utility Commission to PECO Energy on March 16, 2000.
"PERCENTAGE" means, for the issuer or any other issuer of transition bonds,
the percentage equivalent of a fraction:
o the numerator of which is the aggregate intangible transition charges (as
adjusted from time to time) applicable to all series of transition bonds
issued by the issuer or any other issuer, as applicable, and
o the denominator of which is the aggregate intangible transition charges
(as adjusted from time to time) applicable to all series of transition
bonds issued by the issuer and all other issuers.
"QUALIFIED RATE ORDERS" means the qualified rate order issued by the
Pennsylvania Public Utility Commission to PECO Energy Company on May 14, 1998,
the qualified rate order issued by the Pennsylvania Public Utility Commission to
PECO Energy Company on March 16, 2000 and any subsequent order of the
Pennsylvania Public Utility Commission, adopted in accordance with the
Pennsylvania Competition Act, which creates intangible transition property and
authorizes the imposition and collection of intangible transition charges by
PECO Energy or its assignee. This term also includes any order that is
supplemental to any of the foregoing.
"QUALIFIED TRANSITION EXPENSES," as set forth in PECO Energy's qualified
rate orders, means, collectively, the aggregate principal amount of the
transition bonds and an amount sufficient to provide for any credit enhancement,
to fund any reserves, and to pay interest, premiums, if any, costs of
defeasance, servicing fees and other fees, costs and charges relating to all
series of transition bonds.
"SERIES OF TRANSITION BONDS" means any of the Series 2000-A Bonds, the
Series 1999-A Bonds and any other series of transition bonds which are issued
under and are subject to the terms of the indenture.
S-29
<PAGE>
PROSPECTUS
PECO ENERGY TRANSITION TRUST
ISSUER
PECO ENERGY COMPANY
SELLER AND SERVICER
UP TO $1,000,000,000 OF TRANSITION BONDS ISSUABLE IN SERIES
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THE ISSUER o HAS ISSUED TRANSITION BONDS--THE SERIES 1999-A BONDS--AND
MAY PERIODICALLY ISSUE ADDITIONAL TRANSITION BONDS IN ONE OR
MORE SERIES WITH ONE OR MORE CLASSES,
o OWNS:
o INTANGIBLE TRANSITION PROPERTY, WHICH IS THE RIGHT,
CREATED BY PENNSYLVANIA'S COMPETITION ACT AND THE QUALIFIED
RATE ORDER ISSUED BY THE PENNSYLVANIA PUBLIC UTILITY
COMMISSION FOR THE SERIES 1999-A BONDS, TO COLLECT
INTANGIBLE TRANSITION CHARGES IN AMOUNTS DESIGNED TO BE
SUFFICIENT TO REPAY THE TRANSITION BONDS, TO PAY OTHER
EXPENSES SPECIFIED IN THE INDENTURE AND TO FUND THE TRUST
ACCOUNTS,
o COLLECTIONS OF INTANGIBLE TRANSITION CHARGES,
o ITS RIGHTS UNDER THE SALE AGREEMENT AND MASTER SERVICING
AGREEMENT,
o TRUST ACCOUNTS HELD BY THE BOND TRUSTEE, AND
o IF SO STATED IN THE APPLICABLE PROSPECTUS SUPPLEMENT,
OTHER CREDIT ENHANCEMENT, AND
o WILL OWN INTANGIBLE TRANSITION PROPERTY CREATED BY THE
QUALIFIED RATE ORDER ISSUED BY THE PENNSYLVANIA PUBLIC
UTILITY COMMISSION ON MARCH 16, 2000, AND COLLECTIONS OF
INTANGIBLE TRANSITION CHARGES RELATED TO THAT QUALIFIED
RATE ORDER.
THE TRANSITION
BONDS OFFERED BY
THIS PROSPECTUS o WILL BE PAYABLE ONLY FROM ASSETS OF THE ISSUER,
o WILL BE SUPPORTED BY TRUST ACCOUNTS HELD BY THE TRUSTEE
FOR THE TRANSITION BONDS, AND, IF SO STATED IN THE
APPLICABLE PROSPECTUS SUPPLEMENT, OTHER CREDIT
ENHANCEMENT,
o WILL BE SECURED EQUALLY WITH ALL OTHER TRANSITION BONDS
ISSUED UNDER THE INDENTURE, AND
o WILL BE ISSUED IN SERIES, EACH OF WHICH THE ISSUER MAY
ISSUE WITHOUT THE CONSENT OF EXISTING TRANSITION
BONDHOLDERS.
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THIS PROSPECTUS APPLIES ONLY TO TRANSITION BONDS OFFERED BY THIS
PROSPECTUS.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 17 OF THIS
PROSPECTUS.
This prospectus may be used to offer and sell a series of transition bonds
only if accompanied by the prospectus supplement for that series.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is April 27, 2000.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY.......................................... 2
RISK FACTORS................................................ 17
Unusual Nature of Intangible Transition Property.......... 17
Servicing................................................. 24
Bankruptcy; Creditors' Rights............................. 28
The Transition Bonds...................................... 31
GLOSSARY OF DEFINED TERMS................................... 35
AVAILABLE INFORMATION....................................... 35
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 35
THE PENNSYLVANIA COMPETITION ACT............................ 36
The Pennsylvania Competition Act's General Effect on the
Electric Utility Industry in Pennsylvania.............. 36
Recovery of Stranded Costs................................ 36
Securitization of Stranded Costs.......................... 36
Jurisdiction Over Disputes; Standing...................... 38
Possible Federal Preemption of the Pennsylvania
Competition Act........................................ 38
Possible Commonwealth Amendment or Repeal of the
Pennsylvania Competition Act........................... 39
PECO ENERGY'S RESTRUCTURING PLAN............................ 40
General................................................... 40
Provider of Last Resort................................... 44
Prior Litigation.......................................... 45
THE QUALIFIED RATE ORDERS AND THE INTANGIBLE TRANSITION
CHARGES................................................... 47
The Intangible Transition Charges......................... 49
Competitive Billing....................................... 51
THE SELLER AND SERVICER..................................... 53
Retail Electric Service Territory......................... 53
Merger with Unicom........................................ 53
Customers and Operating Revenues.......................... 54
Forecasting Customers and Usage........................... 60
Billing Process........................................... 62
Limited Information on Customers' Creditworthiness........ 62
Electric Generation Suppliers and Other Third Party
Billers................................................ 65
THE ISSUER.................................................. 66
USE OF PROCEEDS............................................. 68
THE TRANSITION BONDS........................................ 68
General................................................... 68
Interest and Principal.................................... 69
Floating Rate Transition Bonds............................ 69
Redemption................................................ 70
Credit Enhancement........................................ 70
Book-Entry Registration................................... 71
Definitive Transition Bonds............................... 74
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WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS.............. 75
THE SALE AGREEMENT.......................................... 76
Sale and Assignment of Intangible Transition Property..... 76
Representations and Warranties of the Seller.............. 77
Matters Regarding the Seller.............................. 83
Governing Law............................................. 83
THE MASTER SERVICING AGREEMENT.............................. 84
Servicing Procedures...................................... 84
Servicer Advances......................................... 86
Servicing Compensation; Releases.......................... 86
Servicer Duties........................................... 86
Servicer Representations and Warranties................... 87
Servicer Indemnification.................................. 87
Statements to Issuer and Bond Trustee..................... 88
Evidence as to Compliance................................. 88
Matters Regarding the Servicer............................ 88
Servicer Defaults......................................... 89
Rights Upon Servicer Default.............................. 90
Successor Servicer........................................ 90
Addition of Other Issuers................................. 90
Governing Law............................................. 90
THE INDENTURE............................................... 91
Security.................................................. 91
Issuance in Series or Classes............................. 91
Collection Account........................................ 92
Allocations and Payments.................................. 95
Liquidated Damages........................................ 97
Reports to Transition Bondholders......................... 98
Modification of Indenture................................. 98
Enforcement of the Sale Agreement and the Master Servicing
Agreement.............................................. 100
Modifications to the Sale Agreement and the Master
Servicing Agreement.................................... 100
Events of Default; Rights Upon Event of Default........... 101
Covenants................................................. 103
List of Transition Bondholders............................ 104
Annual Compliance Statement............................... 104
Bond Trustee's Annual Report.............................. 104
Satisfaction and Discharge of Indenture................... 105
Legal Defeasance and Covenant Defeasance.................. 105
The Bond Trustee.......................................... 106
Governing Law............................................. 106
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UNITED STATES TAXATION...................................... 107
General................................................... 107
Taxation of the Issuer and of the Transition Bonds........ 107
Tax Consequences to U.S. Holders.......................... 108
Tax Consequences to Non-U.S. Holders...................... 109
MATERIAL COMMONWEALTH OF PENNSYLVANIA TAX MATTERS........... 110
ERISA CONSIDERATIONS........................................ 111
PLAN OF DISTRIBUTION........................................ 111
RATINGS..................................................... 112
LEGAL MATTERS............................................... 112
EXPERTS..................................................... 112
GLOSSARY OF DEFINED TERMS................................... 113
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX A..................................................... A-1
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IMPORTANT NOTICE
ABOUT INFORMATION IN THIS PROSPECTUS
You should rely only on information about the transition bonds provided in
this prospectus and in the related prospectus supplement. The issuer has not
authorized anyone to provide you with different information.
This prospectus and the related prospectus supplement do not constitute an
offer to sell or a solicitation of an offer to buy any security in any
jurisdiction where it is not lawful to do so.
References to the "issuer" refer to PECO Energy Transition Trust unless the
context indicates otherwise.
References to the "seller" refer to PECO Energy Company and any successor
seller under the sale agreement described in this prospectus.
References to the "servicer" refer to PECO Energy Company and any successor
servicer under the master servicing agreement described in this prospectus.
We include cross-references to sections where you can find additional
information. Check the table of contents to locate these sections.
1
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PROSPECTUS SUMMARY
This summary contains a brief description of the transition bonds that
applies to all series of transition bonds offered by this prospectus.
Information that relates to a specific series of transition bonds can be found
in the prospectus supplement related to that series. CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE 17 OF THIS PROSPECTUS.
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Transaction Overview: The Pennsylvania Electricity Generation Customer Choice and
Competition Act was enacted in 1996 and provides for the
restructuring of the electric industry in Pennsylvania,
including retail competition for generation services. Prior
to enactment of the Pennsylvania Competition Act, electric
utilities, such as PECO Energy Company, invested in various
generation-related assets, such as electric generating
facilities--including nuclear power plants--and power
purchase contracts with third-party generators of
electricity, to help meet their duties to serve the public
as regulated utilities. The electric utilities recovered
these investments by charging their customers the regulated
rates approved by the Pennsylvania Public Utility
Commission.
One of the effects of the deregulation of electricity
generation is that prices are determined by market forces,
not through rate regulation by the Pennsylvania Public
Utility Commission. These market prices may not be high
enough to allow the utilities to recover their investments
in generation-related assets. Accordingly, the utilities may
incur a loss in value of these generation-related assets as
a result of the transition from a regulated environment to
competition for electric generation services.
The Pennsylvania Competition Act provides for utilities to
recover the anticipated loss in value of their
generation-related assets, known as stranded costs, by
including a new type of charge in their customers' bills.
These new charges are known as competitive transition
charges. Utilities are authorized to securitize the right to
recover all or a portion of these charges through the
issuance of transition bonds, such as the securities
described in this prospectus and any related prospectus
supplement. This right is known as intangible transition
property. Once intangible transition property is
securitized, the utility's right to recover its stranded
costs through the competitive transition charges is replaced
by the intangible transition property holder's right to
recover the costs associated with the issuance, credit
enhancing and servicing of the transition bonds through
intangible transition charges included in customers'
electric bills. Intangible transition charges reduce the
amount of competitive transition charges and, if necessary,
will reduce PECO Energy's variable distribution rates in
order that all charges to customers fit within the rate caps
of the Pennsylvania Competition Act.
Intangible transition property was created by the
Pennsylvania Competition Act and two qualified rate orders
issued by the Pennsylvania Public Utility Commission to PECO
Energy Company on May 14, 1998 and on March 16, 2000.
Intangible transition property represents the irrevocable
right to collect intangible transition charges from
customers to recover:
o a portion of PECO Energy Company's stranded costs, and
o an amount sufficient to provide for any credit
enhancement, to fund any reserves, and to pay interest,
premiums, if any, costs of
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defeasance, servicing fees and other fees, costs and
charges relating to transition bonds.
Intangible transition charges are nonbypassable. Customers
cannot avoid paying them even if they purchase electricity
from a supplier other than PECO Energy Company.
On March 25, 1999, PECO Energy Company sold intangible
transition property created by its first qualified rate
order, which is referred to in this prospectus as the First
QRO, to the issuer and the issuer issued $4 billion of
Series 1999-A Bonds in accordance with that order. On March
16, 2000, the Pennsylvania Public Utility Commission issued
a second qualified rate order, which is referred to in this
prospectus as the 2000 QRO.
On the issuance date for each series of transition bonds
authorized by the 2000 QRO, PECO Energy Company will sell
the related intangible transition property to the issuer
under a sale agreement. The issuer has pledged substantially
all of its property to the bond trustee. This property
includes:
o the intangible transition property it previously pledged
to the bond trustee for the Series 1999-A Bonds,
o its rights under the sale agreement and the master
servicing agreement, and
o the collection account and the amounts contained in that
account and will serve as collateral for all series of
transition bonds issued under the indenture.
The portion of the collection account related to principal
of and interest on your series of transition bonds will be
segregated in a separate series subaccount as discussed
under the caption "The Indenture--Collection Account" and
"--Allocations and Payments" in this prospectus.
For a diagram depicting the parties to this transaction,
refer to page 16 of this prospectus.
For more information on the Pennsylvania Competition Act,
intangible transition property and intangible transition
charges, you should review the material under the captions
entitled "Risk Factors," "The Pennsylvania Competition Act,"
"Peco Energy's Restructuring Plan" and "The Qualified Rate
Orders and the Intangible Transition Charges" in this
prospectus.
Issuer: PECO Energy Transition Trust, a Delaware statutory business
trust and a wholly owned subsidiary of PECO Energy Company.
The issuer was formed on June 23, 1998 for the purpose of
purchasing and owning transferred intangible transition
property, issuing transition bonds from time to time and
pledging its interest in the collateral to the bond trustee
under the indenture to secure the transition bonds. The
issuer is a special purpose entity whose only assets are the
collateral for all series of transition bonds issued by it
and whose only revenues are collections of the intangible
transition charges. The collateral is the sole source of
payment for all series of transition bonds. On March 25,
1999, the issuer issued $4 billion of Series 1999-A Bonds.
See "The Issuer" in this prospectus.
Issuer's Address: c/o First Union Trust Company, National Association, One
Rodney Square, 920 King Street, Wilmington, Delaware 19801.
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Issuer's Telephone Number: (302) 888-7532
Issuer Trustee: First Union Trust Company, National Association. Two
additional trustees have been appointed by PECO Energy
Company. See "The Issuer" in this prospectus.
Issuer Trustee's Address: One Rodney Square, 920 King Street, Wilmington, Delaware
19801.
Issuer Trustee's Telephone
Number: (302) 888-7532
Bond Trustee: The Bank of New York.
Bond Trustee's Address: 101 Barclay Street, Floor 12 East, New York, New York 10286.
Bond Trustee's Telephone (800) 524-4458
Number:
Seller and Servicer of the
Transferred Intangible
Transition Property: PECO Energy Company.
PECO Energy Company is referred to as PECO Energy throughout
this prospectus.
The intangible transition property was authorized by the
qualified rate orders issued by the Pennsylvania Public
Utility Commission to PECO Energy on May 14, 1998 and March
16, 2000. The first order, the First QRO, authorized
intangible transition property of $4 billion, which property
was sold to the issuer concurrently with the issuance of the
Series 1999-A Bonds. A summary of the terms of the Series
1999-A Bonds can be found in Annex A to this prospectus. The
second order, the 2000 QRO, authorized intangible transition
property of $1 billion which PECO Energy will sell under the
sale agreement to the issuer on the series issuance dates
for series of transition bonds issued under this prospectus.
PECO Energy services the transferred intangible transition
property under the master servicing agreement between PECO
Energy, as servicer, and the issuer.
Incorporated in Pennsylvania in 1929, PECO Energy is
primarily a vertically integrated utility that historically
has provided regulated retail electric and natural gas
service to customers in its franchised territory in
Southeastern Pennsylvania. Pursuant to the Pennsylvania
Competition Act, the Commonwealth of Pennsylvania has
required the unbundling of retail electric services in
Pennsylvania into separate generation, transmission and
distribution services with open retail competition for
generation services. Since the commencement of deregulation
in 1999, PECO Energy serves as the local distribution
company providing electric distribution services in
Southeastern Pennsylvania and bundled electric service to
customers who do not choose an alternate electric generation
supplier. PECO Energy engages in wholesale marketing of
electricity on a national basis and through a subsidiary is
a competitive generation supplier offering competitive
energy supply to customers throughout Pennsylvania. Through
another subsidiary, PECO Energy provides utility
infrastructure services to customers in several regions of
the United States. PECO Energy has also formed a joint
venture with British Energy plc to acquire and operate
nuclear generating facilities. PECO Energy also participates
in joint ventures which provide telecommunications services
in the Philadelphia metropolitan region. In the future,
those generation facilities, which will continue to serve
those customers and others in
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the competitive generation market, may be transferred to an
affiliated or non-affiliated entity.
PECO Energy has agreed to merge with an unrelated third
party. If this merger is completed as currently proposed,
PECO Energy will become a wholly-owned subsidiary, along
with Commonwealth Edison Company, of a holding company and
will cease to engage in electric generation. See "The Seller
and Servicer--Merger with Unicom" in this prospectus.
PECO Energy, as servicer of the transferred intangible
transition property, collects the intangible transition
charges from customers within its service territory on
behalf of the issuer for a fee specified in any related
prospectus supplement. Due to provisions of the Pennsylvania
Competition Act and the settlement of restructuring issues,
PECO Energy customers have the opportunity to choose from
several billing source options as of September 1, 2000.
One of these options is consolidated billing from third
parties providing billing or metering services, including
electric generation suppliers. Any third party that provides
consolidated billing is required to pay the servicer amounts
billed by the third party on behalf of the servicer,
including the intangible transition charges, regardless of
the third party's ability to collect those amounts from its
customers. The third party biller effectively replaces the
customer as the obligor on those intangible transition
charges. The servicer will have no right to collect those
intangible transition charges from the customers, except
following payment defaults by a third party biller and the
expiration of the applicable grace period. See "The
Qualified Rate Orders and the Intangible Transition
Charges--Competitive Billing" and "Risk
Factors--Servicing--It May Be More Difficult to Collect
Intangible Transition Charges Due to Billing by Third
Parties" in this prospectus.
The Assets of the Issuer: The issuer owns:
o the intangible transition property transferred by PECO
Energy to the issuer,
o collections of intangible transition charges,
o its rights under the sale agreement and the master
servicing agreement, and
o trust accounts held by the bond trustee.
The issuer will own:
o the intangible transition property transferred to it by
PECO Energy, which will secure all the transition bonds
outstanding under the indenture, and related collections
of intangible transition charges, and
o other credit enhancement acquired or held to ensure
payment of a particular series of transition bonds as
specified in the related prospectus supplement.
The intangible transition property is described in more
detail under "The Sale Agreement--Sale and Assignment of
Intangible Transition Property" in this prospectus. The
trust accounts are described in more detail under "The
Indenture--Collection Account" in this prospectus.
Customers: PECO Energy's customers belong to one of three customer
categories for purposes of adjusting intangible transition
charges. These categories are: residential, small commercial
and industrial and large commercial and industrial. Each
customer category is further divided into rate
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classes. The customer categories and rate classes are
described in greater detail in "The Seller and
Servicer--Customers and Operating Revenues" in this
prospectus.
Payment Sources: On each payment date as specified in the related prospectus
supplement, the bond trustee is required to pay amounts owed
on all outstanding series of transition bonds from:
o amounts collected by the servicer--or any third party
electric generation suppliers or other third parties
providing billing or metering services--for the issuer
with respect to intangible transition charges and remitted
to the bond trustee after the payment of specific fees and
expenses, and
o any other amounts available for withdrawal from trust
accounts held by the bond trustee, including specified
investment earnings on amounts in the trust accounts, or
paid under contracts, such as the sale agreement, the
bills of sale or the master servicing agreement, pledged
to secure one or more series of transition bonds. All
accounts referred to in this prospectus will be held by
the bond trustee in trust, and are described in greater
detail under "The Indenture--Collection Account" in this
prospectus.
State Pledge: The Commonwealth of Pennsylvania has pledged in the
Pennsylvania Competition Act that it will not limit, alter,
impair or reduce the value of intangible transition property
or the intangible transition charges which are approved by
an order of the Pennsylvania Public Utility Commission until
the transition bonds are fully repaid or discharged.
However, the Commonwealth of Pennsylvania may limit or alter
the value of intangible transition charges or intangible
transition property if adequate compensation is made for the
full protection of the beneficial owners of the transition
bonds. The Pennsylvania Competition Act does not define
adequate compensation. Thus, the amount of this compensation
may not be sufficient to pay the full amount of outstanding
principal of and interest on the transition bonds or
compensate transition bondholders for any reinvestment risk.
Priority of Distributions: On each monthly allocation date (which is the 6th day of
each calendar month or if such day is not a business day,
the next business day), the bond trustee applies all amounts
on deposit in the general subaccount of the collection
account and any investment earnings on these amounts in the
following priority:
(1) payment of the bond trustee's fee, expenses and
indemnities, if any,
(2) payment of the issuer trustee's fee, expenses and
indemnities, if any,
(3) payment of the monthly servicing fee and all unpaid
monthly servicing fees from prior monthly allocation dates,
(4) so long as no event of default under the indenture has
occurred and is continuing or would be caused by that
payment, payment of all operating expenses other than
those referred to in the first, second and third items
above--up to an aggregate for all series of transition
bonds of $12,500 on any monthly allocation date,
(5) Interest on each series of transition bonds for that
monthly allocation date will be transferred to the series
subaccounts for each series Pro Rata, which is defined
in the glossary to this prospectus,
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(6) any Principal then payable on the transition bonds:
(a) as a result of acceleration triggered by an event of
default,
(b) on a series termination date or class termination date,
as applicable, or
(c) on a redemption date, that will occur prior to the next
monthly allocation date will be transferred Pro Rata to
the series subaccount for that series,
(7) the Principal not accounted for in (6) will be
transferred Pro Rata to the series subaccounts,
(8) payment of any remaining unpaid operating expenses,
indemnity amounts and loss amounts then owed by the issuer,
(9) allocation of any required amount to the
overcollateralization subaccount, which account is described
in detail under "--Accounts" in this prospectus summary
and "The Indenture--Collection Account" in this
prospectus,
(10) payment of any termination or breakage amounts owed to
any counterparty to a hedge or swap transaction,
(11) so long as no event of default has occurred and is
continuing, payment of net investment earnings on amounts in
the general subaccount of the collection account since
the previous monthly allocation date to the issuer,
free from the lien of the indenture,
(12) allocation of the remainder, if any, to the reserve
subaccount, which account is described in detail under
"--Accounts" in this prospectus summary and "The
Indenture--Collection Account" in this prospectus, and
(13) following repayment of all outstanding series of
transition bonds, the balance will be released to the
issuer, free from the lien of the indenture.
The payment of the bond trustee's and issuer trustee's
indemnities specified in items (1) and (2) above will be
made only if:
o those indemnity payments would not result in an event of
default under the indenture and
o the issuer provides notice to the rating agencies of the
indemnity amount and, if reasonably required by the rating
agencies, an officer's certificate and other documentation
that certifies that those payments are not reasonably
expected to result in an event of default.
The following diagram generally depicts the basic flow of
the collection of intangible transition charges from
customers or electric generation suppliers or other third
parties to the servicer and, subsequently, to the various
accounts listed above.
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<CAPTION>
BASIC ALLOCATIONS AND DISTRIBUTIONS
<S> <C> <C> <C> <C> <C>
- --------------- ----------------------- --------------- ----------------------- -------------- --------------------------
CUSTOMERS Monthly payment of PECO ENERGY Monthly remittance COLLECTION Application of amounts
AND intangible transition (SERVICER) of collections of ACCOUNT in collection account
EGSS* charges to servicer --------------- intangible transition -------------- (including net
- --------------- ----------------------- charges allocated to earnings), as follows:
the issuer --------------------------
----------------------
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<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8
- ---------- --------- ---------- ----------------------- ----------- --------------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bond Servicer: Issuer: Series Subaccounts: Issuer: Overcollateralization Issuer: Reserve
Trustee/ Monthly Operating o Interest for All unpaid Subaccount: Net earnings on Subaccount:
Issuer servicing expenses applicable monthly operating Overcollateralization amounts in general All remaining
Trustee: fee (up to an allocation date expenses, --------------------- subaccount of the amounts
Fees and --------- aggregate o Principal payable as indemnity collection account -------------
expenses $12,500 a result of acceleration amounts ------------------
(including for all or payable on a series and loss
indemnity series for or class termination amounts
amounts each date or payable on a owed to the
and loss monthly redemption date issuer
amounts allocation o Principal for that -----------
owed to the date) monthly allocation
trustees) ---------- date not provided for
- ----------- above
---------------------
</TABLE>
* electric generation suppliers or other third parties providing billing and
metering services
8
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If on any monthly allocation date, available collections of
intangible transition charges, together with amounts
available in the subaccounts, are insufficient to make the
allocations contemplated by the first through the ninth
items above, the bond trustee will draw from amounts on
deposit in the following subaccounts up to the amount of
such shortfall, in order to make those payments and
transfers:
(1) from the interest deposit subaccount, for the payments
or transfers contemplated by the fifth item above only,
(2) then from the loss subaccount, for the payments or
transfers contemplated by the first through the eighth items
above only, and
(3) thereafter, from the reserve subaccount, then from the
overcollateralization subaccount and finally from the
capital subaccount.
See "The Indenture--Allocations and Payments" in this
prospectus.
On each payment date for any series, the amounts on deposit
in the applicable series subaccount (other than net income
or other gain, which, so long as no event of default has
occurred and is continuing, are released to the issuer free
of the lien of the indenture) are applied to pay the
following (in the priority indicated):
(1) interest due and payable on the transition bonds of that
series, together with any overdue interest and, to the
extent permitted by law, interest on that amount, are
paid to the transition bondholders of that series (in
the case of classes with swap or hedge transactions,
that interest is payable to the applicable counterparty
to those transactions),
(2) the balance, if any, up to the principal amount of the
transition bonds of that series that is scheduled to be paid
by that payment date in accordance with the expected
amortization schedule for that series or, for any series
of transition bonds payable as a result of acceleration
under the indenture or to be redeemed under the
indenture, the outstanding principal amount of that
series and premium, if any, is paid to the transition
bondholders of that series for principal and premium, if
any, on the transition bonds of that series, and
(3) the balance, if any, is transferred to the general
subaccount for allocation on the next monthly allocation
date. See "The Indenture--Allocations and Payments" in
this prospectus.
Credit Enhancement: Credit enhancement for the transition bonds is as follows:
o The servicer of the intangible transition property on
behalf of the issuer makes periodic adjustments to the
intangible transition charges it bills to customers, once
the Pennsylvania Public Utility Commission approves these
adjustments. PECO Energy will make these adjustments if it
determines that collections of intangible transition
charges are either greater or lesser than the amount
necessary to make timely payments on all series of
transition bonds, to fund subaccounts to required levels
and to pay applicable fees and expenses. The servicer can
make these changes, with the approval of the Pennsylvania
Public Utility Commission, once a year. In
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addition, during the final calendar year of collections of
intangible transition charges for any series of transition
bonds, the servicer can make these adjustments as
frequently as monthly. See "The Qualified Rate Orders and
the Intangible Transition Charges--Intangible Transition
Charges--the Intangible Transition Charge Adjustment
Process."
o The amounts in the reserve subaccount, the
overcollateralization subaccount and the capital subaccount
also provide credit enhancement for all series of
transition bonds.
o Additional credit enhancement for any series may include
surety bonds, letters of credit, maturity guarantees, a
financial guaranty insurance policy, a credit or liquidity
facility, a repurchase obligation, a third party payment
or cash deposit, each as specified in the related
prospectus supplement.
The credit enhancement for the transition bonds is intended
to protect you against losses or delays in scheduled
payments on your transition bonds.
Accounts: The bond trustee holds the following trust accounts:
o Collection Account--Under the indenture, the issuer
established a single collection account for all series of
transition bonds which is held by the bond trustee. The
collection account has been divided into subaccounts which
allocate the funds deposited in the collection account to
specific uses.
o General Subaccount--Funds received from collections of the
intangible transition charges are initially allocated to
the general subaccount of the collection account.
o Series Subaccount--Under the indenture, the issuer has
established a series subaccount for the Series 1999-A Bonds
and will establish a series subaccount for each series of
transition bonds offered by this prospectus. On each
monthly allocation date, the bond trustee is required to
transfer to this account amounts accruing for principal
and interest for each series on a Pro Rata basis. On each
payment date, the bond trustee withdraws funds from these
subaccounts to make payments on the related series.
o Class Subaccounts--These subaccounts have been and will be
established for any class of transition bonds that bears a
floating rate of interest.
o Overcollateralization Subaccount--Each prospectus
supplement will set a funding level for the
overcollateralization subaccount that takes into account
the issuance of any previous series of transition bonds.
The overcollateralization amount required to be funded for
each series of transition bonds will be equal to the
percentage of the initial principal amount of that series
stated in the related prospectus supplement. The
overcollateralization amount will be funded over the
expected term of that series of transition bonds through
the imposition of intangible transition charges.
o Capital Subaccount--The amount of capital required to be
held by the issuer for a series of transition bonds, which
is the amount specified in the related prospectus
supplement, will be deposited into
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the capital subaccount by the issuer on the date of
issuance of that series. A deposit of $20 million was made
into the capital subaccount upon the issuance of the
Series 1999-A Bonds.
o Reserve Subaccount--If the issuer collects intangible
transition charges in excess of:
(1) amounts payable for expenses of the bond trustee, the
issuer trustee and the servicer and other fees and expenses,
(2) amounts allocable to the applicable series and class
subaccounts for Principal and Interest on the next payment
date, and
(3) amounts allocable to the overcollateralization
subaccount, the excess is held in the reserve subaccount.
o Other Accounts--If funds are remitted to the bond trustee
in connection with a legal defeasance or covenant defeasance
under the indenture, a defeasance subaccount will be
established. Further, if the seller is required to remit
loss amounts under the terms of the sale agreement, a loss
subaccount will be established. Also, if the seller is
required to pay regular fixed payments to a counterparty
to a hedge or swap agreement, an interest deposit
subaccount will be established for those payments.
Each of the overcollateralization subaccount, the capital
subaccount, the reserve subaccount and, if established, the
loss subaccount and interest deposit subaccount will be
available to make payments on the transition bonds on each
payment date as described in "The Indenture--Allocations and
Payments" in this prospectus.
Interest and Principal: Interest will accrue on the outstanding principal balance of
transition bonds of a series or class offered by this
prospectus at the applicable rate of interest specified in
or determined in the manner specified in the applicable
prospectus supplement.
On any payment date for any series offered by this
prospectus, unless principal is payable:
o as a result of acceleration triggered by an event of
default,
o on a series termination date or class termination date, as
applicable, or
o on a redemption date,
the issuer will make principal payments on that series in
the amount necessary to reduce the outstanding principal
balance of that series to the amount specified for that
payment date in the expected amortization schedule set forth
in the prospectus supplement for that series, and only to
the extent funds are available for that payment as described
in this prospectus. Principal of that series or class of
transition bonds may be paid later than reflected in the
expected amortization schedule for that series or class.
See "Risk Factors--The Transition Bonds--Transition
Bondholders May Receive Principal Payments Later than
Expected" and "--Transition Bondholders May Have to Reinvest
the Principal of Their Investments at a Lower Rate of Return
Because of Optional and
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Mandatory Redemption of Transition Bonds" and "Weighted
Average Life and Yield Considerations" in this prospectus.
The entire unpaid principal amount of all of the transition
bonds outstanding under the indenture will be due and
payable if an event of default under the indenture occurs
and is continuing and the bond trustee or the holders of a
majority in principal amount of the transition bonds of all
series then outstanding have declared the transition bonds
to be immediately due and payable. See "The
Indenture--Events of Default; Rights Upon Event of Default"
in this prospectus.
Optional Redemption: Provisions for redemption of a series of transition bonds
offered by this prospectus at the option of the issuer will
be specified in the related prospectus supplement.
Mandatory Redemption: Except as described in the third paragraph below under this
section, each series of transition bonds offered by this
prospectus will be subject to mandatory redemption in whole
at a redemption price equal to the principal amount of the
bonds, plus interest accrued to the redemption date, if the
seller is obligated to pay liquidated damages under the sale
agreement. PECO Energy will be required to pay liquidated
damages and certain amounts due to the bond trustee, the
issuer trustee and the issuer as a result of a breach by
PECO Energy of specified representations relating to
intangible transition property under the sale agreement if
that breach continues beyond a 90-day grace period, assuming
the seller meets specified rating criteria or makes an
escrow deposit, and has a material adverse effect on the
transition bondholders. If the specified rating criteria are
not met or the requisite escrow deposit is not made, the
seller must pay liquidated damages within 2 days of the
breach. The bond trustee, which may consult with the
servicer and other third parties, will have sole
responsibility to determine whether a breach by PECO Energy
of any of these specified representations has a material
adverse effect on the transition bondholders.
If the full amount of indemnification payments resulting
from PECO Energy's breach of its representations relating
to:
o the Commonwealth's and the Pennsylvania Public Utility
Commission's ability to adversely affect intangible
transition property or transition bondholders,
o governmental approvals,
o pending or threatened litigation,
o PECO Energy's due incorporation and corporate authority to
fulfill its obligations under the sale agreement,
o the enforceability of the sale agreement against PECO
Energy and the absence of any breach of its charter
documents, or
o creation of a lien or violation of applicable law in
connection with the sale agreement
is reasonably expected to be incurred beyond a 90-day period
immediately following the breach of the representation
giving rise to the damages, the seller shall, except as
provided below, pay liquidated
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damages to the bond trustee, as assignee of the issuer, on
the first monthly allocation date following the expiration
of such 90-day period.
If PECO Energy is obligated to pay liquidated damages for a
breach of a representation and warranty which relates to one
or more of the qualified rate orders, but not all of the
qualified rate orders, then:
o the amount of liquidated damages will include the then
outstanding principal amount of only the series of
transition bonds issued in connection with the affected
qualified rate order or orders as of the redemption date,
plus accrued interest to the redemption date, and
o only the series of transition bonds issued in connection
with the affected qualified rate order or orders will be
subject to mandatory redemption.
If the losses incurred as a result of a breach of one of the
foregoing representations is reasonably expected not to
exceed a de minimis loss amount, on the monthly allocation
date immediately following the initial loss allocation date,
the seller may deposit in the loss subaccount the aggregate
expected amount of losses, in lieu of paying indemnification
or liquidated damages. In this case, the seller may be
required to make additional deposits to the loss subaccount
from time to time if actual losses exceed the amount already
deposited.
Additional redemption provisions, if any, for each series of
transition bonds offered by this prospectus will be
specified in the related prospectus supplement. See "The
Transition Bonds--Redemption" and "The Sale
Agreement--Representations and Warranties of the Seller" in
this prospectus.
Payment and Record Dates: The payment dates and record dates for each series of
transition bonds will be specified in the related prospectus
supplement.
Expected Final Payment
Dates, Series Termination
Dates and Class
Termination Dates: The expected final payment date for each series or class of
transition bonds offered by this prospectus will be the date
when all interest on and principal of that series or class
is expected to be paid in full. The series termination date
for a series or, if applicable, the class termination date
for a class of transition bonds will be a date on or after
the expected final payment date. Failure to pay the entire
outstanding amount of any class or series by the expected
final payment date will not result in an event of default
under the indenture unless such failure occurs on the series
termination date or class termination date for the class or
series. The expected final payment date and the series
termination date or class termination date of each series
and class of transition bonds will be specified in the
corresponding prospectus supplement.
Risk Factors: Prospective investors should consider the risks associated
with an investment in the transition bonds offered by this
prospectus. These risks may cause transition bondholders to
suffer a loss of their investment in transition bonds or may
adversely affect the timing of payments to transition
bondholders.
For a detailed discussion of the material risks associated
with an investment in transition bonds, prospective
investors should review the
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discussion under "Risk Factors" which begins on page 17 of
this prospectus.
The Transition Bonds;
Issuance of New Series: The issuer may issue transition bonds offered by this
prospectus in one or more series, each comprised of one or
more classes. Each series of transition bonds will be issued
under the indenture. As mentioned previously under
"--Issuer" in this prospectus summary, the issuer issued the
Series 1999-A Bonds on March 25, 1999. The Series 1999-A
Bonds, totaling $4 billion in principal amount, were issued
in seven classes as described in the related prospectus
supplement dated March 18, 1999 and summarized in Annex A to
this prospectus. Two of the classes have floating interest
rates. See also "The Indenture" in this prospectus.
Any series of transition bonds may include one or more
classes which differ as to the bond rate and amortization of
principal. The terms of all transition bonds of the same
series will be identical, unless that series is comprised of
more than one class, in which case the terms of all
transition bonds of the same class will be identical. The
particular terms of the transition bonds of any series and,
if applicable, classes of that series, will be described in
the related prospectus supplement.
The terms of any series and any classes of that series will
not be subject to prior review by, or consent of, the
transition bondholders of any previously issued series. A
new series may be issued under the indenture only upon
satisfaction of the conditions described in this prospectus
under "The Indenture--Issuance in Series or Classes." See
"Risk Factors--The Transition Bonds--Issuance of Additional
Series May Adversely Affect Outstanding Transition Bonds"
and "The Transition Bonds" in this prospectus. For instance,
one of the conditions to the issuance of additional
transition bonds under the indenture is that each rating
agency must confirm to the seller, the servicer, the bond
trustee and the issuer that the issuance of those additional
transition bonds will not result in a reduction or a
withdrawal of the current rating by that rating agency of
any outstanding series or class of transition bonds.
Denominations: Each class of transition bonds offered by this prospectus
will initially be issued in the minimum denominations set
forth in the related prospectus supplement.
Form of the Transition Bonds: Each series and class of transition bonds offered by this
prospectus will initially be issued either only in
book-entry form through The Depository Trust Company or in
another form as specified in the applicable prospectus
supplement. See "The Transition Bonds--Book-Entry
Registration" in this prospectus.
Tax Status: In connection with the sale of intangible transition
property for the Series 1999-A Bonds, PECO Energy received a
ruling from the Internal Revenue Service that the transition
bonds will be classified as obligations of PECO Energy. In
the opinion of Ballard Spahr Andrews & Ingersoll, LLP,
special tax counsel to the issuer and PECO Energy, for U.S.
federal income tax purposes:
o the transition bonds offered by this prospectus will be
treated as debt of PECO Energy secured by a pledge of the
collateral, and
o the issuer will be treated as a division of PECO Energy
and will not be treated as a separate taxable entity.
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Transition bondholders who are not United States taxpayers
generally will not be subject to United States federal
income or withholding taxes on interest received on the
transition bonds.
See "United States Taxation" in this prospectus.
In addition, in the opinion of Ballard Spahr Andrews &
Ingersoll, LLP, interest from the transition bonds offered
by this prospectus received by a person who is not otherwise
subject to corporate or personal income tax in Pennsylvania
will not be subject to these taxes. Transition bonds held by
deceased Pennsylvania residents may be subject to
inheritance and estate taxes. Neither residents nor
nonresidents of Pennsylvania will be subject at the present
time to an intangible personal property tax with respect to
the transition bonds. See "Material Commonwealth of
Pennsylvania Tax Matters" in this prospectus.
ERISA Considerations: Employee benefit plans are permitted to purchase transition
bonds. A fiduciary of any employee benefit plan or other
plan or arrangement that is subject to the Employee
Retirement Income Security Act of 1974, as amended, or
Section 4975 of the Internal Revenue Code of 1986, as
amended, should carefully review with its legal advisers
whether the purchase or holding of the transition bonds of
any class or series could give rise to a transaction
prohibited or not otherwise permissible under ERISA or the
Internal Revenue Code. See "ERISA Considerations" in this
prospectus.
Ratings: It is a condition of any underwriter's obligation to
purchase each series or class of transition bonds offered by
this prospectus that, at the time of issuance, that series
or class receive the rating indicated in the related
prospectus supplement, which will be in one of the four
highest categories, from one or more rating agencies which
have rated the transition bonds specified in that prospectus
supplement.
A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal
at any time. No person is obligated to maintain any rating
on any transition bond and, accordingly, there can be no
assurance that the ratings assigned to any series or class
of transition bonds upon initial issuance of that series or
class will not be revised or withdrawn by a rating agency at
any time thereafter without prior notification.
If a rating of any series or class of transition bonds is
revised downward or withdrawn, the liquidity and the price
of that series or class of transition bonds may be adversely
affected. In general, the ratings address credit risk, the
ability of the issuer to make timely interest payments, and
do not represent any assessment of any particular rate of
principal payments on the transition bonds other than the
payment in full of each series or class of transition bonds
by the applicable series termination date or class
termination date.
See "Risk Factors--The Transition Bonds--Bondholders May
Receive Principal Payments Later than Expected" and
"Ratings" in this prospectus.
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PARTIES TO THE TRANSACTION
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Applies, as servicer, for
---------------------- intangible transition charges --------------------------
PECO ENERGY adjustments Pennsylvania Public
(seller, servicer, Utility Comission*
grantor and owner) (State agency; not
---------------------- Issued the two qualified rate affiliated with issuer
orders and approves adjustments or PECO Energy)
to intangible transition charges --------------------------
Sells intangible transition property Services intangible transition
for cash pursuant to sale agreement property of the issuer and receives
monthly servicing fee pursuant to
master servicing agreement
- ---------------------------------- ---------------------- -----------------------
ISSUER TRUSTEE ISSUER PROVIDER OF
(with beneficiary trustees manages (PECO Energy CREDIT
issuer pursuant Transition Trust) ENHANCEMENT
to trust agreement) OR HEDGE
TRANSACTION
(To be named, if any)
- ---------------------------------- ---------------------- -----------------------
Sale of transition bonds for cash,
pursuant to underwriting agreement
-----------------------------
BOND TRUSTEE
(acts for an on behalf of
transaction bondholders
----------------------------- pursuant to indenture)
UNDERWRITERS
----------------------------- -----------------------------
Sale of transaction
bonds for cash
-----------------------------
TRANSITION
BONDHOLDERS
-----------------------------
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- ----------
* The Pennsylvania Public Utility Commission also supervises the
implementation of the Pennsylvania Competition Act and is authorized to
issue regulations under the Pennsylvania Competition Act.
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RISK FACTORS
You should consider the following risk factors in deciding to purchase
transition bonds offered by this prospectus:
UNUSUAL NATURE OF INTANGIBLE TRANSITION PROPERTY
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LEGAL CHALLENGES COULD ADVERSELY
AFFECT TRANSITION BONDHOLDERS Intangible transition property and its adequacy to pay principal
of and interest on the series of transition bonds offered by this
prospectus depends on the Pennsylvania Competition Act and the
qualified rate orders. If the Pennsylvania Competition Act or any
of the qualified rate orders were challenged in a lawsuit and a
court decided that the Pennsylvania Competition Act or any of the
qualified rate orders, or all of them, were invalid or
unenforceable, PECO Energy will have breached a representation in
the sale agreement. In that case, PECO Energy may have to pay
liquidated damages to the issuer and the bond trustee for the
losses resulting from that breach.
If PECO Energy is obligated to pay liquidated damages for a breach
of a representation and warranty which relates to one or more of
the qualified rate orders, but not all qualified rate orders,
then:
o the amount of liquidated damages will include the then
outstanding principal amount of only the series of transition
bonds authorized by the affected qualified rate order or orders
as of the redemption date, plus accrued interest to the
redemption date, and
o only the series of transition bonds authorized by the affected
qualified rate order or orders will be subject to mandatory
redemption.
See "The Sale Agreement--Representations and Warranties of the
Seller" in this prospectus.
PECO Energy may not be able to meet its obligations to pay
liquidated damages. As a result, if the Pennsylvania Competition
Act or any of the qualified rate orders were overturned,
transition bondholders could suffer a loss of their investment.
Also, the time and expense of enforcing rights against PECO Energy
could result in a loss to transition bondholders or delay expected
payments on the transition bonds offered by this prospectus.
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LACK OF CONTINUED OPERATION OF EXISTING
GENERATION FACILITIES MAY RESULT IN
LOSSES TO TRANSITION BONDHOLDERS Under the Pennsylvania Competition Act, recovery of stranded costs
associated with existing generating facilities depends on
continued operation of these facilities. There is an exception if
that operation is uneconomic because of the transition to a
competitive market. Although the parts of the First QRO and the
2000 QRO providing for the collection of intangible transition
charges are stated in the Pennsylvania Competition Act and those
qualified rate orders themselves to be irrevocable, the collection
of intangible transition charges could be challenged if some of
PECO Energy's generating facilities ceased to operate at
reasonable levels. If the challenge were successful, PECO Energy
would not be required to pay liquidated damages and the issuer may
not have funds to make payments on the transition bonds. As a
result, transition bondholders could suffer a loss of their
investment.
CHANGES IN LAW MAY RESULT IN LOSSES
TO TRANSITION BONDHOLDERS A change in law by legislative enactment or constitutional
amendment, including an enactment or amendment that breaches the
Commonwealth of Pennsylvania's pledge not to limit, alter or
impair intangible transition property or intangible transition
charges, will not be a breach by PECO Energy of its
representations under the sale agreement and will not require PECO
Energy to pay liquidated damages. Examples of a change in law are
a repeal of the Pennsylvania Competition Act, an amendment to it
voiding the existence of intangible transition property or the
adoption of a federal statute prohibiting the recovery of stranded
costs.
Under the Pennsylvania Competition Act, the Commonwealth of
Pennsylvania may limit or alter the value of intangible transition
property or intangible transition charges if "adequate
compensation is made by law" for the protection of the intangible
transition charges and of transition bondholders. It is unclear if
"adequate compensation . . . by law" would be sufficient to pay
the full amount of the outstanding principal of and interest on
the transition bonds or would compensate transition bondholders
for any reinvestment risk.
Under the United States and Pennsylvania Constitutions, the
Commonwealth of Pennsylvania could not repeal or amend the
Pennsylvania Competition Act--by way of legislative process--or
take any action that violates its pledge and agreement described
in the first paragraph of this subheading without paying just
compensation to the transition bondholders if doing so would:
o constitute a permanent taking of the property interest of
transition bondholders in the intangible transition property,
and
o deprive the transition bondholders of their reasonable
expectations arising from their investments in the transition
bonds.
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However, just compensation awarded by a court may not be
sufficient to pay the full amount of principal of and interest on
the transition bonds or compensate transition bondholders for any
reinvestment risk.
Also, if there were a change in law, there might be costly and
time-consuming litigation. There is no judicial precedent directly
on point, and the security for the transition bondholders is a new
type of asset. As a result, the outcome of any of this litigation
cannot be predicted with certainty.
FEDERAL LEGISLATION MAY RESULT IN
LOSSES TO TRANSITION BONDHOLDERS Congress or a federal agency may pass a law or adopt a rule or
regulation prohibiting or limiting the collection of intangible
transition charges. In 1997, Congress considered at least one bill
prohibiting the recovery of stranded costs, but the bill was not
enacted. In addition, in 1999 and 2000 several bills were
introduced to various Congressional committees which pertain to
retail stranded costs and related issues. It is unclear at this
time what impact these bills might have on transition bonds if
they are enacted.
The issuer cannot predict if any future bills that prohibit the
recovery of stranded costs will become law or, if they become law,
what their final form or effect will be. If the Pennsylvania
Competition Act or the qualified rate orders were preempted by
federal law, a court may decide that it is not a taking for which
the government would have to pay the estimated market value of the
transferred intangible transition property. Even if any federal
preemption were considered a taking, for which the government had
to pay this value, that compensation may not be sufficient to pay
the full amount of principal of and interest on the transition
bonds. In that case, transition bondholders could suffer a loss of
their investment. In that event, PECO Energy would not be required
to pay liquidated damages. See "--Changes in Law May Result in
Losses to Transition Bondholders" above.
THE PENNSYLVANIA PUBLIC UTILITY
COMMISSION MAY TAKE ACTIONS THAT
ADVERSELY AFFECT TRANSITION BONDHOLDERS The Pennsylvania Public Utility Commission will continue to
regulate some aspects of the electric industry in Pennsylvania and
may take actions that adversely affect transition bondholders. For
example, the Pennsylvania Public Utility Commission will:
o regulate electric distribution companies,
o set financial and other requirements for electric generation
suppliers and other third parties, and
o set customer billing guidelines and collection, metering and
disclosure requirements for electric generation suppliers and
other third parties.
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Furthermore, when PECO Energy entered into a settlement with
certain parties to its restructuring plan submitted in compliance
with the Pennsylvania Competition Act, these parties agreed to
"review and, as appropriate, to recommend changes to regulations
and procedures in order to facilitate the efficient and full
recovery of revenues from customers, while at the same time
protecting customers." The issuer cannot predict what effect that
review and recommendations will have.
Also, subject to the Commonwealth of Pennsylvania's pledge not to
limit or alter the value of intangible transition charges or
intangible transition property unless adequate compensation is
made for the full protection of the transition bondholders, the
Pennsylvania Public Utility Commission could revise or rescind any
of its regulations. PECO Energy cannot predict whether the
Pennsylvania Public Utility Commission will make new regulations
or the timing or content of any new Pennsylvania Public Utility
Commission regulations.
PECO Energy agrees to take legal or administrative actions,
including bringing lawsuits, as may be reasonably necessary to
block or overturn:
o any government attempt to repeal or change the Pennsylvania
Competition Act, the qualified rate orders, or the intangible
transition property in a way that is materially adverse to the
holders of transition bonds, or
o lawsuits by third parties which, if successful, would result in
a breach by PECO Energy of its representations in the sale
agreement concerning the intangible transition property, the
qualified rate orders, or the Pennsylvania Competition Act.
PECO Energy, however, may not be able to take those actions and
any action PECO Energy is able to take may not be successful.
Future Pennsylvania Public Utility Commission regulations may
affect the ratings of the transition bonds or their price. Those
actions may also affect the rate of collections of intangible
transition charges and, as a result, the amortization of
transition bonds and their weighted average lives. As a result,
transition bondholders could suffer a loss of their investment.
JUDICIAL DECISIONS OR LEGAL ACTIONS IN
OTHER JURISDICTIONS COULD ADVERSELY
AFFECT TRANSITION BONDHOLDERS A court decision based on the U.S. Constitution or other federal
law overturning a state statute like the Pennsylvania Competition
Act adopted by another state could give rise to a challenge to the
Pennsylvania Competition Act. That decision would not
automatically invalidate the Pennsylvania Competition Act. It
could, however, set a legal precedent for a successful challenge
to the Pennsylvania Competition Act that could adversely affect
transition bondholders. As a result, the market value of the
transition bonds could be reduced.
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Also, legal actions in other states challenging stranded cost
recovery or securitization of stranded cost recovery could
adversely affect the market for transition bonds. Legal challenges
brought in jurisdictions other than Pennsylvania based on state
laws other than Pennsylvania would not, however, directly affect
the Pennsylvania Competition Act or the interests of the
transition bondholders. These actions, however, could increase
awareness of the political and other risks associated with these
types of securities and limit the liquidity of the transition
bonds and impair their value.
FAILURE TO MAKE ADEQUATE ADJUSTMENTS
TO THE INTANGIBLE TRANSITION CHARGES
MAY RESULT IN LOSSES TO TRANSITION
BONDHOLDERS The actual rate of collections of intangible transition charges
may vary from projections used to set the intangible transition
charges due to a number of factors. These factors include
variations in electricity usage by customers from projected
electricity usage and variations in delinquencies and write-offs.
The servicer must seek an adjustment to the intangible transition
charges from the Pennsylvania Public Utility Commission on each
calculation date to reflect shortfalls in or excesses of
collections of intangible transition charges for prior periods,
including shortfalls or excesses resulting from inaccurate
servicer forecasts. The adjustments are intended to take into
account any projected trends in customers or usage impacting
billed revenue from which intangible transition charges are
allocated to prevent shortfalls or excesses of collections of
intangible transition charges in future periods.
If those forecasts or projections are not accurate, adjustments to
the intangible transition charges may result in the issuer
collecting insufficient funds to pay interest on the transition
bonds when due and principal of the transition bonds in accordance
with the expected amortization schedule.
The Pennsylvania Competition Act and the First QRO and the 2000
QRO require the Pennsylvania Public Utility Commission to approve
annual adjustment requests within 90 days of the applicable date
on which the servicer calculates the required adjustment and files
that adjustment request with the Pennsylvania Public Utility
Commission. Also, the First QRO and the 2000 QRO provide that,
during the final calendar year of collections of intangible
transition charges for any series of transition bonds, monthly or
quarterly adjustments may be made. If the Pennsylvania Public
Utility Commission fails to approve these adjustments on a timely
basis or there is any litigation challenging the approval of these
adjustments or methodology in calculating these adjustments, the
price and liquidity of the transition bonds could be adversely
affected.
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Any of these factors could result in a delay in payment of
principal from the expected amortization schedule of the
transition bonds offered by this prospectus. As a result, the
weighted average lives of the transition bonds could be adversely
affected or transition bondholders could suffer a loss of their
investment.
LIMITED TIME PERIOD FOR IMPOSITION OR
ADJUSTMENT OF INTANGIBLE TRANSITION
CHARGES MAY RESULT IN LOSSES TO
TRANSITION BONDHOLDERS The intangible transition charges associated with the issuance of
transition bonds may not be imposed for service periods after
December 31, 2010. Also, after the final adjustment date specified
for each series, the intangible transition charges may no longer
be adjusted for that series. After that date, any shortfalls in
collections of intangible transition charges available to make
payments on the series are expected to be covered through amounts,
if any, on deposit in the reserve subaccount, the
overcollateralization subaccount or the capital subaccount. If
those amounts are not enough to cover the shortfalls, the
transition bonds may not be paid in full by the applicable
expected final payment date or class or series termination date,
and transition bondholders would suffer a loss of their
investments.
LACK OF HISTORICAL INFORMATION ABOUT,
AND LIMITED EXPERIENCE ADMINISTERING,
INTANGIBLE TRANSITION PROPERTY MAY
RESULT IN LOSSES TO TRANSITION
BONDHOLDERS The servicer has only limited historical information for
intangible transition property for the period beginning after the
issuance of the Series 1999-A Bonds. Further, because retail
electric competition has only recently been introduced in
Pennsylvania, the servicer's customer and energy usage records may
not accurately reflect customers' long-term payment patterns or
energy usage. This historical information also does not reflect
consolidated billing by electric generation suppliers or other
third parties. As a result, these records may not be useful in
predicting payments of intangible transition charges.
The servicer has limited experience administering this type of
asset.
In the event of a foreclosure, there is likely to be a limited
market, if any, for the transferred intangible transition
property. Therefore, foreclosure may not be a realistic or
practical remedy. See "--Bankruptcy; Creditors' Rights" below.
These factors may result in delays or shortfalls in scheduled
payments on the transition bonds.
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ADJUSTMENTS TO INTANGIBLE TRANSITION
CHARGES BY RATE CLASSES MAY RESULT IN
INSUFFICIENT COLLECTIONS The customers responsible for paying intangible transition charges
are currently divided into 12 rate classes. In PECO Energy's
restructuring plan settlement, these rate classes were grouped
among three customer categories. Intangible transition charges are
assessed by rate class within each customer category. Adjustments
to the intangible transition charges will also be made to each
rate class within each customer category. A shortfall in
collection in one rate class must be made up by adjustments to
that rate class as well as the other rate classes within that
customer category. The Pennsylvania Competition Act and the First
QRO and the 2000 QRO provide, however, that, shortfalls in a
customer category may not be corrected by making adjustments to
rate classes in any other customer category.
Some rate classes in a particular category have a significantly
smaller number of customers than other rate classes in that
customer category. If customers in a rate class fail to pay
intangible transition charges, the servicer may have to
substantially increase the intangible transition charges for the
remaining customers in that rate class and to a lesser extent the
other rate classes in that customer category. The servicer may
also have to take this action if consumers representing a
significant percentage of a rate class cease to be customers.
These increases could lead to further failures by the remaining
customers in that customer category to pay intangible transition
charges, thereby increasing the risk of a shortfall in funds to
pay the transition bonds. See also "The Transition Bonds--
Issuance of Additional Series of Transition Bonds May Increase
Delinquencies of Intangible Transition Charges" above.
RISKS ASSOCIATED WITH THE USE OF CREDIT
ENHANCEMENTS MAY RESULT IN LOSSES TO
TRANSITION BONDHOLDERS Some forms of credit enhancement, such as interest rate swaps
entered into by the issuer for a series or class of floating rate
transition bonds, entail credit risks--the risk associated with
the credit of any party providing the credit enhancement. The
applicable prospectus supplement will contain the risk factors, if
any, associated with any applicable credit enhancement.
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SERVICING
MERGER MAY CAUSE DISRUPTION OF BILLING
AND COLLECTION SYSTEMS AND RESULT IN
LOSSES TO TRANSITION BONDHOLDERS As part of the proposed merger agreed to by PECO Energy and Unicom
Corporation, PECO Energy is planning to reorganize so that PECO
Energy will provide transmission and distribution services and
will purchase generation from affiliates for its provider of last
resort services. In addition, PECO Energy and Unicom, upon
completion of the merger, may combine their transmission,
distribution and billing systems. This combination of systems, if
it occurs, could cause these systems to have problems affecting
billing and collections of intangible transition charges and may
result in losses to transition bondholders. See "The Seller and
Servicer--Merger with Unicom."
PECO ENERGY CEASING TO ACT AS
SERVICER MAY RESULT IN LOSSES TO
TRANSITION BONDHOLDERS The servicer is responsible for calculating adjustments to the
intangible transition charges, submitting adjustment requests to
the Pennsylvania Public Utility Commission and billing and
collecting the intangible transition charges. PECO Energy may
resign as servicer only in specified limited circumstances. If,
however, PECO Energy ceased servicing intangible transition
property, it may be hard to obtain a successor servicer. Also, a
transfer of servicing functions will require cooperation by the
Pennsylvania Public Utility Commission. A successor servicer may
have difficulties in collecting intangible transition charges and
determining appropriate adjustments to intangible transition
charges. Also, under current law, a successor servicer may not be
able to shut off service to a customer that fails to pay
intangible transition charges.
If PECO Energy were replaced as servicer, any of those factors and
others could delay the timing of payments on the intangible
transition property. As a result, transition bondholders could
incur a loss of their investment. See "The Master Servicing
Agreement" in this prospectus.
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INACCURATE PROJECTIONS BY SERVICER MAY
RESULT IN LOSSES TO TRANSITION
BONDHOLDERS If the servicer incorrectly forecasts the billed revenue from
which intangible transition charges are allocated and the
delinquency and write-off experience relating to intangible
transition charges proves to be unreliable, the timely receipt of
collections of intangible transition charges could be adversely
affected. A variety of risks and uncertainties could cause actual
results to differ materially from those projected. They include
changes in political, social and economic conditions, weather,
unexpected demographic trends, catastrophes, regulatory
initiatives, compliance with governmental regulations and
litigation. All of these events and circumstances are beyond the
control of the servicer. Adjustments to the intangible transition
charges are required to be made under the Pennsylvania Competition
Act if actual results differ from projections. However, until the
adjustments are made and result in sufficient collections of
intangible transition charges, payments on the transition bonds
could be delayed, and the market value of the transition bonds
could be reduced. There can be no assurance that, when made,
adjustments will be sufficient.
DELAYS IN PAYMENTS ON TRANSITION BONDS
MAY BE CAUSED BY CHANGES IN PAYMENT
TERMS The servicer is permitted to alter the terms of billing and
collection arrangements and modify amounts due from customers. The
servicer cannot change the amount of a customer's individual
intangible transition charges, but it can take actions that it
believes will increase collections from a customer. These actions
might include, for example, agreeing to an extended payment
schedule or agreeing to write-off the remaining portion of an
outstanding bill. The servicer can also write-off outstanding
bills that it deems uncollectible in accordance with its usual
billing and collection practices. Additionally, PECO Energy or a
successor to PECO Energy as servicer may change its billing and
collection practices, or the Pennsylvania Public Utility
Commission may require changes to these practices.
These changes could delay or reduce collections of intangible
transition charges and, as a result, adversely affect the payment
of interest on the transition bonds on a timely basis or the
payment of principal of the transition bonds in accordance with
the expected amortization schedule. See "The Seller and
Servicer--Customers and Operating Revenues," "--Billing Process"
and "--Limited Information on Customers' Creditworthiness" in this
prospectus.
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PECO ENERGY'S LIMITED INFORMATION ON
CUSTOMERS' CREDITWORTHINESS MAY
RESULT IN INCREASED DELINQUENCIES AND
WRITE-OFFS The servicer's ability to collect intangible transition charges
depends in part on the creditworthiness of its customers. Under
Pennsylvania law, PECO Energy generally must provide service to
new customers in its service area. Credit investigations of new
customers by PECO Energy have been limited. PECO Energy's
information regarding the creditworthiness of new customers is
limited to information regarding prior service, if any, by PECO
Energy provided by its customer information system audits. If the
servicer incorrectly determines the creditworthiness of a large
number of its customers, there may be significant increases in
delinquencies and write-offs. This could result in delays in
payments to transition bondholders. See "--It May Be More
Difficult to Collect Intangible Transition Charges Due To Billing
by Third Parties" below.
IT MAY BE MORE DIFFICULT TO COLLECT
INTANGIBLE TRANSITION CHARGES DUE TO
BILLING BY THIRD PARTIES Under the Pennsylvania Competition Act, after July 15, 2000,
intangible transition charges may be collected by third parties
providing billing or metering services, including electric
generation suppliers. Any third party that provides consolidated
billing must pay the servicer amounts billed by the servicer to
the third party, including the intangible transition charges.
Third party billing parties are required to make these payments
even if the third party fails to collect amounts due from
customers.
Billing by third parties could adversely affect the timely payment
of interest on the transition bonds or the payment of principal of
the transition bonds in accordance with the expected amortization
schedule because:
o any third party that collects intangible transition charges may
not use the same customer credit standards as the servicer,
o problems may arise from new and untested systems or any lack of
experience on the part of third parties with customer billing
and collections,
o the servicer may not be able to reduce credit risks relating to
third parties in the same manner in, or to the same extent to
which, it reduces those risks relating to its customers,
o the servicer generally will not have the right to pursue
customers of a third party which provides consolidated billing
who defaults in the payment of intangible transition charges,
o to the extent that customers choose consolidated billing by
electric generation suppliers or other third parties, the issuer
may be relying on a small number of electric generation
suppliers and other third parties rather than a large number of
individual customers, to pay collections of intangible
transition charges. As a result, a default in the payment of
intangible transition charges by a single third party that
provides billing service to a large number of customers may
adversely affect the timing of payments on the transition bonds
or could result in a loss of their investment, and
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o a new billing system could cause customer confusion.
Neither PECO Energy nor any successor servicer will pay any
shortfalls resulting from the failure of any third party to
forward collections of intangible transition charges to the
servicer. The adjustment mechanism for the intangible transition
charges, as well as the amounts on deposit in the reserve
subaccount, the overcollateralization subaccount and the capital
subaccount are intended to address delays in the timing of
collections and payments. However, delays in payments to
transition bondholders might occur as a result of delays in
obtaining adjustments, limitations on rate adjustments or
insufficient funds in the reserve subaccount, the
overcollateralization subaccount and the capital subaccount after
the final adjustment date.
CUSTOMERS WITHIN PECO ENERGY'S
SERVICE AREA MAY STOP OR DELAY MAKING
INTANGIBLE TRANSITION CHARGE PAYMENTS Customers within PECO Energy's service area may stop or delay
paying intangible transition charges because:
o they may misdirect their payments as they may owe amounts to
several different parties which may include both PECO Energy and
an electric generation supplier or other third party,
o if a large number of customers self-generate electricity, move
out of PECO Energy's service territory, significantly reduce
their electricity consumption or cease consuming electricity
altogether, the intangible transition charges, as periodically
adjusted, required to be paid by remaining customers may become
burdensome. Greater delinquencies and write-offs or petitions to
the Pennsylvania Public Utility Commission to reduce intangible
transition charges might result, and
o the servicer may not be able to collect intangible transition
charges from customers who partially self-generate electricity
because the servicer may not know which consumers are
self-generating electricity and will not be able to exercise
full shut-off rights against a self-generator.
Any of these factors could result in delays or shortfalls in
scheduled payments on the transition bonds.
THE COMMINGLING OF COLLECTIONS OF
INTANGIBLE TRANSITION CHARGES WITH
SERVICER'S OTHER FUNDS MAY RESULT IN
PAYMENT DELAYS Until collections of intangible transition charges are deposited
with the bond trustee, the servicer will not segregate them from
its general funds. If the servicer does not or cannot remit the
full amount of the collections of intangible transition charges
there may be delays or reductions in payments to transition
bondholders. The adjustments to the intangible transition charges
and amounts, if any, on deposit in the reserve subaccount, the
overcollateralization subaccount and the capital subaccount are
designed to reduce this risk. However, there may be delays in
payments to transition bondholders if there are delays in
implementation of the adjustment mechanism or a lack of funds in
the reserve subaccount, the overcollateralization subaccount and
the capital subaccount after the final adjustment date.
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BANKRUPTCY; CREDITORS' RIGHTS
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BANKRUPTCY OF PECO ENERGY MAY
RESULT IN LOSSES TO TRANSITION
BONDHOLDERS GENERAL. The bankruptcy of PECO Energy could have several adverse
consequences for transition bondholders, the most important of
which are briefly described below.
SALE OF INTANGIBLE TRANSITION PROPERTY MAY BE RECHARACTERIZED AS A
FINANCING RATHER THAN A TRUE SALE. The Pennsylvania Competition
Act provides that a transfer of intangible transition property by
an electric utility to an assignee that is expressly stated to be
a sale or other absolute transfer in a transaction approved in a
qualified rate order will be treated as a sale, rather than a
pledge or other financing, of the intangible transition property.
PECO Energy represents in the sale agreement that the sale of the
intangible transition property is a sale.
PECO Energy will also represent that for the First QRO it took,
and for the 2000 QRO it will take, the appropriate actions under
the Pennsylvania Competition Act, including filing an intangible
transition property notice, to perfect the sale.
However, if PECO Energy became a debtor in a bankruptcy case, the
bankruptcy trustee, PECO Energy or another party could take the
position that the sale of the transferred intangible transition
property to the issuer was a financing transaction and not a sale.
If a court agreed with this position, delays or reductions in
payments on the transition bonds could result. Regardless of a
court's final decision on the character of the transaction, the
bankruptcy of PECO Energy could result in delays in payments on
the transition bonds. A bankruptcy also could have an adverse
effect on the secondary market for the transition bonds, including
the liquidity and market value of the transition bonds.
To reduce the impact of the possible recharacterization of a sale
or other absolute transfer of intangible transition property as a
financing transaction, the Pennsylvania Competition Act and
related regulations provide that if an intangible transition
property notice is filed and the transfer is later held to be a
financing transaction, that notice will be deemed to constitute a
filing with respect to a security interest. The Pennsylvania
Competition Act also provides that any such filing in respect of
transition bonds takes precedence over any other filings.
As a result of these filings, the issuer would be a secured
creditor of PECO Energy, entitled to recover against the
collateral. If, however, intangible transition property notices
were not or are not filed for any reason, the issuer failed or
fails to otherwise perfect its interest in the transferred
intangible transition property and the transfer is thereafter
deemed not to constitute a true sale or other absolute transfer,
the issuer would be an unsecured creditor of PECO Energy.
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COURT MAY ORDER CONSOLIDATION OF THE ISSUER AND PECO ENERGY. If
PECO Energy became a debtor in a bankruptcy case, the bankruptcy
trustee, PECO Energy or another party may attempt to substantively
consolidate the assets of the issuer and PECO Energy. PECO Energy
and the issuer have taken steps to attempt to reduce this risk.
However, if a court ordered that the assets and liabilities of the
issuer be consolidated with those of PECO Energy, delays or
reductions in payments on the transition bonds would result.
COURT MAY MAKE LOW ESTIMATION OF CONTINGENT CLAIMS; ENFORCEABILITY
OF REMEDY PROVISIONS MAY BE CHALLENGED. If PECO Energy became a
debtor in a bankruptcy case, claims, including claims for
liquidated damages, by the issuer against PECO Energy under the
sale agreement and the related documents would be unsecured claims
and could be discharged. Also, the bankruptcy trustee, PECO Energy
or another party may request that the bankruptcy court estimate
any contingent claims, including for PECO Energy's liquidated
damages, of the issuer against PECO Energy and take the position
that the claims should be estimated at zero or at a low amount
because the contingency giving rise to the claims is unlikely to
occur.
If PECO Energy became a debtor in a bankruptcy case and PECO
Energy were obligated under the sale agreement to pay liquidated
damages, the bankruptcy trustee, PECO Energy or another party
might challenge the enforceability of the liquidated damages
provisions. If a court decided that the liquidated damages
provisions were unenforceable, the issuer should have a claim
against PECO Energy for actual damages based on breach of contract
principles. The amount of those actual damages would be subject to
estimation or calculation by the court.
As a result of any of the above-described actions or claims,
transition bondholders could suffer delays in payment, reduction
in the investment value of their transition bonds or a loss of
their investment.
INTANGIBLE TRANSITION PROPERTY MAY NOT BE HELD TO BE CURRENT
PROPERTY, RESULTING IN UNSECURED DEBT. The Pennsylvania
Competition Act provides that the transferred intangible
transition property constitutes a current property right on and
after the date that a qualified rate order becomes effective. PECO
Energy has also made a representation to that effect. However, if
PECO Energy became a debtor in a bankruptcy case, the bankruptcy
trustee, PECO Energy or another party could argue that, because
the payments based on the transferred intangible transition
property are indirectly usage-based charges, the transferred
intangible transition property comes into existence only as
customers use electricity.
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If a court adopted this position, a security interest in favor of
the transition bondholders may not attach to intangible transition
charges in respect of electricity used after the beginning of a
bankruptcy case for PECO Energy. If a court took this position and
also determined that the transferred intangible transition
property has not been sold or transferred absolutely to PECO
Energy or the issuer, the issuer would be an unsecured creditor of
PECO Energy and delays or reductions in payments on the transition
bonds could result.
Also, a court could rule that any intangible transition charges
relating to electricity consumed after the bankruptcy of PECO
Energy cannot be transferred to the issuer or the bond trustee.
This could result in delays or reductions of payments of the
transition bonds.
Payments based on the intangible transition charges are indirectly
usage-based charges. Therefore, if PECO Energy became a debtor in
a bankruptcy case, the bankruptcy trustee, PECO Energy or another
party could argue that the issuer should pay a portion of the
costs of PECO Energy associated with generating, transmitting or
distributing the electricity which gave rise to the collections of
intangible transition charges related to the transition bonds. If
a court adopted this position, there could be delays or reductions
in payments to the transition bondholders.
Whether or not PECO Energy is the debtor in a bankruptcy case, if
a court decided that the transferred intangible transition
property comes into existence only as customers use electricity, a
tax or government lien or other nonconsensual lien on property of
PECO Energy arising before the transferred intangible transition
property came into existence could have priority over the issuer's
interest in the transferred intangible transition property. This
could result in a reduction of amounts paid to the transition
bondholders. Adjustments to the intangible transition charges may
be available to reduce this risk, although delays in
implementation or challenges to those adjustments may cause a
delay in receipt of payments.
AUTOMATIC STAY MAY PREVENT OR DELAY ENFORCEMENT OF RIGHTS BY BOND
TRUSTEE. If there is an event of default under the indenture, the
Pennsylvania Competition Act permits the Pennsylvania Public
Utility Commission to order the segregation and payment of all
intangible transition charges to
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transition bondholders. The Pennsylvania Competition Act provides
that the order will be effective notwithstanding bankruptcy or
other insolvency proceedings with respect to the utility or its
assignee. The Pennsylvania Public Utility Commission, however, may
not be able to issue this order because of the automatic stay
provisions of the Bankruptcy Code. Also, a bankruptcy court may
not lift the stay to permit this action by the Pennsylvania Public
Utility Commission. In that event, the bond trustee may under the
indenture seek an order from the bankruptcy court lifting the
automatic stay with respect to the Pennsylvania Public Utility
Commission action and an order requiring segregation of the
revenues arising from the transferred intangible transition
property. However, a court may not grant either order.
BANKRUPTCY OF SERVICER MAY RESULT IN
LOSSES TO TRANSITION BONDHOLDERS The servicer can commingle collections of intangible transition
charges with its own funds until they are deposited with the bond
trustee. The Pennsylvania Competition Act provides that the
priority of a lien created under the Pennsylvania Competition Act
is not adversely affected by the commingling of funds arising with
respect to intangible transition property with funds of the
electric utility. However, in the event of a bankruptcy of the
servicer, the bankruptcy trustee, the servicer or another party
might argue that collections of intangible transition charges held
by the servicer were property of the servicer included in its
bankruptcy estate. If a court adopted this position, there may be
delays in payments due on the transition bonds.
If the servicer became a debtor in a bankruptcy case, the
automatic stay may prevent the issuer from effecting a transfer of
servicing, even though the master servicing agreement provides
that the bond trustee appoint, or petition the Pennsylvania Public
Utility Commission or a court to appoint, a successor servicer.
Even if a successor servicer may be appointed, it may be difficult
to find an entity willing to act as a successor servicer.
THE TRANSITION BONDS
ABSENCE OF SECONDARY MARKET FOR
TRANSITION BONDS COULD LIMIT ABILITY TO
RESELL TRANSITION BONDS The underwriters for the various series of transition bonds may
assist in resales of the transition bonds offered by this
prospectus, but they are not required to do so. Although a
secondary market for the Series 1999-A Bonds has developed, a
secondary market for the other transition bonds offered by this
prospectus may not develop. If a secondary market for those
transition bonds does develop, it may not continue or it may not
be sufficiently liquid to allow holders to resell any of the
transition bonds. See "Plan of Distribution" in this prospectus.
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LIMITED SOURCES OF PAYMENTS FOR THE
TRANSITION BONDS MAY RESULT IN LOSSES
TO TRANSITION BONDHOLDERS The transition bonds are obligations only of the issuer, a special
purpose entity. The transition bonds will not represent an
interest in or obligation of PECO Energy, the issuer trustee, the
bond trustee or any entity other than the issuer. The issuer has
no property other than the collateral and its organizational
documents restrict its rights to acquire assets not related to the
transactions described in this prospectus. The collateral is the
sole source of payment on the transition bonds. None of the
transition bonds will be guaranteed or insured by PECO Energy, the
issuer trustee, the bond trustee or any affiliates of those
entities, other than the issuer, or any other entity.
ISSUANCE OF ADDITIONAL SERIES MAY
ADVERSELY AFFECT OUTSTANDING
TRANSITION BONDS The issuer may from time to time issue additional series of
transition bonds without the prior review by or consent of the
transition bondholders of any previously issued series. Additional
series of transition bonds may not be issued if it would result in
the credit ratings on any outstanding series of transition bonds
being reduced or withdrawn, but the issuance of any other series
of transition bonds might have an impact on the timing or amount
of payments received by transition bondholders. See "The
Transition Bonds" and "The Indenture--Issuance in Series or
Classes" in this prospectus.
In addition, various matters relating to the transition bonds
require a vote of all transition bondholders of all series, even
though there may be differences in the interests or positions
among those series or classes of those series. This could result
in voting outcomes adverse to your interests.
ISSUANCE OF TRANSITION BONDS BY
ANOTHER ISSUER MAY ADVERSELY AFFECT
OUTSTANDING TRANSITION BONDS The seller may sell intangible transition property to one or more
parties other than the issuer to securitize stranded costs without
the prior review by or consent of the transition bondholders of
any previously issued series. In the event of such sale,
collections of intangible transition property will be pro rated
among the issuer and such other parties based on their respective
Percentages. Intangible transition property may not be sold to
another issuer if it would result in the credit ratings of any
outstanding series of transition bonds being reduced or withdrawn.
The sale of intangible transition property to another issuer may
have an impact on the timing or amount of payments received by
transition bondholders. In addition, various matters relating to
the transition bonds under the master servicing agreement are
subject to a vote of the bond trustee and any bond trustees of
other issuers, based on the directions of the holders, even though
there may be differences in the interests or positions among the
transition bonds issued by these other issuers and the transition
bonds issued by the issuer which could result in voting outcomes
adverse to your interests.
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ISSUANCE OF ADDITIONAL SERIES OF
TRANSITION BONDS MAY INCREASE
DELINQUENCIES OF INTANGIBLE TRANSITION
CHARGES With the issuance of each additional series of transition bonds,
the intangible transition charges will increase. Although this
should not affect the overall rates paid by customers because of
adjustments of other rates at the time of issuance, future
adjustments may cause intangible transition charges to increase
for certain customers. These increases may lead to increased
failures to pay intangible transition charges, and may reduce
collections of intangible transition charges. See also "Nature of
Intangible Transition Property--Adjustments to Intangible
Transition Charges by Rate Classes May Result in Insufficient
Collections" above.
SECURITIES RATINGS ARE LIMITED AND DO
NOT ASSESS TIMING OF PRINCIPAL
PAYMENTS The transition bonds offered by this prospectus will be rated by
one or more established rating agencies. The ratings merely
analyze the probability that the issuer will repay the total
principal amount of the transition bonds at final maturity--the
series or class termination date, as applicable--and will make
timely interest payments. The ratings do not assess whether the
issuer will repay the principal of the transition bonds in
accordance with the expected amortization schedule. As a result,
any series or class of transition bonds might be paid later than
expected, resulting in a weighted average life of those transition
bonds which is longer than expected.
A security rating is not a recommendation to buy, sell or hold
securities. There can be no assurance that a rating will remain in
effect for any given period of time or that a rating will not be
revised or withdrawn entirely by a rating agency if, in its
judgment, circumstances so warrant.
TRANSITION BONDHOLDERS MAY RECEIVE
PRINCIPAL PAYMENTS LATER THAN
EXPECTED The actual dates on which principal is paid on each class of
transition bonds might be affected by the amount and timing of
receipt of collections of intangible transition charges. Since the
amount of intangible transition charges collected from each
customer will depend upon the customer's usage of electricity, the
aggregate amount and timing of collections of intangible
transition charges--and the resulting amount and timing of
principal payments on the transition bonds--will depend, in part,
on actual usage of electricity and the rate of delinquencies and
write-offs. See "--Servicing--Inaccurate Projections by Servicer
May Result in Losses to Transition Bondholders" above.
Although the intangible transition charges will be adjusted from
time to time based in part on the actual rate of collections of
intangible transition charges during prior billing periods, the
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servicer may not be able to forecast accurately actual customer
energy usage and the rate of delinquencies and write-offs or
implement adjustments to the intangible transition charges. If
collections of intangible transition charges are received at a
slower rate than expected, payments on the transition bonds may be
made later than expected, resulting in a longer weighted average
life. Because principal will generally be paid at a rate not to
exceed that reflected in the expected amortization schedule, the
transition bonds are not expected to be retired earlier than
scheduled other than in the event of a redemption or acceleration.
TRANSITION BONDHOLDERS MAY HAVE TO
REINVEST THE PRINCIPAL OF THEIR
INVESTMENT AT A LOWER RATE OF RETURN
BECAUSE OF OPTIONAL AND MANDATORY
REDEMPTION OF THE TRANSITION BONDS If so provided in a prospectus supplement, there may be optional
redemption of the transition bonds. There will be mandatory
redemptions if PECO Energy must pay liquidated damages. Future
market conditions may require transition bondholders to reinvest
the proceeds of a redemption at a rate lower than the rate
received on the transition bonds. The issuer cannot predict
whether it will redeem any series of transition bonds. See
"Weighted Average Life and Yield Considerations" and "The
Transition Bonds--Credit Enhancement" in this prospectus.
PECO ENERGY'S OBLIGATION TO PAY
LIQUIDATED DAMAGES FOR A BREACH OF A
REPRESENTATION OR WARRANTY MAY NOT
BE SUFFICIENT TO PROTECT YOUR INVESTMENT The obligations of PECO Energy under the sale agreement have been
assigned to the bond trustee under the indenture as security for
all of the transition bonds issued under the indenture. If PECO
Energy breaches specified representations or warranties in the
sale agreement, PECO Energy may be obligated to pay the bond
trustee, as assignee of the issuer, liquidated damages if that
breach continues beyond a 90-day grace period and has a material
adverse effect on transition bondholders or if the losses
attributable to that breach continue beyond a 90-day grace period
and the full amount of these losses are expected to exceed the de
minimis loss amount. The amount of any liquidated damages paid by
PECO Energy, however, may not be sufficient for you to recover
your transition bond investment. If PECO Energy becomes obligated
to pay liquidated damages, the ratings on the transition bonds
will likely be downgraded since the bond trustee, on behalf of the
transition bondholders, will be an unsecured creditor of PECO
Energy with respect to any of these amounts. See "The Sale
Agreement--Representations and Warranties of the Seller" in this
prospectus.
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GLOSSARY OF DEFINED TERMS
You can find a glossary of defined terms used in this prospectus beginning
on page 113 in this prospectus.
AVAILABLE INFORMATION
The issuer has filed with the SEC a registration statement under the
Securities Act of 1933, as amended, with respect to the transition bonds. This
prospectus, which forms a part of the registration statement, and any prospectus
supplement describe the material terms of some of the documents filed as
exhibits to the registration statement; however, this prospectus and any
prospectus supplement do not contain all of the information contained in the
registration statement and its exhibits. Any statements contained in this
prospectus or any prospectus supplement concerning the provisions of any
document filed as an exhibit to the registration statement or otherwise filed
with the SEC are not necessarily complete, and in each instance reference is
made to the copy of the document so filed. For further information, reference is
made to the registration statement and the exhibits to the registration
statement, which are available for inspection without charge at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located as follows: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of the registration statement and
exhibits to the registration statement may be obtained at the above locations at
prescribed rates. Information filed with the SEC can also be inspected at the
SEC site on the World Wide Web at http://www.sec.gov.
The issuer has filed and will continue to file with the SEC the periodic
reports as are required by the Exchange Act and the rules, regulations or orders
of the SEC under the Exchange Act. The issuer may discontinue filing periodic
reports under the Exchange Act at the beginning of the fiscal year following the
issuance of the transition bonds of any series if there are fewer than 300
holders of the transition bonds.
INCORPORATION OF DOCUMENTS BY REFERENCE
All reports and other documents filed by the issuer under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus
and prior to the termination of the offering of the transition bonds will be
deemed to be incorporated by reference into this prospectus and to be a part of
this registration statement. Any statement contained in this prospectus, in a
prospectus supplement or in a document incorporated or deemed to be incorporated
by reference in this prospectus will be deemed to be modified or superseded for
purposes of this prospectus and any prospectus supplement to the extent that a
statement contained in this prospectus, in a prospectus supplement or in any
separately filed document which also is or is deemed to be incorporated by
reference in this prospectus modifies or supersedes that statement. Any of these
statements so modified or superseded will not be deemed, except as so modified
or superseded, to constitute part of this prospectus or any prospectus
supplement.
The issuer will provide without charge to each person to whom a copy of
this prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated in this prospectus by
reference, except the exhibits to those documents--unless those exhibits are
specifically incorporated by reference in those documents. Written requests for
those copies should be directed to the issuer, c/o First Union Trust Company,
National Association, One Rodney Square, 920 King Street, 1st Floor, Wilmington,
Delaware 19801. Telephone requests for those copies should be directed to the
issuer at 302-888-7532.
35
<PAGE>
THE PENNSYLVANIA COMPETITION ACT
THE PENNSYLVANIA COMPETITION ACT'S GENERAL EFFECT ON THE ELECTRIC UTILITY
INDUSTRY IN PENNSYLVANIA
The Pennsylvania Electricity Generation Customer Choice and Competition Act
was enacted in December 1996 and provides for the restructuring of the electric
utility industry in Pennsylvania. The Pennsylvania Competition Act requires the
unbundling of electric services into separate generation, transmission and
distribution services with open retail competition for generation services.
Generation services may be provided by electric generation suppliers licensed by
the Pennsylvania Public Utility Commission. Under the Pennsylvania Competition
Act, electric generation suppliers are subject to certain limited financial and
disclosure requirements but are otherwise unregulated by the Pennsylvania Public
Utility Commission. Electric distribution and transmission services remain
regulated.
The Pennsylvania Competition Act requires utilities to submit restructuring
plans, including their stranded costs which will result from retail competition
for generation services. Stranded costs include regulatory assets and long-term
purchase power commitments for which full recovery is allowed and other costs,
including investment in generating plants, retirement costs and reorganization
costs, for which an opportunity for recovery is allowed in an amount determined
by the Pennsylvania Public Utility Commission as just and reasonable. Under the
Pennsylvania Competition Act, utilities are subject to a generation rate cap
through December 31, 2005 which provides that total charges to customers cannot
exceed rates in place at December 31, 1996, subject to certain exceptions. The
Pennsylvania Competition Act also caps transmission and distribution rates from
December 31, 1996 through June 30, 2005, subject to specified exceptions.
RECOVERY OF STRANDED COSTS
As a mechanism for utilities, including PECO Energy, to recover their
allowed stranded costs, the Pennsylvania Competition Act provides for the
imposition and collection of nonbypassable charges on customers' bills called
competitive transition charges. Competitive transition charges are assessed to
and collected from all retail customers who have been assigned stranded cost
responsibility and access the utilities' transmission and distribution systems
and may be collected over a maximum period of ten years, except as that period
may be extended by the Pennsylvania Public Utility Commission for good cause
shown. As the competitive transition charges are based on access to the
utility's transmission and distribution system, they are assessed regardless of
whether that customer purchases electricity from the utility or an independent
electric generation supplier. The Pennsylvania Competition Act provides,
however, that the utility's right to collect competitive transition charges is
contingent on the continued operation at reasonable availability levels of the
assets for which the stranded costs were awarded, except where continued
operation is no longer cost efficient because of the transition to a competitive
market. See "Risk Factors--Legal, Legislative or Regulatory Actions Could
Adversely Affect Transition Bondholders--Legal Challenges Could Adversely Affect
Transition Bondholders" and "Risk Factors--Nature of Intangible Transition
Property--Lack of Continued Operation of Existing Generation Facilities May
Result in Losses to Transition Bondholders" in this prospectus.
SECURITIZATION OF STRANDED COSTS
The Pennsylvania Competition Act authorizes the Pennsylvania Public Utility
Commission to issue qualified rate orders approving the issuance of transition
bonds to facilitate the recovery or financing of qualified transition expenses
of an electric utility or its assignee. Transition bonds may be issued by a
utility, a finance subsidiary of a utility or a third-party assignee of a
utility. Under the Pennsylvania Competition Act, proceeds of transition bonds
are required to be used principally to reduce qualified transition expenses,
including stranded costs, and the related capitalization costs of the utility.
The transition bonds are secured by intangible transition property and payable
from the intangible transition charges and may have a maximum maturity of ten
years. Intangible transition charges can be imposed only when and to the extent
that transition bonds are issued.
The Pennsylvania Competition Act contains a number of provisions designed
to facilitate the securitization of stranded costs.
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<PAGE>
Irrevocability of Intangible Transition Property. Under the Pennsylvania
Competition Act, intangible transition property is created by the issuance by
the Pennsylvania Public Utility Commission of a qualified rate order and the
declaration by the Pennsylvania Public Utility Commission that the relevant
paragraphs of a qualified rate order are irrevocable. The Pennsylvania Public
Utility Commission is granted the power under the Pennsylvania Competition Act
to specify that all or a portion of that qualified rate order will be
irrevocable. The Pennsylvania Competition Act provides that to the extent that
the Pennsylvania Public Utility Commission declares all or a portion of a
qualified rate order irrevocable, the Pennsylvania Public Utility Commission may
not, by any subsequent action, reduce, postpone, impair or terminate either the
order or the intangible transition charge authorized in that order. In addition,
under the Pennsylvania Competition Act, the Commonwealth of Pennsylvania pledges
and agrees with the holders of the transition bonds, and with any assignee or
finance party, not to limit or alter or in any way impair or reduce the value of
intangible transition property or the intangible transition charges until the
related transition bonds are fully discharged. The Pennsylvania Competition Act
provides, however, that nothing precludes the Commonwealth of Pennsylvania from
limiting or altering intangible transition property or the qualified rate order,
provided that adequate compensation is made by law for the full protection of
the intangible transition charges collected under the qualified rate order and
of the holders of the transition bonds and any assignee or finance party. See
"Risk Factors--Legal, Legislative or Regulatory Actions Could Adversely Affect
Transition Bondholders" in this prospectus.
Adjustments of the Intangible Transition Charges. The Pennsylvania
Competition Act requires the Pennsylvania Public Utility Commission to provide
in all qualified rate orders a procedure for expeditiously approving periodic
adjustments to the intangible transition charges. The Pennsylvania Competition
Act requires that these adjustments be made on at least an annual basis on each
anniversary of the issuance of the qualified rate order or at additional
intervals as specified in that order. The Pennsylvania Public Utility Commission
must approve these annual adjustments within 90 days of each request for
adjustment.
Nonbypassability. The Pennsylvania Competition Act provides that the
competitive transition charges and the intangible transition charges will be
imposed on customers accessing the utility's transmission and distribution
system even if those customers elect to purchase electricity from another
supplier or if the customer chooses to operate self-generation equipment in
tandem with accessing the utility's transmission and distribution system. The
Pennsylvania Competition Act further provides that to the extent that the
utility, or any assignee of intangible transition property, assigns, sells,
transfers or pledges any interest in intangible transition property, the
Pennsylvania Public Utility Commission authorizes the utility to contract with
that assignee for the utility:
(1) to continue to operate the system to provide electric services to
the utility's customers,
(2) to impose and collect the applicable intangible transition charges
for the benefit and account of the assignee,
(3) to make periodic adjustments of the intangible transition charges,
and
(4) to account for and remit the applicable intangible transition
charges to or for the account of the assignee free of any charge,
deduction or surcharge of any kind.
In addition, to the extent specified in the qualified rate order, the
obligations of the utility under any of these contracts:
(1) will be binding upon the utility, its successors and assigns, and
(2) will be required by the Pennsylvania Public Utility Commission to
be undertaken and performed by the utility and any other entity
which provides electric service to a person that is a customer of
the utility located within the utility's retail electric service
territory, as a condition to providing service to that customer or
the municipal entity providing those services in place of the
utility.
Creation of a Statutory Lien on Intangible Transition Property. The
Pennsylvania Competition Act provides that a valid and enforceable security
interest in intangible transition property automatically attaches
37
<PAGE>
from the time the related transition bonds are issued and is enforceable against
all third parties, including judicial lien creditors, if:
(1) value is given by purchasers of the transition bonds, and
(2) a filing is made with the Pennsylvania Public Utility Commission
to perfect the security interest within 10 days from issuance of
the transition bonds.
The Pennsylvania Competition Act also provides that security interests in
the intangible transition property are created and perfected only by means of a
separate filing with the Pennsylvania Public Utility Commission in accordance
with the provisions of the Pennsylvania Competition Act. Upon perfection, the
statutorily created lien attaches both to intangible transition property and to
all revenues and proceeds of intangible transition property, whether or not
accrued. The Pennsylvania Competition Act provides that this filing will take
precedence over any other filing and will be enforceable against the assignee
and all third parties, including judicial lien creditors, subject only to rights
of any third parties holding security interests in intangible transition
property previously perfected in accordance with the Pennsylvania Competition
Act. The Pennsylvania Competition Act provides that priority of security
interests in intangible transition property will not be defeated or adversely
affected by:
(1) commingling of revenues with other funds of the utility, or
(2) changes to the qualified rate order or the intangible transition
charges.
Characterization of Transfer of Transferred Intangible Transition Property
as True Sale. The Pennsylvania Competition Act provides that a transfer by the
utility or an assignee of intangible transition property will be treated as a
true sale of the transferor's right, title and interest and not as a pledge or
other financing, other than for federal and state income and franchise tax
purposes, if:
(1) the parties expressly state in governing documents that a transfer
is to be a sale or other absolute transfer, and
(2) the transaction is approved in a qualified rate order.
See "Risk Factors--Bankruptcy; Creditors' Rights" in this prospectus.
JURISDICTION OVER DISPUTES; STANDING
Actions against customers for nonpayment of the intangible transition
charges may only be brought by the utility, its successor or any other entity
providing electric service to the customers. In addition, the Pennsylvania
Competition Act grants to the Pennsylvania Public Utility Commission exclusive
jurisdiction over all disputes arising out of the obligations to impose and
collect the intangible transition charges by a utility, its successor or any
other entity which provides electric service to a customer.
POSSIBLE FEDERAL PREEMPTION OF THE PENNSYLVANIA COMPETITION ACT
At least one bill was introduced in the 105th Congress, First Session,
prohibiting the recovery of stranded costs such as PECO Energy's stranded costs
described in this prospectus, which could negate the existence of PECO Energy's
intangible transition property. That bill, H.R. 1230 (The Consumers Electric
Power Act of 1997), was introduced on April 8, 1997 but died at the end of that
Congressional session after having been referred to the House Commerce Committee
and the Subcommittee on Energy and Power. Additionally, on September 24, 1999
H.R. 2944 (Electricity Competition and Reliability Act) was introduced to
several committees in the U.S. House of Representatives. Several other bills
dealing in varying detail with retail competition, stranded cost recovery,
electricity reliability standards and consumer protections were introduced in
1999 and 2000 and referred to various Congressional committees. While H.R. 2944
contained provisions deferring to the states on certain key issues such as
retail stranded costs and public benefit, the issuer cannot predict what final
form this bill or any of the other bills will take or whether these bills, or
any future bills will become law or, if they become law, what their final form
or effect will be. Further, no prediction can be made as to whether any future
bills that prohibit the recovery of stranded costs will become law or, if they
become law, what their final form or effect will be. There is no assurance that
the courts would consider a federal preemption a taking. Moreover, even if a
preemption of the Pennsylvania
38
<PAGE>
Competition Act or any qualified rate order by the federal government were
considered a taking, for which the government had to pay the estimated market
value of the transferred intangible transition property at the time of the
taking, there is no assurance that this compensation would be sufficient to pay
the full amount of principal of and interest on the transition bonds, and
transition bondholders could suffer a loss of their investment. See "Risk
Factors--Legal, Legislative or Regulatory Actions Could Adversely Affect
Transition Bondholders--Federal Legislation May Result in Losses to Transition
Bondholders" in this prospectus and "--Possible Commonwealth Amendment or Repeal
of the Pennsylvania Competition Act" below.
POSSIBLE COMMONWEALTH AMENDMENT OR REPEAL OF THE PENNSYLVANIA COMPETITION ACT
Under the Pennsylvania Competition Act, the Commonwealth of Pennsylvania
has pledged to and agreed with transition bondholders that it will not limit or
alter or in any way impair or reduce the value of intangible transition property
or intangible transition charges approved by a qualified rate order, until the
transition bonds and interest thereon are fully paid and discharged. The
Pennsylvania Competition Act also provides, however, that subject to the
requirements of law, nothing contained in the Pennsylvania Competition Act
precludes this limitation or alteration by the Commonwealth if "adequate
compensation is made by law" for the full protection of the intangible
transition charges collected under a qualified rate order and of transition
bondholders. It is unclear what "adequate compensation . . . by law" would be
afforded to transition bondholders by the Commonwealth of Pennsylvania if it
attempts to limit or alter intangible transition property or intangible
transition charges. Accordingly, no assurance can be given that this provision
would fully compensate transition bondholders for their investment and would not
adversely affect the price of the transition bonds or the timing of payments
with respect to the transition bonds. See "Risk Factors--Legal, Legislative or
Regulatory Actions Could Adversely Affect Transition Bondholders--Changes in Law
May Result in Losses to Transition Bondholders" in this prospectus.
In the opinion of Ballard Spahr Andrews & Ingersoll, LLP, counsel to PECO
Energy, under the Contract Clause of the United States Constitution, the
Commonwealth of Pennsylvania could not repeal or amend the Pennsylvania
Competition Act--by way of legislative process--or take any other action that
substantially impairs the rights of the transition bondholders, unless that
action is a reasonable exercise of the Commonwealth's sovereign powers and of a
character appropriate to the public purpose justifying that action. To date, no
cases addressing these issues in the context of transition bonds have been
decided. There have been cases in which courts have applied the Contract Clause
of the United States Constitution and parallel state constitutional provisions
to strike down legislation, reducing or eliminating taxes or public charges
which supported bonds issued by public instrumentalities, or otherwise reducing
or eliminating the security for those bonds. Based upon this case law, in the
opinion of Ballard Spahr Andrews & Ingersoll, LLP, it would appear unlikely that
the Commonwealth of Pennsylvania could reduce, modify, alter or take any other
action with respect to intangible transition property which would substantially
impair the rights of transition bondholders, unless the action is reasonable and
appropriate to further a legitimate public purpose.
Moreover, under the Taking Clause of the United States Constitution, the
Commonwealth of Pennsylvania could not repeal or amend the Pennsylvania
Competition Act--by way of legislative process--or take any action that violates
its pledge and agreement described in the first paragraph of this subheading
without paying just compensation to the transition bondholders if doing so would
constitute a permanent appropriation of the property interest of transition
bondholders in the intangible transition property and deprive the transition
bondholders of their reasonable expectations arising from their investments in
the transition bonds. There is no assurance, however, that, even if a court were
to award just compensation, it would be sufficient to pay the full amount of
principal of and interest on the transition bonds.
In addition, there can be no assurance that a repeal of or amendment to the
Pennsylvania Competition Act will not be sought or adopted or that any action by
the Commonwealth of Pennsylvania may not occur, any of which might constitute a
violation of the Commonwealth's pledge and agreement with the transition
bondholders. If this occurs, costly and time-consuming litigation might ensue.
That litigation might adversely affect the price and liquidity of the transition
bonds and the dates of payments of principal of the transition bonds and,
accordingly, the weighted average lives of the transition bonds. Moreover, given
the lack of judicial precedent directly on point, and the novelty of the
security for the transition bondholders, the outcome of that litigation cannot
be predicted with certainty, and accordingly, transition bondholders could incur
a loss of their investment.
39
<PAGE>
PECO ENERGY'S RESTRUCTURING PLAN
GENERAL
In accordance with the provisions of the Pennsylvania Competition Act, in
April 1997, PECO Energy filed with the Pennsylvania Public Utility Commission a
comprehensive restructuring plan detailing its proposal to implement full
customer choice of electric generation suppliers. PECO Energy's restructuring
plan identified $7.5 billion of retail electric generation-related stranded
costs. In August 1997, PECO Energy and various intervenors in PECO Energy's
restructuring proceeding filed with the Pennsylvania Public Utility Commission a
Joint Petition for Partial Settlement. In December 1997, the Pennsylvania Public
Utility Commission rejected the Joint Petition for Partial Settlement and
entered an Opinion and Order, revised in January and February 1998, the
Restructuring Order, which deregulated PECO Energy's electric generation
operations. The Restructuring Order authorized PECO Energy to recover stranded
costs of $4.9 billion on a discounted basis, or $5.3 billion on a book value
basis, over 8 1/2 years beginning in 1999.
On January 21, 1998, PECO Energy filed a complaint in the U.S. District
Court for the Eastern District of Pennsylvania seeking injunctive and monetary
relief on the grounds that the provisions of the Restructuring Order relating to
transmission rates were preempted by the Federal Power Act and that
implementation of the Pennsylvania Competition Act by the Pennsylvania Public
Utility Commission in the Restructuring Order violated several provisions of the
U.S. Constitution. On January 22, 1998, PECO Energy also filed two Petitions for
Review in the Commonwealth Court of Pennsylvania appealing the Restructuring
Order based upon errors of law, an arbitrary and capricious abuse of
administrative discretion and the deprivation of the due process of law. In
addition to PECO Energy's appeals, numerous other parties, including various
intervenors, filed appeals and cross-appeals of the Restructuring Order. See
"Prior Litigation" in this section of this prospectus.
On April 29, 1998, PECO Energy and all but one of the 25 parties who
challenged PECO Energy's restructuring plan filed a settlement with the
Pennsylvania Public Utility Commission. That settlement--referred to as the
restructuring plan settlement--was approved by the Pennsylvania Public Utility
Commission in the Final Order. The Final Order was subsequently appealed by
IP&L. Under the terms of the restructuring plan settlement and a stipulation
between certain of the parties to the litigation, all of the appeals and cross-
appeals of the Restructuring Order, as well as the IP&L appeal of the Final
Order, were resolved when the U.S. Supreme Court denied certiorari of a separate
suit in which IP&L claimed that the provisions of the Pennsylvania Competition
Act that allow recovery of stranded costs violate the Commerce Clause of the
United States Constitution. See "Prior Litigation" in this section of this
prospectus.
The restructuring plan settlement authorized PECO Energy to recover $5.26
billion of stranded costs, together with a return of 10.75% on these stranded
costs. For good cause shown, the Pennsylvania Public Utility Commission
authorized the recovery of stranded costs over a 12-year transition period
beginning January 1, 1999 and ending December 31, 2010. Recovery of stranded
costs and the allowed return are through competitive transition charges and, at
PECO Energy's election to issue or cause the issuance of transition bonds,
intangible transition charges, designed to recover the $5.26 billion of stranded
costs. The competitive transition charges were established assuming annual
growth in sales of 0.8% and are reconciled annually to actual sales.
On February 7, 2000, the Mid-Atlantic Power Supply Association filed an
intervention to the Pennsylvania Public Utility Commission's proceedings on PECO
Energy's application for the 2000 QRO to ensure that the proposed securitization
does not have an adverse effect on competition in the retail electrical services
market in Pennsylvania. Specifically, that association expressed concern that
the 2000 QRO would cause a reduction in the shopping credit established in the
First QRO and would enable PECO Energy to use the proposed rate reduction in
2001 to promote its provider of last resort service.
The Mid-Atlantic Power Supply Association subsequently agreed to join with
several of the parties who participated in PECO Energy's restructuring
proceeding in a settlement, which was filed with the Pennsylvania Public Utility
Commission on March 8, 2000. The settlement states that, beginning January 1,
2001, PECO Energy will provide its retail customers with rate reductions in the
Total amount of $60 million and, subject to a different agreement in the
Pennsylvania Public Utility Commission's proceeding concerning PECO Energy's
merger with Unicom, will use the savings created by the securitization of its
stranded costs,
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<PAGE>
as authorized in the 2000 QRO, to reduce competitive transition charges. The
rate reductions specified in this settlement are not contingent on the issuance
of any transition bonds under the 2000 QRO. Furthermore, this settlement does
not restrict the rights of any of its signatories from proposing or arguing in
favor of rate decreases associated with the merger in the merger proceeding.
PECO Energy also agreed in this settlement that it will not use those
securitization savings to reduce the shopping credit or use those securitization
savings or the 2001 rate reductions to promote its provider of last resort
service. Consequently, unless required by law, PECO Energy may not refer to
savings from securitization or rate reductions in any public advertising,
promotion or communication.
All terms of the restructuring plan settlement described in this prospectus
have been specifically made to apply to the issuance of transition bonds under
the 2000 QRO, including the termination of intangible transition charges no
later than December 31, 2010, generation rate caps and rate cap extensions.
The following table shows the estimated average levels of competitive
transition charges and/or intangible transition charges for the years 2000
through 2010, based on estimated 0.8% annual sales growth assumed in the
restructuring settlement. For the calendar year 1999, annual retail electric
revenues were $2,589,538,000, including combined competitive transition charges
and intangible transition charges of approximately $564,000,000. Combined
competitive transition charges and intangible transition charges (billed from
February through December) averaged $0.0172 per kilowatt hour.
TABLE 1
ANNUAL STRANDED COST
AMORTIZATION AND RETURN
<TABLE>
<CAPTION>
REVENUE EXCLUDING
GROSS RECEIPTS TAX(3)
-------------------------------------------
ANNUAL CTC RETURN @
YEAR SALES AND/OR ITC(2) TOTAL 10.75% AMORTIZATION
- ---- ---------- ------------- ------- --------- ------------
MWH(1) $/KWH ($000) ($000) ($000)
<S> <C> <C> <C> <C> <C>
2000.............................. 33,837,913 0.0192 621,102 564,222 56,879
2001.............................. 34,108,616 0.0233(4) 761,097 490,417 270,680
2002.............................. 34,381,485 0.0251 825,004 516,869 308,135
2003.............................. 34,656,537 0.0247 818,352 482,401 335,951
2004.............................. 34,933,789 0.0243 811,540 444,798 366,742
2005.............................. 35,213,260 0.0240 807,933 403,555 404,378
2006.............................. 35,494,966 0.0266 902,623 353,070 549,553
2007.............................. 35,778,925 0.0266 909,844 290,627 619,217
2008.............................. 36,065,157 0.0266 917,123 220,312 696,811
2009.............................. 36,353,678 0.0266 924,459 141,229 783,231
2010.............................. 36,644,507 0.0266 931,855 52,381 879,474
</TABLE>
- ------------------
(1) Subject to reconciliation of actual sales and collections. Under the
restructuring plan settlement, sales are estimated to increase 0.8 percent
per year.
(2) Figures result in the recovery of $5.26 billion of stranded costs plus the
allowed return from the estimated number of customers and at projected usage
levels in the period during which the competitive transition charges and/or
intangible transition charges will be collected, taking into account the
discounts from the current total bundled bill of customers, based on the
discounts to be provided in accordance with the terms of the restructuring
plan. Both the competitive transition charges and the intangible transition
charges are subject to adjustment.
(3) The utilities gross receipts tax is imposed on public utilities (including
electric utilities) organized under the laws of, or doing business in, the
Commonwealth and is currently reflected in PECO Energy's revenue at the rate
of 4.4% on each dollar of the utility's gross receipts arising from certain
sales of energy.
(4) Reflects the rate reductions required by the 2000 QRO.
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<PAGE>
AUTHORIZATION TO SECURITIZE. Under the restructuring plan settlement, PECO
Energy securitized $4 billion of its $5.26 billion of stranded cost recovery
through the issuance of the Series 1999-A Bonds. The intangible transition
charges associated with the issuance of all transition bonds must terminate no
later than December 31, 2010. The rate reductions and rate caps described in
Table 2 included as part of the restructuring plan settlement and the additional
securitization settlement anticipate the benefits of the securitization, and no
adjustment in PECO Energy's base rates will be made upon issuance of any
transition bonds. After the issuance of any transition bonds, competitive
transition charges (or PECO Energy's distribution rates) will be reduced by the
amount of intangible transition charges imposed to pay the applicable qualified
transition expenses. As part of its approval of the additional securitization
settlement, the Pennsylvania Public Utility Commission issued the 2000 QRO
providing for securitization of up to an additional $1 billion of stranded
costs.
UNBUNDLING OF RATES AND RATE REDUCTIONS AND RATE CAPS. The restructuring
plan settlement required PECO Energy to unbundle its retail electric rates for
billing cycles beginning on January 1, 1999 into the following components:
(1) distribution and transmission charges,
(2) competitive transition charges and, if applicable, intangible
transition charges, and
(3) a shopping credit for generation.
The sum of the competitive transition charges and the shopping credit equals the
maximum amount PECO Energy can charge customers who do not or cannot choose to
purchase electricity from alternate electric generation suppliers (referred to
as serving as the "provider of last resort").
The restructuring plan settlement required PECO Energy to reduce rates
during 1999 and 2000 by 8% and 6%, respectively, from rates in existence on
December 31, 1996. Further, the restructuring plan settlement provided for
one-time additional discounts in 2000 if there was an overcollection of
intangible transition charges and competitive transition charges in 1999. An
overcollection for the residential and small commercial and industrial rate
categories did occur in that year. Consequently, the rates for those rate
categories were reduced by 7% and 8.3%, respectively, for 2000.
The restructuring plan settlement also extended the rate caps on generation
rates at higher levels than required by the Pennsylvania Competition Act, until
December 1, 2010 and extended rate caps on transmission and distribution rates
until June 30, 2005. The additional securitization settlement required an
additional one-time rate cut of $60 million during the year 2001. PECO Energy's
unbundled rates, rate reductions (from the restructuring plan settlement and the
additional securitization settlement) and rate caps are reflected in the
schedule of system-wide average rates included in the restructuring plan
settlement and the additional securitization settlement and are shown in Table 2
below. See also "The Qualified Rate Orders and The Intangible Transition
Charges" and "PECO Energy Company--Merger with Unicom."
42
<PAGE>
TABLE 2
SCHEDULE OF SYSTEM-WIDE AVERAGE RATES (PER KILOWATT-HOUR ("KWH"))(1)
<TABLE>
<CAPTION>
T&D CTC
RATE AND/OR SHOPPING GENERATION
EFFECTIVE DATE TRANSMISSION(2) DISTRIBUTION CAP(3) ITC(4) CREDIT RATE CAP
- -------------- --------------- ------------ ----------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
(1) (2) (3)=(1)+(2) (4) (5) (6)=(4)+(5)
$/KWH $/KWH $/KWH $/KWH $/KWH $/KWH
January 1, 1999.............. $0.0045 $ 0.0253 $0.0298 $0.0172 $ 0.0446 $ 0.0618
January 1, 2000.............. 0.0045 0.0253 0.0298 0.0192 0.0446 0.0638
January 1, 2001.............. 0.0045 0.0253 0.0298 0.0233(5) 0.0447 0.0680
January 1, 2002.............. 0.0045 0.0253 0.0298 0.0251 0.0447 0.0698
January 1, 2003.............. 0.0045 0.0253 0.0298 0.0247 0.0451 0.0698
January 1, 2004.............. 0.0045 0.0253 0.0298 0.0243 0.0455 0.0698
January 1, 2005.............. 0.0045(6) 0.0253(6) 0.0298(6) 0.0240 0.0458 0.0698
January 1, 2006.............. N/A N/A N/A 0.0266 0.0485 0.0751
January 1, 2007.............. N/A N/A N/A 0.0266 0.0535 0.0801
January 1, 2008.............. N/A N/A N/A 0.0266 0.0535 0.0801
January 1, 2009.............. N/A N/A N/A 0.0266 0.0535 0.0801
January 1, 2010.............. N/A N/A N/A 0.0266 0.0535 0.0801
</TABLE>
- ------------------
(1) All prices reflect average retail billing for all rate classes (including
gross receipts tax). The average prices as presented in this table reflect
the profile of service contained in PECO Energy's proof of revenue set forth
in PECO Energy's restructuring plan.
(2) The transmission prices listed are for unbundled rates only. The
Pennsylvania Public Utility Commission does not regulate the rates for
transmission service.
(3) The T&D (Transmission & Distribution) Rate Cap under Section 2804(4) of the
Pennsylvania Competition Act will be extended until June 30, 2005.
(4) Figures result in the recovery of $5.26 billion of stranded costs plus the
allowed return on these costs from the estimated number of customers and at
projected usage levels in the period during which the competitive transition
charges and/or intangible transition charges will be collected, taking into
account the discounts from the current total bundled bill of customers,
based on the discounts to be provided in accordance with the terms of PECO
Energy's restructuring plan and the additional securitization settlement.
Both the competitive transition charges and the intangible transition
charges are subject to adjustment.
(5) Reflects the rate reductions required by the 2000 QRO.
(6) Effective until June 30, 2005.
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The Pennsylvania Competition Act authorizes electric distribution companies
to recover changes in their state tax liability resulting from the introduction
of competition in the electric market through adjustments in the rates charged
to customers, which in specified circumstances set forth in the regulations
adopted by the Pennsylvania Public Utility Commission may result in rates
exceeding the applicable rate cap. PECO Energy may apply for this recovery of
state tax liability changes in accordance with the procedures outlined in the
Pennsylvania Public Utility Commission's regulations if PECO Energy in fact
experiences adverse consequences to its state tax liability as contemplated in
the Pennsylvania Competition Act.
COMPETITIVE METERING AND BILLING. On January 1, 1999, PECO Energy
unbundled its retail electric rates for metering, meter reading, and billing and
collection services to provide credits for those customers that have elected to
have alternate suppliers perform these services. Pennsylvania Public Utility
Commission-licensed entities, including electric generation suppliers, may act
as agents to provide a single bill and provide associated billing and collection
services to retail customers located in PECO Energy's retail electric service
territory. The Pennsylvania Public Utility Commission-licensed entities,
including electric generation suppliers, may also finance, install, own,
maintain, calibrate and remotely read advanced meters for service to retail
customers located in PECO Energy's service territory. An electric generation
supplier or other third party that bills on behalf of PECO Energy must comply
with all applicable billing and disclosure requirements absent waiver by the
Pennsylvania Public Utility Commission, including the unbundling of transmission
and distribution rates. Only PECO Energy can physically disconnect or reconnect
a customer's distribution service. Physical termination of the service may only
be permitted for failure to pay for transmission and distribution
service--including transition charges--or provider of last resort service. See
also "The Qualified Rate Orders and the Intangible Transition Charges--The
Intangible Transition Charges" in this prospectus.
CUSTOMER CHOICE. Under the restructuring plan settlement, customer choice
of electric generation suppliers was phased in between January 1, 1999 and
January 2, 2000. If on January 1, 2001 and January 1, 2003 less than 35% and
50%, respectively, of all of PECO Energy's residential and commercial customers
by rate class are obtaining generation service from alternate electric
generation suppliers, non-shopping customers will be randomly assigned to
electric generation suppliers, including those affiliated with PECO Energy, to
meet those thresholds. Assignment of non-shopping customers shall be through a
Pennsylvania Public Utility Commission-approved process. No assignment will be
made until all customers have been notified in advance of the process and have
been given the option to remain with PECO Energy as the provider of last resort
or to select an electric generation supplier of their choice. The 35% and 50%
threshold amounts will be determined for residential and small commercial and
industrial customers on the basis of the number of customers and for large
commercial and industrial customers on the basis of peak load. Customers
assigned to a provider of last resort, other than PECO Energy, will be counted
as customers receiving service from an alternate electric generation supplier.
PROVIDER OF LAST RESORT
Under PECO Energy's restructuring plan, PECO Energy acts as a provider of
last resort for all retail electric customers in its retail electric service
territory who do not choose or cannot choose to purchase power from alternative
suppliers through December 31, 2010, subject to specified terms, conditions and
qualifications. On January 1, 2001, 20% of all of PECO Energy's residential
customers, determined by random selection, including low-income and
inability-to-pay customers, and without regard to whether those customers are
obtaining generation service from an electric generation supplier, will be
assigned to a provider of last resort other than PECO Energy (the service
provided by that supplier, "competitive default service"). That alternative
supplier (the "competitive default supplier") will be selected on the basis of
an energy and capacity market price bidding process approved, established and
maintained by the Pennsylvania Public Utility Commission among electric
generation suppliers who meet specified qualifications. By order entered April
30, 1999, The Pennsylvania Public Utility Commission decided that the right to
provide competitive default service will be rebid every three years. If in any
year, the number of residential customers served by competitive default service
has fallen below 17%, a further random selection of customers will be assigned
to competitive default service to restore the number of customers to the 20%
level for the next annual period. The further random selection will be made from
the customers not already assigned to competitive default service and customers
served by electric generation suppliers other than PECO Energy.
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By the order entered April 30, 1999, the Pennsylvania Public Utility
Commission adopted procedures for choosing a competitive default supplier. Under
those suggested procedures, entities that desire to act as a competitive default
supplier have until May 1, 2000 to submit both their qualifications to act as a
competitive default supplier and their bid for providing that service.
Competitive default service is designed to begin on January 1, 2001 for 20% of
PECO Energy's residential customers based on the results of the bidding process.
The procedures require an electric generation supplier to provide:
o proof that it has received the requisite licenses from the state and
federal governments,
o proof that it meets certain creditworthiness standards, and
o assurances that it can acquire additional bonding as necessary.
The April 30, 1999 order also provided that the supplier of competitive
default service will be required to provide billing, including its payment of
intangible transition charges and other revenues, to PECO Energy on the terms
and conditions set forth in PECO Energy's tariff for those entities who
currently provide competitive billing services to customers.
In the settlement agreement filed with the Pennsylvania Public Utility
Commission on March 23, 2000 that settled issues raised in the original filing
concerning the merger with Unicom, several parties who intervened in the
original merger filing proposed that the bidding process will be only for
electric supply and capacity and will exclude the billing, collection and other
customer care functions that were envisioned by the Pennsylvania Public Utility
Commission's April 30, 1999 order. if no winning bidder is selected through the
process described above, then PECO Energy has agreed to engage in negotiations
with qualified suppliers to enter into bilateral agreements for competitive
default service between PECO Energy and one or more default suppliers for
provision of electric generation supply and capacity to the 20% of PECO Energy's
residential customers included in the auction. see "PECO Energy Company--Merger
With Unicom." The provisions of the merger settlement will not take effect until
the merger with Unicom has reached financial closing, currently expected to
occur sometime in the third or fourth quarter of 2000.
OTHER PROVISIONS. The restructuring plan settlement also provides for
flexible generation service pricing for residential customers served by
competitive default service, authorization of PECO Energy to transfer its
generation assets to a separate subsidiary, inclusion under the capped
transmission and distribution rates of .01 cent per kilowatt-hour for a
sustainable energy and economic development fund and expansion of PECO Energy's
program for low-income customers.
PRIOR LITIGATION
In May, 1997, IP&L appealed the First QRO by filing an action in the
Commonwealth Court of Pennsylvania challenging the Pennsylvania Competition Act,
alleging that the Pennsylvania Competition Act's provision allowing PECO Energy
to recover stranded costs discriminates against interstate commerce in violation
of the Commerce Clause of the United States Constitution. In an opinion dated
May 7, 1998, the Commonwealth Court dismissed IP&L's action, holding, as a
matter of law, that the Pennsylvania Competition Act does not violate the
Commerce Clause. Following that dismissal, IP&L petitioned the Pennsylvania
Supreme Court for allowance of appeal. In the petition, IP&L claimed that the
payment of stranded costs to PECO Energy discriminates against interstate
commerce by favoring in-state electricity producers over out-of-state
electricity producers. On September 29, 1998, the Pennsylvania Supreme Court
denied IP&L's petition for allowance of appeal. On December 28, 1998, IP&L filed
a petition for a writ of certiorari with the United States Supreme Court to
appeal the Commonwealth Court's decision on the claim described above. On March
8, 1999, the United States Supreme Court denied the petition.
During the period from January 1998 through March 1998, appeals and
cross-appeals were filed at the Commonwealth Court against the Restructuring
Order by PECO Energy, IP&L and numerous other parties. On April 29, 1998, PECO
Energy and all of the parties who had filed appeals and cross-appeals, with the
exception of IP&L, filed the restructuring plan settlement with the Pennsylvania
Public Utility Commission. The restructuring plan settlement was approved by the
Pennsylvania Public Utility Commission through the Final Order. Under the terms
of the restructuring plan settlement, PECO Energy and all signatories to the
restructuring plan settlement requested, and were granted, a general continuance
of their appeals and cross-
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appeals of the Restructuring Order until the time as the Final Order was no
longer subject to administrative or judicial challenge. In June, 1998, IP&L
withdrew its appeal to the Restructuring Order and filed an appeal at the
Commonwealth Court challenging the Final Order. The IP&L appeal of the Final
Order was identical in scope to its Commerce Clause arguments described above.
The IP&L appeal constituted a judicial challenge to the Final Order and, under
the terms of the restructuring plan settlement, the appeals of PECO Energy and
the other signatories to the restructuring plan settlement remained pending, but
inactive, until resolution of the IP&L appeal. PECO Energy and IP&L entered into
a stipulation that the final outcome of the IP&L Commerce Clause case would be
controlling for the IP&L appeal of the Final Order. With the denial of the IP&L
petition for certiorari by the United States Supreme Court, all appeals and
cross-appeals of the Final Order were withdrawn with prejudice from the
Commonwealth Court and from the United States District Court in accordance with
the terms of the restructuring plan settlement and the stipulation with IP&L.
Two additional actions, one filed by the Utility Workers Union of America
and one filed by a group of plaintiffs including State Senator Vincent J. Fumo
alleged that the adoption of the Pennsylvania Competition Act violated certain
provisions of the Pennsylvania Constitution governing legislative procedure. The
Pennsylvania Public Utility Commission filed preliminary objections seeking
dismissal of these actions at the pleading stage, on the ground that enactment
of the Pennsylvania Competition Act did not violate those Pennsylvania
constitutional provisions as a matter of law. The Commonwealth Court of
Pennsylvania upheld the Pennsylvania Public Utility Commission's preliminary
objections and dismissed both actions with prejudice. The appeal period expired
without appeals being filed and the dismissal of these actions is final and
non-appealable.
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THE QUALIFIED RATE ORDERS AND THE INTANGIBLE TRANSITION CHARGES
As part of its approval of the restructuring plan settlement, the
Pennsylvania Public Utility Commission issued the First QRO on May 14, 1998. In
this order, the Pennsylvania Public Utility Commission determined that PECO
Energy's recovery of stranded costs as set forth in the restructuring plan
settlement was just and reasonable and in the public interest and that
securitization of up to $4 billion of its $5.26 billion of stranded costs as set
forth in the restructuring plan settlement was just and reasonable and in the
public interest. On March 16, 2000, the Pennsylvania Public Utility Commission
issued the 2000 QRO, authorizing the securitization of up to $1 billion of the
remaining stranded costs. The 2000 QRO became final and non-appealable on April
17, 2000.
The First QRO and the 2000 QRO provide that, to the extent that PECO
Energy, or any assignee, assigns, sells, transfers, or pledges any interest in
intangible transition property created by those qualified rate orders, the
Pennsylvania Public Utility Commission authorizes PECO Energy to contract, for a
specified fee, with any assignee for PECO Energy:
o to continue to operate the system to provide electric services to PECO
Energy's customers,
o to impose and collect the applicable intangible transition charges for
the benefit and account of the assignee,
o to make periodic adjustments of intangible transition charges
contemplated under the qualified rate orders, and
o to account for and remit the applicable intangible transition charges to
or for the account of the assignee free of any charge, deduction or
surcharge of any kind (other than the specified contractual fee referred
to above).
The First QRO and the 2000 QRO also authorize PECO Energy to contract with
the issuers of transition bonds and an alternative party, which may be a
trustee, that the alternative party will replace PECO Energy under its contract
with the issuers and perform the obligations of PECO Energy contemplated in
those qualified rate orders. The obligations of PECO Energy:
o are binding upon PECO Energy, its successors and assigns, and
o are required by the Pennsylvania Public Utility Commission to be
undertaken and performed by PECO Energy and any other entity which
provides transmission and distribution services to a person who was a
customer of PECO Energy located within PECO Energy's certificated
territory on January 1, 1997, or who became a customer of electric
services within such territory after January 1, 1997, and is still
located within such territory, as a condition to providing service to
that customer or municipal entity providing these services in place of
PECO Energy by PECO Energy or other entity.
The rate reductions in the total amount of $60 million required by the 2000
QRO will be passed on to customers over a one-year period commencing with
billing cycles beginning after December 31, 2000. These reductions will be
implemented regardless of whether or not any series of transition bonds
authorized by the 2000 QRO are issued.
AUTHORIZATION OF ISSUANCE OF TRANSITION BONDS. In the First QRO, the
Pennsylvania Public Utility Commission authorized the issuance of transition
bonds in an aggregate principal amount not to exceed a combined total of $4
billion. In the 2000 QRO, the Pennsylvania Public Utility Commission authorized
an additional $1 billion of transition bonds. PECO Energy, or any assignee of
PECO Energy to whom intangible transition property is sold, may issue and sell,
in reliance on the First QRO and the 2000 QRO, one or more series of transition
bonds, each series in one or more classes, secured by intangible transition
property, provided that the final maturity of any series of transition bonds may
not be later than ten years from the date of issuance and in no event after
December 31, 2010. PECO Energy, or its assignee, is also authorized to refinance
transition bonds in a face amount not to exceed the unamortized principal
thereof.
The First QRO and the 2000 QRO provide that PECO Energy retains the sole
discretion whether to issue or cause the issuance of transition bonds. Within
120 days after each issuance of transition bonds, PECO Energy is required to
file with the Pennsylvania Public Utility Commission a description of the
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financing structure of the transition bonds, including the principal amount, the
price at which each series or class of transition bonds was sold, payment
schedules, interest rate and other financing costs and the final plans for PECO
Energy's use of the proceeds of any offering. Notwithstanding this filing, the
final structure of each issuance of transition bonds is not subject to change or
revision by the Pennsylvania Public Utility Commission after the date of that
issuance.
AUTHORIZATION TO IMPOSE INTANGIBLE TRANSITION CHARGES. In the First QRO
and the 2000 QRO, the Pennsylvania Public Utility Commission determined that it
was just and reasonable and in the public interest for PECO Energy to recover
from its customers, through intangible transition charges, $4 billion and $1
billion, respectively, of its $5.26 billion of stranded costs. The Pennsylvania
Public Utility Commission authorized PECO Energy to impose on and collect from
customers, either directly or through bills rendered by electric generation
suppliers, intangible transition charges in an amount sufficient to recover
qualified transition expenses in connection with the permitted securitization of
PECO Energy's stranded costs. In accordance with the Pennsylvania Competition
Act, the Pennsylvania Public Utility Commission found that good cause had been
shown to extend the payment period for imposing intangible transition charges
beyond the ten-year period specified in the Pennsylvania Competition Act to
December 31, 2010.
In accordance with the new settlement, the rate reductions included as part
of the new settlement anticipated the benefits of securitization, and no rate
adjustment will be made upon issuance of any transition bonds. Approximately ten
days after issuance of transition bonds offered by this prospectus, competitive
transition charges (or PECO Energy's distribution rates) will be reduced by the
amount of intangible transition charges associated with the issuance of those
transition bonds and transition bonds issued by other issuers, if any.
In the First QRO and the 2000 QRO, the Pennsylvania Public Utility
Commission approved the allocation and methodology for imposing competitive
transition charges and intangible transition charges on customers. The First QRO
and the 2000 QRO also authorize PECO Energy to make annual adjustments to
intangible transition charges if collections of intangible transition charges
fall below or exceed the amount necessary to ensure the receipt by the
transition bond trustee of revenues sufficient to fully recover the qualified
transition expenses, provided, however, that adjustments during the final
calendar year during which any series of bonds are outstanding may be quarterly
or monthly if necessary to ensure full recovery of intangible transition
charges. The First QRO and the 2000 QRO state that the revenues received by the
transition bond trustee through intangible transition charges shall be
determined to be sufficient only if the collections of intangible transition
charges so received are sufficient to amortize the transition bonds, fund any
reserves and to pay premiums, if any, on the transition bonds (after payment of
accrued interest, redemption premiums, if any, related credit enhancement,
servicing fees and other related costs and expenses) in accordance with the
terms of the transition bonds. For each annual adjustment, the First QRO and the
2000 QRO direct PECO Energy to file with the Pennsylvania Public Utility
Commission:
o an accounting of intangible transition charges received by the transition
bond trustee for the previous annual period,
o a statement of any over-or-under receipts,
o the charge or credit to be added to intangible transition charges to
ensure that the intangible transition charges received by the transition
bond trustee will be sufficient to amortize the qualified transition
expenses in accordance with the amortization schedule for the transition
bonds, and
o the corresponding reduction or increase in competitive transition charges
or PECO Energy's distribution rates, as the case may be.
The First QRO and the 2000 QRO provide that, in accordance with the Pennsylvania
Competition Act, the Pennsylvania Public Utility Commission shall approve all
annual adjustments within 90 days of PECO Energy's annual adjustment filing.
AUTHORIZATION TO SELL INTANGIBLE TRANSITION PROPERTY. Under the First QRO
and the 2000 QRO, the Pennsylvania Public Utility Commission concluded that it
is in the public interest, and authorized PECO Energy and any assignee of PECO
Energy, to assign, sell, transfer or pledge intangible transition property in
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an amount sufficient to recover all of PECO Energy's qualified transition
expenses in connection with the securitization of its stranded costs and all
revenues, collections, claims, payments or money or proceeds arising from
intangible transition charges. The Pennsylvania Public Utility Commission
directed PECO Energy to use the proceeds from the sale of intangible transition
property to reduce stranded costs and related capitalization.
To the extent PECO Energy or its assignee assigns, sells, transfers or
pledges an interest in the intangible transition property, the Pennsylvania
Public Utility Commission authorized PECO Energy to contract, for a specified
fee, with that assignee for PECO Energy to:
o continue to operate its transmission and distribution system,
o provide electric service to customers,
o impose and collect intangible transition charges for the benefit and
account of the assignee,
o make periodic adjustments of intangible transition charges, and
o account for and remit the intangible transition charges to or for the
account of the assignee free of any charge, deduction or surcharge or any
kind (other than the specified contractual fee referred to above).
The First QRO and the 2000 QRO also authorize the assignee to contract with
an alternate party to replace PECO Energy as servicer of the intangible
transition property. The First QRO and the 2000 QRO provide that the obligations
of PECO Energy in servicing the intangible transition property shall be required
by the Pennsylvania Public Utility Commission to be undertaken and performed by
PECO Energy and any other entity which provides transmission or distribution
services to customers.
IRREVOCABILITY OF THE QUALIFIED RATE ORDERS. The First QRO and the 2000
QRO declare that the respective paragraphs concerning the recovery of PECO
Energy's stranded costs through the issuance of transition bonds, the imposition
of intangible transition charges on customers in an amount sufficient to recover
qualified transition expenses in connection with the securitization of stranded
costs, the methodology and allocation and timing of adjustments to the
intangible transition charges and the sale of intangible transition property are
irrevocable for purposes of the Pennsylvania Competition Act, and the
Pennsylvania Public Utility Commission accordingly agrees that it will not,
directly or indirectly, by any subsequent action, reduce, postpone, impair or
terminate those qualified rate orders or the related intangible transition
charges. In the First QRO and the 2000 QRO, the Pennsylvania Public Utility
Commission further declared that the right, title and interest of PECO Energy
and any assignee in those qualified rate orders and the intangible transition
charges, the rates and other charges authorized by those qualified rate orders,
and all revenues, collections, claims, payments, money or proceeds of or arising
from the same constitute intangible transition property.
THE INTANGIBLE TRANSITION CHARGES
CALCULATION OF THE INTANGIBLE TRANSITION CHARGES. The qualified transition
expenses authorized in the First QRO and the 2000 QRO are recovered from
customers in each of PECO Energy's separate rate classes based on the allocation
of stranded cost recovery borne by each rate class through current electric
rates approved by the Pennsylvania Public Utility Commission. The intangible
transition charges are calculated by determining the total amount of intangible
transition charges required to be billed to each rate class in order to generate
collections of intangible transition charges sufficient to ensure timely
recovery of qualified transition expenses related to each series of transition
bonds among affected rate classes. The intangible transition charge percentage
is applied to total projected revenue per rate class, exclusive of transmission,
energy and capacity and fixed distribution charges. The resulting dollar amount
on a customer's bill after the application of that percentage is the intangible
transition charge payable by that customer. To the extent that total revenues
are affected by changes in usage, number of customers, rate of delinquencies and
write-offs or other factors, collections of intangible transition charges will
vary. Variations in collections of intangible transition charges will be
addressed by recalculating the percentages applied to customers' bills on each
calculation date. See "--The Intangible Transition Charge Adjustment Process"
below.
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INITIAL BILLING AND TERMINATION OF INTANGIBLE TRANSITION CHARGE
COLLECTIONS. Intangible transition charges for each series of transition bonds
are or will be assessed on all customer bills rendered on or after the effective
date of the rates for intangible transition charges associated with the relevant
series issuance date. For instance, if a particular series issuance date is
March 15 and the rates for intangible transition charges are effective March 26,
bills rendered on or after March 26 will be assessed intangible transition
charges for that series. Upon each adjustment of intangible transition charges
or issuance of additional series of transition bonds, the adjusted intangible
transition charges will be assessed in the same manner. The imposition of
intangible transition charges as a result of the issuance of transition bonds
will result in a reduction in any competitive transition charges then in effect
in an amount equal to those intangible transition charges, so that the total
amount billed to customers will remain unchanged.
The servicer (or electric generation supplier or other third party biller)
will continue to bill the intangible transition charges, and the servicer will
continue to make collections of intangible transition charges from customers and
electric generation suppliers and other third parties with respect to each
outstanding series of transition bonds until the series termination date or
class termination date, if applicable, for each series or class, as applicable,
but in no event later than December 31, 2010. Upon the series termination date
or class termination date, relating to the series or class of transition bonds
having the latest series termination date or class termination date the servicer
will cease assessing the intangible transition charges. However, the servicer
(or electric generation supplier or other third party biller) will continue to
collect the intangible transition charges previously billed to customers. To the
extent that collections of intangible transition charges exceed the amount
necessary to amortize fully all transition bonds and pay interest on these bonds
and specified fees and expenses, those excesses will be retained by the issuer.
THE INTANGIBLE TRANSITION CHARGE ADJUSTMENT PROCESS. In order to enhance
the likelihood that the actual collections of intangible transition charges
allocated to the issuer under the master servicing agreement are neither more
nor less than the amount necessary to amortize the transition bonds of each
series in accordance with the expected amortization schedule for that series and
to fund the overcollateralization subaccount to the calculated
overcollateralization level, the master servicing agreement requires the
servicer to seek, and the Pennsylvania Competition Act and the First QRO and the
2000 QRO require the Pennsylvania Public Utility Commission to approve, annual
adjustments to the intangible transition charges based on actual collections of
intangible transition charges allocated to the issuer and updated assumptions by
the servicer as to projected future usage of electricity by customers, expected
delinquencies and write-offs, and future expenses relating to intangible
transition property and the transition bonds. Adjustments will be made to the
intangible transition charges imposed upon customers to reflect shortfalls in or
excesses of collections of intangible transition charges for the period since
the last adjustment, including shortfalls or excesses resulting from inaccurate
forecasts by the servicer. For example, if actual electricity consumption is
less than the servicer forecasted because of an unusually mild summer, and this
resulted in a shortfall in collections of intangible transition charges, the
servicer would be required to seek an adjustment from the Pennsylvania Public
Utility Commission to the intangible transition charges imposed after that to
compensate for that shortfall. In addition, the adjustments will take into
account any projected trends in customers or usage in order to prevent
shortfalls or excesses of collections of intangible transition charges from
arising in future periods so that if, for example, usage is declining at an
accelerating pace, this trend will be taken in account in the calculation of the
current adjustment.
The First QRO and the 2000 QRO also provide that adjustments during the
final calendar year of collections of intangible transition charges for any
series of transition bonds may be made quarterly or monthly. If at the time of
issuance of a series, the servicer determines additional adjustments are
required, the dates for these adjustments will be specified in the prospectus
supplement for that series. Adjustments will cease for a series on the final
adjustment date specified in the related prospectus supplement for that series.
In the settlement agreement filed with the Pennsylvania Public Utility
Commission on March 23, 2000 settling issues raised in the filing concerning the
merger with Unicom, several parties who intervened in the original filing on the
merger with the Pennsylvania Public Utility Commission proposed that for the
purposes of adjustments of competitive transition charges and intangible
transition charges, the large commercial and industrial customer category and
the small commercial and industrial customer category be combined into one
commercial and industrial category in order to reduce the number and size of any
adjustments to the charges for these customer categories. If these rate
categories are combined for these purposes, PECO Energy does
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not expect the combination to have any adverse effect on the amount of
intangible transition charges that can ultimately be recovered from customers.
In general, the provisions of the merger settlement will not take effect until
the merger with Unicom has reached financial closing, currently expected to
occur sometime in the third or fourth quarter of 2000.
The servicer will file an adjustment request on each calculation date,
requesting modifications to the intangible transition charges which are designed
to result in the outstanding principal balance of each series equaling the
amount provided for in its expected amortization schedule and the amount on
deposit in the overcollateralization subaccount equalling the calculated
overcollateralization level, by the payment date closest to the next adjustment
date or the expected final payment date, as applicable, for each series, taking
into account any amounts on deposit in the reserve subaccount other than certain
customer prepayments of intangible transition charges, if any, not allocable to
the period covered by the applicable adjustment request. As provided for in the
First QRO and the 2000 QRO, any adjustment request filed with the Pennsylvania
Public Utility Commission will include any proposal by PECO Energy to modify the
recalculation methodology. For a discussion of customer prepayments, see "The
Seller and Servicer--Limited Information on Customers'
Creditworthiness--Customer Payments" in this prospectus. The Pennsylvania
Competition Act and the First QRO and the 2000 QRO require the Pennsylvania
Public Utility Commission to approve annual adjustments within 90 days of the
calculation date. The adjustments to the intangible transition charges are
expected to be implemented on each adjustment date.
COMPETITIVE BILLING
PECO Energy's restructuring plan and subsequent orders of the Pennsylvania
Public Utility Commission give customers who purchase electric generation from
electric generation suppliers the opportunity to choose from the following
billing source options:
o consolidated billing from the utility,
o consolidated billing from the electric generation supplier,
o separate billing from the utility and from the electric generation
supplier providing billing services, or
o third party billing services.
Any electric generation supplier or other third party that provides
consolidated billing is required to pay the utility amounts billed by the
utility to the electric generation supplier or other third party, including the
intangible transition charges, regardless of the electric generation supplier's
or other third party's ability to collect these amounts from its customers. In
that case, the electric generation supplier or other third party will replace
the customer as the obligor on these intangible transition charges, and the
servicer, on behalf of the issuer, will generally have no right to collect these
intangible transition charges from the customer. The servicer will have the
right to bill and collect intangible transition charges and other amounts
payable to the servicer directly from all of the electric generation supplier's
or other third party's consolidated billing customers following specified
payment defaults by an electric generation supplier or other third party and the
expiration of the applicable grace period. As of the date of this prospectus
there are no third parties providing billing to PECO Energy customers. See "Risk
Factors--Servicing--It May Be More Difficult to Collect Intangible Transition
Charges Due to Third Party Billing" in this prospectus.
PECO Energy's restructuring plan sets forth and future orders of the
Pennsylvania Public Utility Commission will set forth guidelines governing
metering, billing and other activities by electric generation suppliers and
other third parties. The Pennsylvania Public Utility Commission has determined
that if an electric generation supplier or other third party provides
consolidated billing, the electric generation supplier or other third party must
first establish its creditworthiness by either:
o demonstrating that it has an investment grade rating for its own
long-term debt, or
o depositing with the Pennsylvania Public Utility Commission a letter of
credit or other mechanism sufficient to cover 30 days of its expected
collections from intangible transition charges.
While the restructuring plan and Pennsylvania Public Utility Commission
orders provide that an electric generation supplier or other third party that
bills customers must comply with all billing, financial and
51
<PAGE>
disclosure requirements applicable to electric generation suppliers, the
Pennsylvania Public Utility Commission may waive any of those requirements at
any time in the future. Further, the parties to the restructuring plan
settlement agreed to review and, as appropriate, to recommend changes to
Pennsylvania Public Utility Commission regulations and procedures in order to
facilitate the efficient and full recovery of revenues from customers, while at
the same time protecting customers. See also "Risk Factors--Legal, Legislative
or Regulatory Actions Could Adversely Affect Transition
Bondholders--Pennsylvania Public Utility Commission May Take Actions That
Adversely Affect Transition Bondholders" in this prospectus.
DISCOUNTS, SPECIAL CHARGES, TERMINATION FEES. Under its restructuring
plan, PECO Energy provides specified discounts to specified classes of
customers, for instance commercial and industrial customers who have
demonstrated competitive alternatives (such as self-generation) and customers in
specified low-income assistance programs, among others. These discounts in the
competitive transition charges, including the intangible transition charges, are
accounted for in the average rates to be charged to all other customers. In
addition, the restructuring plan requires PECO Energy to allow specified
customers to pay competitive transition charges, including intangible transition
charges, in a lump sum, based on a calculation that takes into account each of
these customer's last 12 months of demand and PECO Energy's after-tax weighted
average cost of capital. Electric sales revenue attributable to customers who
are eligible to exercise this option was 23.5% of total sales revenue for 1999.
No customer has elected to exercise this option to date.
The recovery of both competitive transition charges and intangible
transition charges from industrial and commercial customers that significantly
reduce their purchases of electricity generation from PECO Energy through the
installation of on-site generation equipment is governed by special rules set
forth in the restructuring plan. These special arrangements were designed so
that customers who operate generation equipment in parallel with PECO Energy's
transmission and distribution system pay their fully allocated share of stranded
costs through competitive transition charges and intangible transition charges.
For each self-generating customer, the servicer determines annually, after the
end of each calendar year in which competitive transition charges or intangible
transition charges are assessed, whether that customer purchased at least 10%
fewer kilowatt-hours of electricity through the transmission and distribution
system than the customer purchased in the applicable base year. For customers
who began self-generation on or after January 1, 1997, the base year is the
immediately preceding calendar year. For all others, the base year is 1996.
If the ratio between
o the amount of usage difference caused by the on-site generation and
o the base year usage
is 10% or more, the servicer bills the customer separately in an amount equal to
the difference between
o the total competitive transition charges and intangible transition
charges that the customer would have paid using usage and demand data for
the base year (as adjusted for any portion not related to self-
generation) and
o the total competitive transition charges and intangible transition
charges that the customer did pay in the preceding calendar year.
There are other special rules for customers whose peak load during 1996 was
at least 4 megawatts and who can prove that they were actively self-generating
or planning to self-generate as of December 31, 1996 or earlier.
PECO Energy does not expect the number of customers who self-generate or
the kilowatt-hours produced by self-generation to be significant. The
calculation of the intangible transition charges and any adjusted intangible
transition charges will reflect actual self-generation at the time of that
calculation and the servicer's projection with respect to future
self-generation.
As of January 1, 2000, 241,554 customers (approximately 16.07% of PECO
Energy's transmission and distribution business) had chosen alternate suppliers
of generation. See "The Seller and Servicer--Customers and Operating Revenues"
below.
52
<PAGE>
THE SELLER AND SERVICER
PECO ENERGY COMPANY
RETAIL ELECTRIC SERVICE TERRITORY
Incorporated in Pennsylvania in 1929, PECO Energy is primarily a vertically
integrated public utility that provides retail electric and natural gas service
to customers in its franchised territory in Southeastern Pennsylvania. Pursuant
to the Pennsylvania Competition Act, the Commonwealth of Pennsylvania has
required the unbundling of retail electric services in Pennsylvania into
separate generation, transmission and distribution services with open retail
competition for generation services. Since the commencement of deregulation in
1999, PECO Energy serves as the local distribution company providing electric
distribution services in Southeastern Pennsylvania and re-bundled electric
service to customers who do not choose an alternate electric generation
supplier. PECO Energy engages in wholesale marketing of electricity on a
national basis and through a subsidiary is a competitive generation supplier
offering competitive energy supply to customers throughout Pennsylvania. Through
another subsidiary, PECO energy provides utility infrastructure services to
customers in several regions of the United States. PECO Energy has also formed a
joint venture with British Energy plc to acquire and operate nuclear generating
facilities. PECO Energy also participates in joint ventures which provide
telecommunications services in the Philadelphia metropolitan region.
The electric and gas utility industries in Pennsylvania are both undergoing
fundamental restructuring. See "The Pennsylvania Competition Act" in this
prospectus. In addition, in 1996, the Federal Energy Regulatory Commission
issued Order No. 888 providing for competition in wholesale generation by
requiring that all public utilities file non-discriminatory, open-access
transmission tariffs.
PECO Energy's retail electric service territory covers 1,972 square miles
with a population of approximately 3.6 million, including approximately 1.6
million in the City of Philadelphia. Approximately 94% of the retail service
area and 64% of retail kilowatt-hour electricity sales are in the suburbs around
Philadelphia, and 6% of the retail service area and 36% of those sales are in
the City of Philadelphia. This retail electric service territory includes all of
the City of Philadelphia and Delaware County, substantially all of Chester and
Montgomery Counties and the southern portion of Bucks County. This territory is
primarily urban and suburban, with a service-based economy.
PECO Energy files periodic reports with the SEC as required by the Exchange
Act. Reports filed with the SEC are available for inspection without charge at
the public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located as follows: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of periodic reports and exhibits to
these reports may be obtained at the above locations at prescribed rates.
Information filed with the SEC can also be inspected at the SEC site on the
World Wide Web at http://www.sec.gov.
MERGER WITH UNICOM
On September 22, 1999, PECO Energy agreed to merge with Unicom Corporation,
creating a new holding company. The new holding company will be headquartered in
Chicago and all generation and marketing operations of the new holding company
will have their headquarters in the Philadelphia region. PECO Energy's and
Unicom Corporation's electric and gas utilities will remain separate
subsidiaries of the holding company and will continue to operate under the names
PECO Energy and Commonwealth Edison Company. Their individual headquarters will
be in Philadelphia and Chicago, respectively.
The merger is conditioned, among other things, upon the approval by the
shareholders of both companies and the completion of regulatory procedures
before the Pennsylvania Public Utility Commission, the Illinois Commerce
Commission, the Nuclear Regulatory Commission and the SEC. The companies have
filed an application with the SEC to register the holding company under the
Public Utility Holding Company Act of 1935. The companies anticipate that the
regulatory process can be completed in approximately 12 months from the date of
this prospectus.
53
<PAGE>
On November 22, 1999, PECO Energy filed an application for approval of the
merger with the Pennsylvania Public Utility Commission. Twenty five parties
filed protests or petitions to intervene in the application. On March 23, 2000
PECO Energy filed a Joint Petition for Settlement of the issues raised in the
application for the merger. This merger settlement requires PECO Energy to
provide certain benefits, primarily only after its merger with Unicom has
reached financial closing, currently expected to occur sometime in the third or
fourth quarter of 2000. The benefits include a requirement that, effective
January 1, 2002, PECO Energy reduce its retail electric rates by $60 million
annually until January 1, 2004, and then by $40 million through December 31,
2005. The merger settlement also extends the distribution and transmission rate
cap provision of the Restructuring Settlement from June 30, 2005 to December 31,
2006.
In addition, the merger settlement:
(1) imposes restrictions on PECO Energy's right to request recovery of
nuclear decommissioning costs,
(2) establishes benchmarks and measurement criteria for reliability
and customer service,
(3) provides for enhancements in PECO Energy's electric and gas
universal service programs,
(4) commits PECO Energy to implement various initiatives to foster and
promote renewable energy and related economic development,
(5) promotes increased retail electric competition in PECO Energy's
service area,
(6) adopts various corporate structure protections to insulate retail
customers from the risk of unregulated ventures and avoid the
potential for improper cross-subsidization between PECO Energy and
its unregulated affiliates,
(7) provides for PECO Energy to maintain a strong corporate presence
in Southeastern Pennsylvania through specific commitments
regarding its corporate headquarters, employment and staffing
levels and charitable and civic giving, and
(8) enhances PECO Energy's customer relationship with the City of
Philadelphia.
The merger settlement also provides options for AMTRAK, to whom PECO Energy
provides service in rate class EP, to prepay its transition charge
responsibility to PECO Energy in fixed amounts ranging from $46,561,000 to
$41,619,000 on certain dates from October 1, 2000 to July 1, 2002. AMTRAK is
under no obligation to exercise any of the options. If and when AMTRAK decides
to exercise its option, the PECO Energy generation rate applicable for AMTRAK
service under Rate EP will be the fixed shopping credit set forth in the
restructuring plan settlement, which will no longer be subject to yearly
adjustment through the adjustments of competitive transition charges and
intangible transition charges.
The merger settlement has been submitted to an administrative law judge who
will recommend action to the Pennsylvania Public Utility Commission. The
Pennsylvania Public Utility Commission can approve the settlement or reject it
or approve it with modifications.
The board of directors of the holding company may determine, in its
discretion, how PECO Energy's business will be disaggregated. This
disaggregation will involve the formation of additional subsidiaries and the
transfer of PECO Energy's generation assets and liabilities to those
subsidiaries. PECO Energy will remain a transmission and distribution company
and a utility regulated by the Pennsylvania Public Utility Commission.
CUSTOMERS AND OPERATING REVENUES
PECO Energy's customer base is currently divided into three categories for
purposes of adjusting intangible transition charges: residential, small
commercial and industrial, and large commercial and industrial. Rate categories
and classes within those categories are created by the Pennsylvania Public
Utility Commission and are subject to change. Those changes will be reflected in
any adjustment request filed with the Pennsylvania Public Utility Commission by
the servicer. The current rate classes have remained unchanged since April 20,
1990. The current rate classes are:
54
<PAGE>
Residential Rate Classes:
Rate R--Residential Service: Residential Service is available in the entire
territory of PECO Energy to single private family dwellings for the domestic
requirements of family members, which service is supplied through one meter.
This rate class (and Rate R-H) also includes payment-troubled low income
customers receiving discounted rates under PECO Energy's low-income Customer
Assistance Program, Rate CAP.
Rate R-H--Residential Heating Service: Residential Heating Service is
available to single private family dwellings (or to a multiple dwelling unit
building consisting of two to five dwelling units, whether occupied or not)
for domestic requirements when such service is supplied through one meter
and where the dwelling is heated by specified types of electric space
heating systems.
Rate OP--Off-Peak Service: Available in conjunction with other residential
service rates, Rates R and R-H and, in specified cases, Rate GS, for a
customer receiving delivery at certain voltage levels during off-peak
periods.
Small Commercial and Industrial Rate Classes:
Rate GS--General Service: Electric delivery service available through a
single metering installation for offices, professional, commercial or
industrial establishments, governmental agencies, and other applications
outside the scope of the Residential Service rate schedules.
Rate POL--Private Outdoor Lighting: Available in conjunction with Rate GS
for the outdoor lighting of sidewalks, driveways, yards, lots and similar
places, outside the scope of service under Rate SL-P, SL-S and SL-E.
Rate SL-P--Street Lighting in the City of Philadelphia: Available only to a
governmental agency, municipal, state or federal, for outside lighting of
streets, highways, bridges, parks or similar places, including directional
highway signs at locations where other outdoor lighting service is
established hereunder, for the safety and convenience of the public within
the City of Philadelphia.
Rate SL-S--Street Lighting--Suburban Divisions: Available for the outdoor
lighting of streets, highways, bridges, parks and similar places for the
safety and convenience of the public in Suburban Divisions.
Rate SL-E--Street Lighting Customer-Owned Facilities: Available to any
governmental agency outside of the City of Philadelphia for outdoor lighting
of streets, highways, bridges, parks or similar places, including
directional highway signs at locations where outdoor lighting service is
established hereunder for the safety and convenience of the public where all
of the utilization facilities are installed, owned and maintained by a
governmental agency.
Rate TL--Traffic Lighting: Available to any municipality using PECO Energy's
standard delivery service for electric traffic signal lights installed,
owned and maintained by the municipality.
Rate BLI--Borderline Interchange: Available under reciprocal agreements to
neighboring electric utilities for resale in their adjacent territory. No
intangible transition charges are or will be imposed on Rate BLI customers.
Large Commercial and Industrial Rate Classes:
Rate PD--Primary-Distribution Power: Untransformed electric delivery service
available from the primary supply lines of PECO Energy's distribution system
where the customer installs, owns and maintains any transforming, switching
and other receiving equipment required.
Rate HT--High-Tension Power: Untransformed electric delivery service from
PECO Energy's standard high-tension lines, where the customer installs, owns
and maintains, any transforming, switching and other receiving equipment
required. Excludes certain special contracts.
Rate EP--Electric Propulsion: This rate is available only to the National
Rail Passenger Corporation and to the Southeastern Pennsylvania
Transportation Authority for untransformed electric delivery service from
PECO Energy's standard high-tension lines, where the customer installs, owns
and maintains any transforming, switching and other receiving equipment
required and where the service is supplied for the operation of electrified
transit and railroad systems and appurtenances.
55
<PAGE>
TOTAL CUSTOMERS. The following tables show for the last five years the
number of retail electric customers and the percentage of all retail electric
customers in all rate classes (Table 3), retail electric usage by rate class
(Table 4) and retail electric revenues by rate class (Table 5). Not all
customers in all rate classes are billed intangible transition charges. For the
pro forma intangible transition charges assessed to individual rate classes as
of any series issuance date and any adjustment thereto, in each case giving
effect to the issuance of transition bonds on that date, see the related
prospectus supplement. There can be no assurance that total customers, the
composition of total customers by customer category and rate class or usage
levels or revenues for each customer category and rate class will remain at or
near the levels reflected in the following tables. As of December 31, 1999,
201,874 customers in the residential customer category (representing 14.93% of
the total number of customers), 37,789 customers in the small commercial and
industrial customer category (representing 25.56% of the total number of
customers) and 1,891 customers in the large commercial and industrial category
(representing 58.22% of the total number of customers) have chosen to purchase
their generation from electric generation suppliers other than PECO Energy.
TABLE 3
RETAIL ELECTRIC CUSTOMERS FOR THE YEAR ENDED(1)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
12/31/95 12/31/96 12/31/97 12/31/98
--------------------------------------------------------------------------------------
NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF
CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL
---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
R(2) and OP (3).................. 1,167,866 79.60% 1,169,654 79.51% 1,177,996 79.47% 1,186,864 79.49%
R-H.............................. 153,513 10.46 154,794 10.52 155,865 10.52 156,927 10.51
Total............................ 1,321,379 90.06 1,324,448 90.03 1,333,861 89.99 1,343,791 90.00
Small Commercial and Industrial
GS and POL(4).................... 141,653 9.65% 142,431 9.68% 144,142 9.72% 145,055 9.71%
SL-P, SL-S, SL-E and TL.......... 940 0.06 987 0.07 985 0.07 1,050 0.07
Total (Excludes POL)............. 142,593 9.71 143,418 9.75 145,127 9.79 146,105 9.78
Large Commercial and Industrial
PD and HT........................ 3,394 0.23% 3,299 0.22% 3,308 0.22% 3,248 0.22%
EP............................... 3 0.00 3 0.00 3 0.00 3 0.00
Total............................ 3,397 0.23 3,302 0.22 3,311 0.22 3,251 0.22
Total (Excludes OP and POL)...... 1,467,369 100.00% 1,471,168 100.00% 1,482,299 100.00% 1,493,147 100.00%
========= ====== ========= ====== ========= ====== ========= ======
<CAPTION>
12/31/99
---------------------
NUMBER OF % OF
CUSTOMERS TOTAL
---------- --------
<S> <C> <C>
Residential
R(2) and OP (3).................. 1,194,370 79.47%
R-H.............................. 157,489 10.48
Total............................ 1,351,859 89.95
Small Commercial and Industrial
GS and POL(4).................... 146,771 9.77%
SL-P, SL-S, SL-E and TL.......... 1,076 0.07
Total (Excludes POL)............. 147,847 9.84
Large Commercial and Industrial
PD and HT........................ 3,245 0.22%
EP............................... 3 0.00
Total............................ 3,248 0.22
Total (Excludes OP and POL)...... 1,502,954 100.00%
========= ======
</TABLE>
- ------------------
(1) Represents transmission and distribution customers who purchase their
generation from electric generation suppliers other than PECO Energy, but
including its affiliate that supplies electric generation.
(2) For a description of the meanings of rate class abbreviations, see "The
Seller and Servicer--Customers and Operating Revenues" in this prospectus.
(3) Rate OP is available in conjunction with residential rate classes R and R-H
and with small commercial and industrial rate class GS for those customers
in rate class GS who use residence electric delivery service.
(4) Rate POL is available in conjunction with small commercial and industrial
rate class GS.
56
<PAGE>
TABLE 4
ACTUAL RETAIL ELECTRIC USAGE (PER MEGAWATT-HOUR ("MWH")) FOR THE YEAR ENDED(1)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
12/31/95 12/31/96 12/31/97 12/31/98
-----------------------------------------------------------------------------------------
% OF % OF % OF % OF
MWH TOTAL MWH TOTAL MWH TOTAL MWH TOTAL
---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
R(2) and OP(3)............... 8,130,607 23.97% 7,906,048 23.81% 7,858,466 23.87% 8,214,347 24.21%
R-H.......................... 2,728,472 8.04 2,765,279 8.33 2,548,231 7.75 2,408,645 7.10
Total........................ 10,859,079 32.01 10,671,327 32.14 10,406,697 31.62 10,622,992 31.31
Small Commercial and Industrial
GS and POL(4)................ 6,299,521 18.57% 6,490,621 19.55% 6,684,791 20.32% 6,887,794 20.30%
SL-P, SL-S, SL-E and TL...... 195,507 0.58 192,425 0.58 181,002 0.55 190,251 0.56
Total........................ 6,495,028 19.15 6,683,046 20.13 6,865,793 20.87 7,078,045 20.86
Large Commercial and Industrial
PD and HT.................... 15,975,731 47.09% 15,208,015 45.81% 15,034,087 45.70% 15,678,316 46.21%
EP........................... 594,543 1.75 638,800 1.92 594,319 1.81 549,539 1.62
Total........................ 16,570,274 48.84 15,846,815 47.73 15,628,406 47.51 16,227,855 47.83
Total........................ 33,924,381 100.00% 33,201,188 100.00% 32,900,896 100.00% 33,928,892 100.00%
========== ====== ========== ====== ========== ====== ========== ======
<CAPTION>
12/31/99
--------------------
% OF
MWH TOTAL
---------- -------
<S> <C> <C>
Residential
R(2) and OP(3).................. 8,571,927 24.82%
R-H.............................. 2,560,223 7.41
Total............................ 11,132,150 32.24
Small Commercial and Industrial
GS and POL(4).................... 7,153,896 20.72%
SL-P, SL-S, SL-E and TL.......... 188,463 0.55
Total............................ 7,342,359 21.26
Large Commercial and Industrial
PD and HT........................ 15,476,999 44.82%
EP............................... 579,069 1.68
Total............................ 16,056,068 46.50
Total............................ 34,530,577 100.00%
========== ======
</TABLE>
- ------------------
(1) Represents usage of transmission and distribution customers who purchase
their generation from electric generation suppliers other than PECO Energy,
but including usage of customers who purchase generation from PECO Energy's
affiliate that supplies electric generation.
(2) For a description of the meanings of rate class abbreviations, see "The
Seller and Servicer--Customers and Operating Revenues" in this prospectus.
(3) Rate OP is available in conjunction with residential rate classes R and R-H
and with small commercial and industrial rate class GS for those customers
in rate class GS who use residential electric delivery service.
(4) Rate POL is available in conjunction with small commercial and industrial
rate class GS.
57
<PAGE>
TABLE 5
RETAIL ELECTRIC REVENUES (DOLLARS IN THOUSANDS) FOR THE YEAR ENDED
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
12/31/95 12/31/96 12/31/97 12/31/98
-------------------------------------------------------------------------------------
% OF % OF % OF % OF
$(000S) TOTAL $(000S) TOTAL $(000S) TOTAL $(000S) TOTAL
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
R(1) and OP(2).................... 1,122,068 33.33% 1,092,398 33.13% 1,091,669 33.17% 1,121,346 33.93%
R-H............................... 279,228 8.29 277,760 8.43 265,781 8.08 255,891 7.74
Total............................. 1,401,296 41.62 1,370,158 41.56 1,357,450 41.25 1,377,237 41.67
Small Commercial and Industrial
GS and POL(3)..................... 738,910 21.95% 748,561 22.71% 778,743 23.66% 783,682 23.72%
SL-P, SL-S, SL-E and TL........... 34,404 1.02 32,815 1.00 30,305 0.92 31,636 0.96
Total............................. 773,314 22.97 781,376 23.71 809,048 24.58 815,318 24.68
Large Commercial and Industrial
PD and HT......................... 1,147,190 34.07% 1,098,307 33.31% 1,077,375 32.74% 1,066,868 32.28%
EP................................ 45,234 1.34 46,979 1.42 46,994 1.43 45,118 1.37
Total............................. 1,192,424 35.41 1,145,286 34.73 1,124,369 34.17 1,111,986 33.65
Total............................. 3,367,034 100.00% 3,296,820 100.00% 3,290,867 100.00% 3,304,541 100.00%
========= ====== ========= ====== ========= ====== ========= =======
<CAPTION>
12/31/99
------------------
% OF
$(000S) TOTAL
--------- -------
<S> <C> <C>
Residential
R(1) and OP(2).................... 1,012,285 39.09%
R-H............................... 236,020 9.11
Total............................. 1,248,305 48.20
Small Commercial and Industrial
GS and POL(3)..................... 609,566 23.54%
SL-P, SL-S, SL-E and TL........... 28,480 1.10
Total............................. 638,046 24.64
Large Commercial and Industrial
PD and HT......................... 665,456 25.70%
EP................................ 37,731 1.46
Total............................. 703,187 27.16
Total............................. 2,589,538 100.00%
========= ======
</TABLE>
- ------------------
(1) For a description of the meanings of rate class abbreviations, see "The
Seller and Servicer--Customers and Operating Revenues" in this prospectus.
(2) Rate OP is available in conjunction with residential rate classes R and R-H
and with small commercial and industrial rate class GS for those customers
in rate class GS who use residential electric delivery service.
(3) Rate POL is available in conjunction with small commercial and industrial
rate class GS.
For 75% of customers who were enrolled in customer choice as of December
31, 1999, PECO Energy provides a single or consolidated bill for both PECO
Energy's distribution charges and the generation charges of the electric
generation suppliers servicing those customers. The remaining customers who are
not using PECO Energy's own generation supplier subsidiary have chosen to
receive dual bills: one bill encompasses PECO Energy's charges for transmission
and distribution and a separate bill contains the generation charges. For
customers choosing the consolidated bill option from PECO Energy, PECO Energy
pays the relevant electric generation supplier in full for generation charges
and is responsible for collecting those amounts from the customer. As of
December 31, 1999, PECO Energy billed $352.3 million on behalf of electric
generation suppliers. The electric generation suppliers who provide customers
with separate bills for generation are not required to provide revenue
information to PECO Energy.
CONCENTRATIONS. For the period ended December 31, 1999, the largest 10
customers represented approximately 10.9% of PECO Energy's retail electric
revenues, and the largest 10 customers represented approximately 14.7% of PECO
Energy's retail electric sales. There can be no assurance that current customers
will remain customers or that the levels of customer concentration in the future
will be similar to those set forth above. See "Risk Factors--Servicing--
Inaccurate Projections by Servicer May Result in Losses to Transition
Bondholders" in this prospectus.
58
<PAGE>
DELINQUENCY AND WRITE-OFF EXPERIENCE. The following tables set forth the
delinquency and write-off experience with respect to payments to PECO Energy by
customer category for each of the periods indicated below. The delinquency and
net write-off experience with respect to payments to PECO Energy by electric
generation suppliers is included in the information provided on the tables
below. There can be no assurance that the future delinquency and write-off
experience for PECO Energy or for the intangible transition charges will be
similar to the historical experience set forth below:
TABLE 6
DELINQUENCIES AS A PERCENTAGE OF BILLED RETAIL ELECTRIC REVENUES
<TABLE>
<CAPTION>
--------------------------------------------------------
FOR THE YEAR ENDED
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESIDENTIAL
30+ days...................................................... 7.87% 9.37% 9.51% 9.64% 9.51%
60+ days...................................................... 6.73 8.09 8.21 8.51 8.49
90+ days...................................................... 5.79 7.08 7.18 7.67 7.77
SMALL COMMERCIAL AND INDUSTRIAL
30+ days...................................................... 0.71% 1.08% 1.29% 1.23% 1.67%
60+ days...................................................... 0.48 0.76 0.92 0.96 1.25
90+ days...................................................... 0.35 0.59 0.70 0.79 1.01
LARGE COMMERCIAL AND INDUSTRIAL
30+ days...................................................... 0.23% 0.18% 0.17% 0.16% 0.34%
60+ days...................................................... 0.15 0.10 0.07 0.07 0.16
90+ days...................................................... 0.12 0.07 0.04 0.04 0.09
</TABLE>
TABLE 7
NET WRITE-OFFS AS A PERCENTAGE OF BILLED RETAIL ELECTRIC REVENUES
<TABLE>
<CAPTION>
--------------------------------------------------------
FOR THE YEAR ENDED
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESIDENTIAL..................................................... 4.37% 4.56% 4.79% 4.66% 4.68%
SMALL COMMERCIAL AND INDUSTRIAL................................. 0.88 0.72 0.65 0.91 0.87
LARGE COMMERCIAL AND INDUSTRIAL................................. 0.11 0.09 0.14 0.31 0.00
TOTAL (WEIGHTED BY CUSTOMER CATEGORY)........................... 2.05 2.09 2.18 2.27 2.47
</TABLE>
Through 1998, the residential customer category experienced increases in
delinquencies which were reduced during 1999. In addition, through 1997, the
residential customer category experienced an increase in net write-offs, which
has subsequently been reduced during 1998 and 1999. These reductions in
delinquencies and net write-offs are due to the implementation of credit and
collection programs intended to reduce overall delinquencies that resulted in
reductions to residential past due account balances of high-risk customers. See
"--Limited Information on Customers."
During the past five years, delinquencies for small commercial and
industrial customers have increased. The variance in delinquencies for the most
recent year was primarily due to the volume of receivables associated with
customer choice as well as problems terminating the electric service of
delinquent customers. Net write-offs for that customer category over the last
five years have not shown any discernible trend. Although reductions in
write-offs were experienced during 1999 for all customer categories, net
write-offs for small commercial and industrial customers remained above 1996 and
1997 totals, primarily due to problems experienced with the collection agent
responsible for terminating electric service for these customers. It is
anticipated that new collection policies implemented during 2000 will assist in
reducing small commercial and industrial delinquency and write-off totals.
Delinquencies for large commercial and industrial accounts increased during
1999 as a result of the introduction of competition in the electric generation
market. Net write-offs for the large commercial and industrial category
experienced a substantial increase during 1998 as the result of a single
customer. In
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<PAGE>
comparison, write-offs were virtually eliminated during 1999 because PECO Energy
recovered amounts that were written-off in a previous year which provided a
benefit in 1999. In addition, credit and collection operations in 1999 required
only minimal write-off activity.
PECO Energy does not expect the delinquency or write-off experience with
respect to collections of intangible transition charges to differ substantially
from the experience that it will have with its other receivables.
FORECASTING CUSTOMERS AND USAGE
Accurate projections of the number of customers, usage and retail electric
revenue are important in setting and maintaining the intangible transition
charges or any adjusted intangible transition charges. See "The Qualified Rate
Orders and the Intangible Transition Charges--The Intangible Transition Charges"
and "Risk Factors--Servicing--Inaccurate Projections by Servicer May Result in
Losses to Transition Bondholders" in this prospectus.
PECO Energy's forecasts are produced by an employee of PECO Energy and are
reviewed internally by senior management executives.
Customer projections are determined by PECO Energy based on demographic and
economic information obtained from various sources. There are different
methodologies used for various customer categories. The residential customer
forecasting process begins with a review of regional household growth,
population and residential construction trends within PECO Energy's retail
electric service territory and the surrounding counties. PECO Energy uses this
data to develop internal household forecasts for the counties in which it
operates. PECO Energy then employs its own historical data regarding the number
of households served by PECO Energy and their historical usage, as well as other
factors as PECO Energy deems relevant, to develop a projection of customers in
the residential customer category within its service area.
The small commercial and industrial customer forecasting process begins
with a review of economic trends and an overview of economic prospects in the
Philadelphia metropolitan area. These external data are obtained from
independent sources and local businesses. PECO Energy uses these sources to
develop internal business forecasts. PECO Energy then considers its historical
data regarding the businesses served by PECO Energy, as well as such other
factors as PECO Energy deems relevant, to develop a projection of small
commercial and industrial usage within its service area.
PECO Energy does not forecast customer usage or retail electric revenues
for Rate Class BLI. Customers subject to Rate BLI are located outside PECO
Energy's retail electric service territory yet receive electricity from PECO
Energy through a reciprocal agreement with the customer's utility. PECO Energy
is reimbursed for any service provided to customers subject to Rate BLI by the
utility in whose retail electric service territory such customer belongs. At
December 31, 1999, there were 12 customers subject to Rate BLI (see Table 3).
These customers are not being, and will not be, charged intangible transition
charges.
The usage of customers in the large commercial and industrial customer
category is estimated in two stages. Usage for these customers with the highest
energy usage is projected separately. This is added to estimates of other
customers in the large commercial and industrial customer category to obtain the
aggregate forecast. The usage of the largest customers is derived with input
from the appropriate account executives for these customers. The account
executives provide data on these customers' plans regarding increase/decrease in
output, hours worked, space and potential cogeneration. The data is converted
into kilowatt-hours, and the net increment is added to the previous year's data
to derive the forecast. For other customers in the large commercial and
industrial customer category, usage forecast is derived through statistical
analyses using historical data corrected for unusual weather and
billing-corrected usage patterns.
Actual sales can deviate from forecasted sales for many reasons, including:
o the general economic climate in PECO Energy's retail electric service
territory as it impacts net migration of customers,
o weather as it impacts air conditioning and heating usage,
o levels of business activity, and
o the availability of more energy efficient appliances and new energy
conservation technologies.
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<PAGE>
For calendar year 1999, PECO Energy underestimated the number of customers
by .24%. For calendar year 1999, actual usage exceeded forecasted usage by 3.24%
because of the extremely hot summer weather. Summaries of the total annual
forecasted and actual number of PECO Energy's customers and their usage (by
customer category) since 1995 are shown below. During the last five years, no
discernible trend is apparent with respect to the historical forecast of
customers. There can be no assurance that the future variance between actual and
projected customers in the aggregate or by customer category or their usage will
be similar to the historical experience set forth below.
Assumptions about the retention of customers can bear a major impact on
revenue forecasts. The choice by a customer to have an alternative supplier
means that generator revenue may not be paid to PECO Energy. In order to develop
the retention estimates, PECO Energy factors in historical trends, program
impacts and the restructuring plan settlement. The appropriate changes to
revenues are then reflected in the forecast.
TABLE 8
FORECASTED NUMBER OF CUSTOMERS VARIANCE FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
-----------------------------------------------------------------
1995 1996 1997 1998 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential
R and OP
Forecasted............................ 1,172,193 1,174,208 1,174,037 1,185,818 1,190,500
Actual................................ 1,167,866 1,169,654 1,177,996 1,186,864 1,194,370
Variance.............................. (0.37%) (0.39%) 0.34% 0.09% 0.33%
R-H
Forecasted............................ 156,765 157,336 157,045 156,739 157,700
Actual................................ 153,513 154,794 155,865 156,927 157,489
Variance.............................. (2.07%) (1.62%) (0.75%) 0.12% (0.13%)
Small Commercial and Industrial
GS and POL
Forecasted............................ 142,207 142,441 143,445 145,019 146,914
Actual................................ 141,653 142,431 144,142 145,055 146,771
Variance.............................. (0.39%) (0.01%) 0.49% 0.02% (0.10%)
SL-P, SL-S, SL-E and TL
Forecasted............................ 904 940 987 987 1,054
Actual................................ 940 987 985 1,050 1,076
Variance.............................. 3.98% (5.00%) (0.20%) 6.38% 2.09%
Large Commercial and Industrial
PD and HT
Forecasted............................ 3,485 3,363 3,264 3,241 3,250
Actual................................ 3,394 3,299 3,308 3,248 3,245
Variance.............................. (2.61%) (1.90%) 1.35% 0.22% (0.15%)
EP
Forecasted............................ 3 3 3 3 3
Actual................................ 3 3 3 3 3
Variance.............................. 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
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<PAGE>
TABLE 9
FORECASTED CUSTOMER USAGE (IN KWH) VARIANCE FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Residential
R and OP
Forecasted..................... 7,913,998 7,852,000 7,867,001 8,111,000 8,122,193
Actual......................... 8,130,607 7,906,048 7,858,466 8,214,347 8,571,927
Variance....................... 2.74% 0.69% (0.11%) 1.27% 5.54%
R-H
Forecasted..................... 2,959,381 2,724,000 2,722,000 2,703,352 2,760,846
Actual......................... 2,728,472 2,765,279 2,548,231 2,408,645 2,560,223
Variance....................... (7.80%) 1.52% (6.38%) (10.90%) (7.27%)
Small Commercial and Industrial
GS and POL
Forecasted..................... 6,405,882 6,377,000 6,775,999 6,954,617 6,861,596
Actual......................... 6,299,521 6,490,621 6,684,791 6,887,497 7,153,896
Variance....................... (1.66%) 1.78% (1.35%) (0.97%) 4.26%
SL-P, SL-S, SL-E and TL
Forecasted..................... 204,998 197,000 198,003 192,469 192,753
Actual......................... 195,507 192,425 181,002 190,251 188,463
Variance....................... (4.63%) (2.32%) (8.59%) (1.15%) (2.23%)
Large Commercial and Industrial
PD and HT
Forecasted..................... 16,009,377 15,804,000 15,597,482 14,980,154 14,891,098
Actual......................... 15,975,731 15,208,015 15,034,087 15,678,316 15,476,999
Variance....................... (0.21%) (3.77%) (3.61%) 4.66% 3.93%
EP
Forecasted..................... 688,000 658,000 668,000 626,291 618,447
Actual......................... 594,543 638,800 594,319 549,539 579,069
Variance....................... (13.58%) (2.92%) (11.03%) (12.26%) (6.37%)
</TABLE>
BILLING PROCESS
PECO Energy operates on a continuous billing cycle, with an approximately
equal number of bills being distributed each business day. For the year ended
December 31, 1999, PECO Energy mailed out an average of 75,000 bills daily. PECO
Energy bills the majority of its customers monthly. Accounts with potential
billing errors are held by the computer system for review. This review examines
accounts that have abnormally high or low bills, potential meter-reading errors,
safety problems as identified by the meter-reading staff and possible meter
malfunctions. Subject to statutory and legal requirements, PECO Energy may
change its billing policies and procedures from time to time. It is expected
that any changes would be designed to enhance PECO Energy's ability to make
timely recovery of amounts billed to customers.
Under the master servicing agreement, any changes instituted by PECO Energy
will apply to the servicing of intangible transition property so long as PECO
Energy is the servicer.
LIMITED INFORMATION ON CUSTOMERS' CREDITWORTHINESS
Under Pennsylvania law, PECO Energy is obligated to provide service to new
customers in the residential customer category. Credit bureau investigations are
performed on new customers through a social security number investigation. PECO
Energy is also starting to use other fraud detection measures so that actions
can be taken at the earliest stages to reduce the costs associated with
delinquent accounts. PECO Energy relies on the information provided by the
customer and its customer information system audits to indicate whether the
customer has been previously served by PECO Energy.
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<PAGE>
PECO Energy has initiated a program to require deposits from new
residential customers who pose a high degree of credit risk. PECO Energy
reserves the right to transfer deposit amounts to offset delinquencies which
develop and to terminate services for the failure to provide additional deposits
to offset what has been transferred to reduce outstanding arrearages.
As part of its obligation to provide universal service, PECO Energy has
developed a special rate program, the Customer Assistance Program, provided to
certain low income customers who are currently served under or otherwise qualify
for Rate R or R-H. Customers must apply for this rate and must demonstrate
annual household gross income below 150% of the federal poverty guidelines.
Customers in the Customer Assistance Program qualify for certain rate
adjustments and payment programs and have their pre-program arrearages in excess
of $500 forgiven if they remain current on the Customer Assistance Program for
six to twelve consecutive months. The development of any new arrearages during
this period will delay forgiveness. PECO Energy estimates the annual costs of
the Customer Assistance Program at $50 million, which it recovers through
adjustments to the distribution rates applicable to all customers. Pursuant to
the restructuring plan settlement, the initial maximum participation for the
Customer Assistance Program is 100,000 customers, subject to review by the
participants in the restructuring plan settlement, to ensure that total annual
Customer Assistance Program costs do not exceed $50 million and all eligible
customers are able to participate. As of December 31, 1999, there were more than
83,000 customers enrolled in the Customer Assistance Program accounting for
approximately $46.6 million of billed revenues for the twelve months ended
December 31. Pursuant to the provisions of the Pennsylvania Competition Act, the
Pennsylvania Public Utility Commission has adopted regulations that establish
reporting requirements for universal service programs, such as the Customer
Assistance Program, that are applicable to all electric distribution companies
including PECO Energy.
In 1999, approximately 80% of total bill payments were received by PECO
Energy via the U.S. mail. During the same period, approximately 10% of total
payments were paid in person at either PECO Energy's local business office or at
approximately 144 pay stations (which are located in unaffiliated businesses or
organizations, such as supermarkets and convenience stores) throughout the
service territory. A total of 29 pay stations are free of charge to the
customers. Customers making payments at the remaining 115 locations may be
assessed a processing fee of up to $1.00 by the payment agent. This has not had
any material effect on the timing or amount of collections. Other payment
methods include pay-by-phone and direct debits of customer accounts (including
through the Internet) through a local bank, which accounted for approximately
10% of bill payments collected in 1999.
Collection Process for the Residential and Small Commercial and Industrial
Customer Categories. Customer bills are due approximately 22 days after mailing.
If the customer does not pay the bill by the due date, the customer will not be
considered for termination until the next bill is rendered, which is
approximately 30 days from the last mailing date.
PECO Energy's residential and small commercial and industrial customer
category collection process is based on a recovery score assigned to each
delinquent account. Each delinquent customer is scored for approximate risk
based on outstanding balance, payment habits, length of time as a customer, time
since last payment and previous termination history. The score has been used
since early 1998 to segment customers into four specific collection strategies:
o The lowest risk customers are monitored with no collection activity,
since most customers in this category usually pay but pay late and pay
the associated finance charges.
o The next segment of customers are moved into a proactive collection call
program which is a collection call strategy designed to remind the
customer of the delinquency.
o Customers in the third segment are moved into a portfolio management
program where each customer's account is referred to a collection agency
that follows up on the account for 60 days using letters and collection
calls.
o The most chronic delinquent accounts comprise the fourth segment of
customers which are moved into a service termination process that is
initiated by mailing a ten-day notice.
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<PAGE>
If no payment is made within seven days, a 72-hour notice will be given
either over the telephone or at the property. If sufficient payment has not been
received ten days after the original notice, the account is sent to a service
termination vendor for termination. If the service termination vendor makes
contact with a responsible adult, the service is terminated. If the service
termination vendor does not make contact, a deferred notice is left. Two days
later, the service is terminated with or without contact if sufficient payment
has not been made. Power is not customarily disconnected if the delinquent
customer is subject to a Pennsylvania Public Utility Commission-mandated winter
moratorium which requires special approval from the Pennsylvania Public Utility
Commission prior to the disconnection of electricity to residential customers
from December 1 through March 31 of each year. Currently, these accounts are
managed during the winter moratorium through a combination of letters and
proactive phone contacts. Delinquencies that accumulate during the winter
moratorium continue to contribute to the credit scoring, which can lead to
termination after the winter moratorium.
If a customer's account is closed, either because the customer has moved or
the customer has failed to remedy a delinquent account, the account is sent to a
collection agency. Accounts are written-off only after efforts by the collection
agency are unsuccessful over 60 days. Continued efforts are made by the
collection agency for written-off accounts to increase collections. In 1999,
98,119 accounts, totaling $46 million, were referred to the collection agency;
$4.5 million was recovered by the collection agency from accounts previously
referred to it. Further, $2.1 million in additional recoveries of delinquencies
were received through litigation. During 1999, PECO Energy received total
recoveries from all collection initiatives of $203 million which was achieved
through a total of 3,943,645 customer collection contacts. Collection recovery
rates are monitored monthly. Once written off, the uncollected account is
monitored for six years and may be collected or sold at any point during that
time.
If a customer declares bankruptcy, a review is conducted to assess whether
the account is current. Good paying accounts are kept active. The accounts of
bankrupt customers having delinquencies are closed and written-off and efforts
are initiated to submit claims in the bankruptcy of these customers. Deposits
are required for delinquent bankrupt customers for which PECO Energy is required
to continue services. Although deposits are not otherwise mandated from
residential customers (except as noted above as part of the turn-on process for
those identified as having a high risk of becoming delinquent), they are
required as a condition of providing service to all new commercial and
industrial customers. These deposits are maintained for a minimum of three
years.
Collection Process for the Large Commercial and Industrial Customer
Category. PECO Energy's large commercial and industrial customer category
collection process is based on providing special handling of accounts and
attention to detail because of the importance of each customer as a source of
revenue. The delinquency of individual customers may result from differing
circumstances, and it is the operational policy of PECO Energy in serving these
accounts to have a firm understanding of individual customers so that the
collection strategy can be matched to the particular account while ensuring that
regulations are followed and collection actions are performed legally. PECO
Energy's goal for 2000 with the large commercial and industrial customer
category is for delinquencies to be no greater than .72% of total revenue and
write-offs to be no greater than from .1% to .2% of revenue. PECO Energy's
collection strategies range from use of letters and phone contacts to
disconnection and litigation.
Application of Customer Payments. The Pennsylvania Competition Act
provides that the Pennsylvania Public Utility Commission require the unbundling
of electric utility services, tariffs and customer bills to separate the charges
for generation, transmission and distribution for billing cycles beginning in
January, 1999. In the event that a customer makes a partial payment toward an
outstanding balance, the payment is applied first to intangible transition
charges, then to the competitive transition charges, then to transmission and
distribution charges and finally to electric generation charges.
PECO Energy's electric tariff approved by the Pennsylvania Public Utility
Commission in its restructuring plan provides that when PECO Energy is providing
separate billing for its transmission and distribution charges and a customer
remits a partial payment to PECO Energy, the payment is applied as follows:
(1) To the outstanding balance before direct access to electric
generation from electric generation suppliers or the installment
amount for a payment agreement on this balance,
64
<PAGE>
(2) To the balance due for state tax charges,
(3) To the balance due or the installment amount for a payment
agreement for intangible transition charges,
(4) To the balance due or the installment amount for a payment
agreement for competitive transition charges,
(5) To the balance due or the installment amount for a payment
agreement for fixed and variable utility distribution service
charges,
(6) To the current state tax charges,
(7) To the current intangible transition charges,
(8) To the current competitive transition charges,
(9) To the current fixed and variable utility distribution service
charges,
(10) To the balance due for prior charges for energy and capacity (if
PECO Energy is the provider of last resort),
(11) To the current charges for energy and capacity charges (if PECO
Energy is the provider of last resort), and
(12) To the non-basic service charges.
In the event PECO Energy is not providing separate billing for its
transmission and distribution charges, the master servicing agreement provides
that partial payments received by the servicer will be applied:
o first to state tax charges,
o then to intangible transition charges,
o then to competitive transition charges, then to transmission and
distribution charges, and
o finally to electric generation charges.
PECO Energy's restructuring plan requires PECO Energy to allow specified
customers to prepay their bills, including intangible transition charges, in a
lump sum, based on a calculation that takes into account that customer's last 12
months of demand and PECO Energy's weighted average cost of capital.
Prepayments, if any, are deposited into the reserve subaccount and allocated pro
rata among the outstanding transition bonds in accordance with the principal
amount and remaining months or years to maturity, so as to apply those
prepayments ratably over the remaining life of the outstanding transition bonds.
Only the portion of those customer prepayments allocable to the period covered
by any adjustment request is used to calculate the adjustments to the intangible
transition charges for the period covered by that adjustment request.
ELECTRIC GENERATION SUPPLIERS AND OTHER THIRD PARTY BILLERS
The servicer, on behalf of the issuer, pursues any electric generation
supplier or other third party that fails to remit the applicable intangible
transition charges in a manner similar to that by which the servicer pursues any
failure by a customer to remit intangible transition charges. The servicer has
the right to bill and collect intangible transition charges and other amounts
payable to the issuer or the servicer directly from all customers electing
consolidated billing from an electric generation supplier or other third party
as follows:
o If the servicer does not receive payment for undisputed charges within 25
calendar days for customers in the residential customer category or 20
calendar days for customers in the small commercial and industrial and
large commercial and industrial customer categories after the charges are
communicated to the electric generation supplier or other third party,
then the servicer may provide notice of breach to the electric generation
supplier or other third party at any time thereafter, at the servicer's
discretion.
o Upon notice of a breach, the electric generation supplier or other third
party has 20 calendar days to cure that breach.
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<PAGE>
o If the electric generation supplier or other third party has not cured
that breach within 20 calendar days, the servicer may terminate
consolidated billing by the electric generation supplier or other third
party and take over billing functions for the customer.
o In no event will these procedures result in a customer being sent two
bills covering the same service.
o Neither the seller nor the servicer will pay any shortfalls resulting
from the failure of any electric generation suppliers or other third
parties to forward collections of intangible transition charges to the
servicer. See "Risk Factors--Servicing--It May Be More Difficult to
Collect Intangible Transition Charges Due to Third Party Billing" in this
prospectus.
THE ISSUER
PECO Energy Transition Trust, a statutory business trust established under
the laws of the State of Delaware, was formed on June 23, 1998 pursuant to a
trust agreement between PECO Energy, as grantor and sole owner of all beneficial
interests in the issuer, the issuer trustee and the other trustees identified
below. The trust agreement was subsequently superseded in its entirety by an
Amended and Restated Trust Agreement dated as of February 19, 1999 executed by
the parties to the original trust agreement, which was in turn superseded in its
entirety by a Second Amended and Restated Trust Agreement which will be executed
on the closing date for the issuance of the first series of transition bonds
under the 2000 QRO. The Second Amended and Restated Trust Agreement is referred
to in this prospectus as the trust agreement. The assets of the issuer will
consist of all transferred intangible transition property, the other collateral
and any money distributed to the issuer from the collection account in
accordance with the indenture. On March 25, 1999, the issuer issued $4 billion
of Series 1999-A Bonds pursuant to the First QRO. Audited financial statements
of the issuer are included in this prospectus.
The issuer has been created for the purpose of:
o purchasing and owning the transferred intangible transition property,
o issuing transition bonds from time to time,
o pledging its interest in the transferred intangible transition property
and other collateral to the bond trustee under the indenture in order to
secure the transition bonds, and
o performing activities that are necessary, suitable or convenient to
accomplish these purposes, including but not limited to activities
relating to any necessary hedge or swap transaction or credit
enhancement.
The issuer's business may be managed by no fewer than one and no more than
five trustees appointed from time to time by PECO Energy or, in the event PECO
Energy transfers its interest in PECO Energy Transition Trust, by the new owner
or owners. The issuer will at all times have at least one trustee, which, in the
case of a natural person, will be a person who is a resident of the State of
Delaware, or in all other cases, has its principal place of business in the
State of Delaware. In addition, the issuer will always have at least one
trustee, the independent trustee, that is not and has not been for at least
three years from the date of his or her or its appointment:
o a direct or indirect legal or beneficial owner of the issuer or PECO
Energy or any of their respective affiliates,
o a relative, supplier, employee, officer, director, manager, contractor or
material creditor of the issuer or PECO Energy or any of their respective
affiliates, or
o a person who controls PECO Energy or its affiliates.
The Delaware trustee and the independent trustee may be the same person or
entity and is referred to in this prospectus as the "issuer trustee." First
Union Trust Company, National Association of Wilmington, Delaware currently
serves as the issuer trustee, the Delaware trustee and the independent trustee.
Currently there are two other trustees who are representatives of PECO Energy
and are referred to as the "beneficiary trustees." The issuer trustee and the
beneficiary trustees are collectively referred to in this prospectus as the
"trustees."
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<PAGE>
The issuer trustee and one of the beneficiary trustees has served since the
establishment of the issuer. The trustees devote such time as is necessary to
the affairs of the issuer. The following two people are beneficiary trustees as
of the date of this prospectus:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
George R. Shicora..................................... 54 Beneficiary Trustee
(principal executive officer)
Thomas R. Miller...................................... 39 Beneficiary Trustee
(principal financial and
accounting officer)
</TABLE>
George R. Shicora has been a beneficiary trustee of the issuer since its
establishment. Mr. Shicora has served as Assistant Treasurer of PECO Energy
since 1995 and has held various positions at PECO Energy since 1968.
Mr. Miller has served as Manager of Finance of PECO Energy since he joined
PECO Energy in 1999. From 1987 to 1999, he held a variety of financial positions
with Conoco, Inc., most recently as Director, Financial Strategy. Conoco, Inc.
is involved in exploring for and developing, producing and selling crude oil,
natural gas and other related products. Conoco, Inc. is also engaged in
developing and operating power facilities.
The beneficiary trustees are not compensated by the issuer for their
services on behalf of the issuer. The issuer trustee is paid an annual retainer
from the assets of the issuer and is reimbursed for its reasonable expenses,
including, without limitation, the reasonable compensation, expenses and
disbursements of any agents, representatives, experts and counsel the issuer
trustee may employ in connection with the exercise and performance of its rights
and duties under the trust agreement, the indenture, the sale agreement and the
master servicing agreement. As of the date of this prospectus, the issuer has
paid the issuer trustee a total of $10,583.30.
The trust agreement provides that the trustees shall not be personally
liable under any circumstances except for:
o liabilities arising from their own wilful misconduct or gross negligence,
o liabilities arising from the failure by any of the trustees to perform
obligations expressly undertaken in the trust agreement or
o taxes, fees or other charges, based on or measured by any fees,
commissions or compensation received by the trustees in connection with
the transactions described in this prospectus.
The trust agreement further provides that, to the fullest extent permitted
by law, the trust will indemnify the trustees against any liability incurred in
connection with their services as trustees for the issuer, unless that liability
is based on or arises in connection with the circumstances described above.
The trust agreement provides that the trust created under the trust
agreement shall dissolve and, after satisfaction of the creditors of the issuer
as required by applicable law, property held by the issuer will be distributed
to PECO Energy, or in the event of a transfer to any other owner, that other
owner, thirty years from the date of its creation or sooner, at the option and
expense, and upon written instruction, of PECO Energy, but in no event before
payment in full of all series of transition bonds.
The issuer has no intent to file, and PECO Energy has advised the issuer
that it has no intent to cause the filing of, a voluntary petition for relief
under the Bankruptcy Code with respect to the issuer so long as the issuer is
solvent and does not reasonably foresee becoming insolvent.
The trust agreement requires the issuer to take all reasonable steps to
continue its identity as a separate legal entity and to make it apparent to
third persons that it is an entity with assets and liabilities distinct from
those of PECO Energy, other affiliates of PECO Energy, the trustees or any other
person, and that, except for federal income tax purposes, it is not a division
of PECO Energy or any of its affiliated entities or any other person.
The principal place of business of the issuer is c/o First Union Trust
Company, National Association, One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801 and its telephone number is 302-888-7532.
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USE OF PROCEEDS
The issuer will use the proceeds of the issuance of the transition bonds
offered by this prospectus to pay specified expenses of issuance and to purchase
the transferred intangible transition property from PECO Energy. PECO Energy
proposes using the proceeds it receives from the sale of the transferred
intangible transition property principally to reduce stranded costs and related
capitalization.
THE TRANSITION BONDS
The transition bonds offered by this prospectus will be issued as
additional bonds under and secured by a base indenture between the issuer and
the bond trustee dated as of March 1, 1999 which is filed as an exhibit to the
registration statement of which this prospectus forms a part. The Series 1999-A
Bonds have already been issued under the base indenture as supplemented by the
Series 1999-A series supplement. The terms of each series of transition bonds
offered by this prospectus will be provided in a separate supplement to the base
indenture. The following summary describes the material terms and provisions of
the transition bonds being offered by this prospectus. The particular terms of
the transition bonds of any series offered by any prospectus supplement will be
described in that prospectus supplement. Please see the forms of indenture and
transition bonds and the related prospectus supplement for a complete
description of all terms and provisions of the transition bonds being offered by
this prospectus, portions of which are summarized in this section.
GENERAL
The transition bonds may be issued in one or more series, each comprised of
one or more classes. The terms of all transition bonds of the same series will
be identical in all respects, unless the series is comprised of more than one
class, in which case the terms of all transition bonds of the same class will be
identical in all respects.
The supplemental indenture will specify the following terms of the related
series of transition bonds and, if applicable, the classes of that series:
(1) the designation of the series and, if applicable, the classes of
that series,
(2) the aggregate principal amount of the transition bonds of the
series and, if applicable, each class of that series,
(3) the bond rate of the series and, if applicable, each class of
that series or the formula, if any, used to calculate the
applicable bond rate or bond rates,
(4) the payment dates for the series,
(5) the monthly allocated interest balances for the series,
(6) the monthly allocated principal balances for the series,
(7) the expected final payment date of the series and, if applicable,
each class of that series,
(8) the series termination date for the series and, if applicable,
the class termination dates for each class of that series,
(9) the series issuance date for the series,
(10) the place or places for payments with respect to the series,
(11) the authorized initial denominations for the series,
(12) the provisions, if any, for redemption of the series by the
issuer,
(13) the expected amortization schedule for the series,
(14) the overcollateralization amount with respect to the series, the
pro forma calculated overcollateralization level for each payment
date and the monthly allocated overcollateralization balance for
each monthly allocation date,
(15) the calculation dates and adjustment dates for the series or
class,
(16) the terms of any credit enhancement applicable to the series or
class,
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(17) the terms of any hedge or swap transaction applicable to the
series or class, and
(18) any other terms of the series or class that are not inconsistent
with the provisions of the indenture.
The applicable prospectus supplement will set forth the procedure for the
manner of the issuance of the transition bonds of each series offered by this
prospectus. Generally, each series of transition bonds will initially be
represented by one or more transition bonds registered in the name of Cede &
Co., as the nominee of The Depository Trust Company. The transition bonds will
be available for purchase in initial denominations specified in the applicable
prospectus supplement (which denominations will be not less than $1,000). Unless
and until definitive transition bonds are issued under the limited circumstances
described in this prospectus, no transition bondholder will be entitled to
receive a physical bond representing a transition bond. All references in this
prospectus to actions by transition bondholders will refer to actions taken by
The Depository Trust Company upon instructions from the participants and all
references in this prospectus to payments, notices, reports and statements to
transition bondholders will refer to payments, notices, reports and statements
to The Depository Trust Company or Cede & Co., as the registered holder of each
series of transition bonds, for distribution to transition bondholders in
accordance with The Depository Trust Company's procedures with respect to these
payments, notices, reports and statements. See "--Book-Entry Registration" and
"--Definitive Transition Bonds" below.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of transition bonds of a
series or class offered by this prospectus at the bond rate specified in or
determined in the manner specified in the applicable prospectus supplement and
will be payable to the transition bondholders of that series or class on each
payment date, commencing on the payment date specified in the related prospectus
supplement.
On any payment date with respect to any series, the issuer will make
principal payments on that series only until the outstanding principal balance
of that series has been reduced to the principal balance specified for that
payment date in the expected amortization schedule for that series on that
payment date and only to the extent funds are available for the payment as
described in this prospectus. Accordingly, principal of that series or class of
transition bonds may be paid later than reflected in the expected amortization
schedule for that series. See "Risk Factors--Nature of Intangible Transition
Property" and "Weighted Average Life and Yield Considerations" in this
prospectus.
The failure to make a scheduled payment of principal on the transition
bonds, other than upon redemption or on the series termination date or, if
applicable, class termination date, does not constitute an event of default
under the indenture. The entire unpaid principal amount of the transition bonds
will be due and payable if an event of default under the indenture occurs and is
continuing and the bond trustee or the holders of a majority in principal amount
of the transition bonds of all series then outstanding have declared the
transition bonds to be immediately due and payable. See "The Indenture--Events
of Default; Rights Upon Event of Default" and "Weighted Average Life and Yield
Considerations" in this prospectus.
FLOATING RATE TRANSITION BONDS
In connection with the issuance of a class or classes of floating rate
transition bonds, the issuer may arrange for one or more hedge or swap
transactions. If the issuer enters into or arranges for any hedge or swap
transaction, the applicable prospectus supplement will include a description of:
(1) the material terms of that transaction,
(2) the identity of the counterparty or counterparties,
(3) any payments under that hedge or swap transaction to be made by or
to the issuer or the bond trustee, as assignee of the issuer,
(4) deposits in and withdrawals from any subaccount of the collection
account with respect to that class or classes of floating rate
transition bonds and that transaction,
(5) the formula for calculating the floating rate of interest of that
class or classes prior to termination of that transaction, and
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(6) the rights of transition bondholders with respect to the
termination of or specified other events related to that
transaction.
REDEMPTION
Redemption provisions, if any, for any series of transition bonds offered
by this prospectus will be specified in the related prospectus supplement,
including the premiums, if any, payable upon redemption. The redemption price in
any event will not be less than the principal balance of that series, plus
interest at the applicable bond rate accrued to the redemption date. Unless the
context requires otherwise, all references in this prospectus to principal of
the transition bonds of a series being redeemed includes any resulting premium
that might be payable on those transition bonds, as described in the applicable
prospectus supplement.
Except as described below, each series of transition bonds offered by this
prospectus will be subject to mandatory redemption in whole at a redemption
price equal to the principal amount thereof, plus interest accrued to the
redemption date, if PECO Energy is obligated to pay liquidated damages. PECO
Energy will be required to pay liquidated damages as a result of a breach by
PECO Energy of specified representations relating to intangible transition
property under the sale agreement if that breach continues beyond a 90-day grace
period and has a material adverse effect on the transition bondholders or if the
payment of certain indemnification amounts by the seller related to a breach of
specified other representations is reasonably expected to be incurred beyond the
90-day period immediately following the breach and these amounts are reasonably
expected to exceed the de minimis loss amount. However, if PECO Energy is
obligated to pay liquidated damages for a breach of a representation and
warranty which relates to one or more of the qualified rate orders, but not all
of the qualified rate orders, then:
o the amount of liquidated damages will include the then outstanding
principal amount of only the series of transition bonds issued in
connection with the affected qualified rate order or orders as of the
redemption date, plus accrued interest to the redemption date, and
o only the series of transition bonds issued in connection with the
affected qualified rate order or orders will be subject to mandatory
redemption.
The bond trustee, which may consult with the servicer and other third parties,
will have sole responsibility to determine whether a breach by PECO Energy of
any of these representations has a material adverse effect on the transition
bondholders. See "The Sale Agreement--Representations and Warranties of the
Seller" in this prospectus.
Notice of redemption of any series of transition bonds will be given by the
bond trustee to each registered holder of a transition bond to be redeemed by
first-class mail, postage prepaid, mailed not less than five days nor more than
45 days prior to the date of redemption or in any other manner or at any other
time as may be specified in the related prospectus supplement. Notice of
optional redemption may be conditioned upon the deposit of moneys with the bond
trustee before the redemption date and that notice shall be of no effect unless
those moneys are so deposited.
All transition bonds called for redemption will cease to bear interest on
the specified redemption date, provided funds for their redemption are on
deposit with the bond trustee at that time, and shall no longer be considered
"outstanding" under the indenture. The transition bondholders of those
transition bonds will have no further rights with respect to those transition
bonds, except to receive payment of the redemption price of those transition
bonds and unpaid interest accrued to the date fixed for redemption, from the
bond trustee.
CREDIT ENHANCEMENT
Credit enhancement with respect to all series of transition bonds is
provided by adjustments to the intangible transition charges and amounts on
deposit in the reserve subaccount, the overcollateralization subaccount and the
capital subaccount. In addition, for any series of transition bonds or one or
more classes of that series, additional credit enhancement may be provided. The
amounts and types of credit enhancement, and the provider of credit enhancement,
if any, for each series of transition bonds offered by this prospectus or one or
more classes of that series will be described in the applicable prospectus
supplement. Credit enhancement may be in the form of an additional reserve
account, additional overcollateralization, a financial guaranty insurance
policy, letter of credit, credit or liquidity facility, maturity guaranty,
repurchase obligation, third-party payment or cash deposit, or any combination
of the foregoing, as may be set forth in the
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applicable prospectus supplement. If specified in the applicable prospectus
supplement, credit enhancement for a series of transition bonds may cover one or
more other series of transition bonds.
If any additional credit enhancement is provided, the applicable prospectus
supplement will include a description of:
(1) the amount payable under that credit enhancement,
(2) any conditions to payment under that credit enhancement not
otherwise described in this prospectus,
(3) the conditions, if any, under which the amount payable under that
credit enhancement may be reduced and under which that credit
enhancement may be terminated or replaced, and
(4) any material provisions of any applicable agreement relating to
that credit enhancement.
Additionally, the applicable prospectus supplement may describe material
information with respect to the provider of any third-party credit enhancement,
including:
(1) a brief description of its principal business activities,
(2) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do
business,
(3) if applicable, the identity of regulatory agencies which exercise
primary jurisdiction over the conduct of its business, and
(4) its total assets and stockholders' equity or policyholders'
surplus, if applicable, as of a date specified in the applicable
prospectus supplement.
BOOK-ENTRY REGISTRATION
All classes of transition bonds offered by this prospectus will be
book-entry transition bonds, which are initially represented by one or more
bonds registered in the name of Cede & Co. (referred to as Cede throughout this
prospectus), as nominee of The Depository Trust Company (referred to as DTC
throughout this prospectus), or another securities depository and are available
only in the form of book-entries; provided, however, the applicable prospectus
supplement relating to a series of transition bonds may provide that the
transition bonds of that series or a class of that series will be issued as
definitive transition bonds. Transition bondholders may also hold transition
bonds of a class through Clearstream, Luxembourg or Euroclear (in Europe), if
they are participants in those systems or indirectly through organizations that
are participants in those systems.
Cede, as nominee for DTC, will hold the global bond or bonds representing
the transition bonds. Clearstream, Luxembourg and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities accounts
in Clearstream, Luxembourg's and Euroclear's names on the books of their
respective depositories which in turn will hold those positions in customers'
securities accounts in the depositories' names on the books of DTC. Citibank,
N.A. will act as depositary for Clearstream, Luxembourg and Morgan Guaranty
Trust Company of New York will act as depositary for Euroclear. In these
capacities, Citibank, N.A. and Morgan Guaranty Trust Company of New York are
referred to as the depositories.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under Section 17A of the Exchange Act. DTC was
created to hold securities for its participants and to facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entries, thereby eliminating the need for physical movement of
bonds. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations, and may include other organizations,
including the underwriters. Indirect access to the DTC system also is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Clearstream, Luxembourg participants and Euroclear
participants will occur in accordance with their respective rules and operating
procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary. Cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in that system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving transition bonds in
DTC, and making or receiving payments in accordance with normal procedures for
same-day funds settlement applicable to DTC. Clearstream, Luxembourg
participants and Euroclear participants may not deliver instructions directly to
the depositories.
Because of time-zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear as a result of a transaction with a
Participant will be made during subsequent settlement processing and dated the
business day following the DTC settlement date. These credits or any
transactions in those transition bonds settled during that processing will be
reported to the relevant Euroclear or Clearstream, Luxembourg participant on
that business day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of transition bonds by or through a Clearstream, Luxembourg
participant or a Euroclear participant to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Clearstream, Luxembourg or Euroclear cash account only as of the business day
following settlement in DTC.
Transition bondholders that are not direct or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, transition bonds may do so only through direct or indirect Participants. In
addition, transition bondholders will receive all payments of principal and
interest on the transition bonds, through the participants who in turn will
receive them from DTC. Under a book-entry format, transition bondholders will
receive payments after the related payment date, because, while payments are
required to be forwarded to Cede, as nominee for DTC, on each of those dates,
DTC will forward such payments to its participants, which thereafter will be
required to forward them to indirect participants or holders of beneficial
interests in the transition bonds. The issuer and the bond trustee, and any
paying agent, transfer agent or registrar may treat the registered holder in
whose name any transition bond is registered--expected to be Cede--as the
absolute owner of that transition bond, whether or not that transition bond is
overdue and notwithstanding any notice of ownership or writing on that
transition bond or any notice to the contrary, for the purpose of making
payments and for all other purposes.
Unless and until definitive transition bonds are issued, it is anticipated
that the only "holder" of transition bonds of any series will be Cede, as
nominee of DTC. Transition bondholders will only be permitted to exercise their
rights as transition bondholders indirectly through participants and DTC. All
references in this prospectus to actions by transition bondholders thus refer to
actions taken by DTC upon instructions from its participants, and all references
in this prospectus to payments, notices, reports and statements to transition
bondholders refer to payments, notices, reports and statements to Cede, as the
registered holder of the transition bonds, for payments to the beneficial owners
of the transition bonds in accordance with DTC procedures.
While any book-entry transition bonds of a series are outstanding, except
under the circumstances described below, under the rules, regulations and
procedures creating and affecting DTC and its operations, DTC is required to
make book-entry transfers among participants on whose behalf it acts with
respect to the book-entry transition bonds and is required to receive and
transmit payments of principal of, and interest on, the book-entry transition
bonds. Participants with whom transition bondholders have accounts with respect
to book-entry transition bonds are similarly required to make book-entry
transfers and receive and transmit those payments on behalf of their respective
transition bondholders. Accordingly, although transition bondholders will not
possess physical bonds, the governing rules of DTC provide a mechanism by which
transition bondholders will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and specified banks, the ability of holders of
beneficial interests in the transition bonds to pledge transition bonds to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of those transition bonds, may be limited due to the lack of
definitive transition bonds.
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DTC has advised the bond trustee that it will take any action permitted to
be taken by a transition bondholder under the indenture only at the direction of
one or more participants to whose account with DTC the transition bonds are
credited.
Clearstream, Luxembourg (formerly known as Cedelbank) holds securities for
its customers and facilitates the clearance and settlement of securities
transactions between its customers through electronic book-entry changes in
their accounts thereby eliminating the need for physical movement of
certificates. Transactions may be settled by Clearstream, Luxembourg in any of
36 currencies, including United States Dollars. Clearstream, Luxembourg provides
to its customers, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream, Luxembourg also deals with domestic
securities markets in over 30 countries through established depository and
custodial relationships. Clearstream, Luxembourg is registered as a bank in
Luxembourg, and as such is subject to regulation by the Commission De
Surveillance Du Secteur Financier, 'CSSF', which supervises Luxembourg Banks.
Clearstream, Luxembourg has established an electronic bridge with Morgan
Guaranty Trust Company of New York as the operator of the Euroclear System in
Brussels to facilitate settlement of trades between their respective
participants. Clearstream, Luxembourg and Morgan Guaranty Trust Company of New
York each hold securities for their customers and facilitate the clearance and
settlement of securities transactions by electronic book-entry transfer between
their respective account holders. Clearstream, Luxembourg and Morgan Guaranty
Trust Company of New York provide various services including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream, Luxembourg and Morgan
Guaranty Trust Company of New York also deal with domestic securities markets in
several countries through established depository and custodial relationships.
Clearstream, Luxembourg and Morgan Guaranty Trust Company of New York
customers are world-wide financial institutions, including underwriters,
securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to Clearstream, Luxembourg and Morgan Guaranty
Trust Company of New York is available to other institutions that clear through
or maintain a custodial relationship with an account holder of either system.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of securities and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 29 currencies, including United States
Dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for crossmarket
transfers with DTC described in the fifth paragraph of this subheading. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York, out
of its Brussels, Belgium office, under contract with Euroclear Clearance System
S.C., a Belgian cooperative corporation. All operations are conducted by Morgan
Guaranty Trust Company of New York, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with Morgan Guaranty Trust
Company of New York, not Euroclear Clearance System S.C. Euroclear Clearance
System S.C. establishes policy for Euroclear on behalf of Euroclear
participants. Euroclear participants include banks--including central
banks--securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The operator of the Euroclear System is the Belgian branch of a New York
banking corporation that is a member bank of the Federal Reserve System. As
such, it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the operator of the
Euroclear System are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of Euroclear and applicable
Belgian law. These governing terms and conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear and
receipts of payments with respect to securities in Euroclear. All securities in
Euroclear are held on a fungible basis without attribution of specific
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securities to specific securities clearance accounts. The operator of the
Euroclear System acts under these governing terms and conditions only on behalf
of Euroclear participants and has no record of or relationship with persons
holding through Euroclear participants.
Payments with respect to transition bonds held through Clearstream,
Luxembourg or Euroclear will be credited to the cash accounts of Clearstream,
Luxembourg participants or Euroclear participants in accordance with the
relevant systems' rules and procedures, to the extent received by its
Depositary. These payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "United States Taxation" in
this prospectus.
Clearstream, Luxembourg or Morgan Guaranty Trust Company of New York, as
the case may be, will take any other action permitted to be taken by a
transition bondholder under the indenture on behalf of a Clearstream, Luxembourg
participant or Euroclear participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect those actions
on its behalf through DTC.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of transition bonds among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform these procedures and these
procedures may be discontinued at any time.
DEFINITIVE TRANSITION BONDS
Each series or class of transition bonds offered by this prospectus will be
issued in fully registered, certificated form to transition bondholders or their
nominees, rather than to DTC or its nominee, only if:
(1) the issuer advises the bond trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities
as depository with respect to that series or class of transition
bonds and the issuer is unable to locate a qualified successor,
(2) the issuer, at its option, elects to terminate the book-entry
system through DTC, or
(3) after the occurrence of an event of default under the indenture,
transition bondholders representing at least a majority of the
outstanding principal amount of the transition bonds of all series
advise the bond trustee through DTC in writing that the
continuation of a book-entry system through DTC, or a successor to
DTC, is no longer in the transition bondholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all affected transition bondholders
through participants of the availability of definitive transition bonds. Upon
surrender by DTC of the definitive bonds representing the applicable transition
bonds and receipt of instructions for re-registration, the bond trustee will
authenticate and deliver definitive transition bonds, and thereafter the bond
trustee will recognize the holders of these definitive transition bonds as
transition bondholders under the indenture.
Payments of principal of, and interest on, the applicable transition bonds
will thereafter be made by the bond trustee, as paying agent, in accordance with
the procedures set forth in the indenture directly to holders of definitive
transition bonds in whose names the definitive transition bonds were registered
at the close of business on the related record date. These payments will be made
by check mailed to the address of that holder as it appears on the register
maintained by the bond trustee. The final payment on any transition bond,
however, will be made only upon presentation and surrender of that transition
bond at the office or agency specified in the notice of final payment to
transition bondholders.
Definitive transition bonds will be transferable and exchangeable at the
offices of the transfer agent and registrar, which will initially be the bond
trustee. No service charge will be imposed for any registration of transfer or
exchange, but the transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
with that registration of transfer or exchange.
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WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS
The rate of principal payments on each series or class of transition bonds
offered by this prospectus, the aggregate amount of each interest payment on
each series or class of transition bonds and the actual final payment date of
each series or class of transition bonds will be dependent on the rate and
timing of receipt of collections of intangible transition charges. Accelerated
receipts of collections of intangible transition charges will generally not,
however, result in payment of principal on the transition bonds earlier than the
related expected final payment dates since receipts in excess of the amounts
necessary to amortize the transition bonds in accordance with the applicable
expected amortization schedule will be deposited in the overcollateralization
subaccount or reserve subaccount. However, delayed receipts of collections of
intangible transition charges may result in principal payments on the transition
bonds occurring more slowly than as reflected in the expected amortization
schedule or later than the related expected final payment dates. Redemption or
acceleration of any class or series of transition bonds in accordance with the
terms of that series or class will result in payment of principal earlier than
the related expected final payment dates.
The actual payments on each payment date for each series or class of
transition bonds and the weighted average life of that series or class will be
affected primarily by the rate of collections of intangible transition charges
and the timing of receipt of collections of intangible transition charges, as
well as amounts available in the reserve subaccount, the overcollateralization
subaccount and the capital subaccount. Because the intangible transition charges
will be calculated based on estimates of usage and revenue, the aggregate amount
of collections of intangible transition charges and the rate of principal
amortization on the transition bonds will depend, in part, on actual energy
usage by customers and the rate of delinquencies and write-offs.
Although the intangible transition charges will be adjusted from time to
time based in part on the actual rate of collections of intangible transition
charges, no assurances are given that the servicer will be able to forecast
accurately actual electricity usage impacting billed revenue from which
intangible transition charges are allocated and the rate of delinquencies and
write-offs or implement adjustments to the intangible transition charges that
will cause collections of intangible transition charges to be received at any
particular rate. See "Risk Factors--Nature of Intangible Transition Property"
and "The Qualified Rate Orders and the Intangible Transition Charges--The
Intangible Transition Charges--The Intangible Transition Charge Adjustment
Process" in this prospectus.
If collections of intangible transition charges are received at a slower
rate than expected, transition bonds may be retired later than expected. Because
principal will only be paid at a rate not faster than that contemplated in the
expected amortization schedule for each series or class, except in the event of
a redemption or the acceleration of the final payment date of the transition
bonds after an event of default as specified in the indenture, the transition
bonds are not expected to be paid earlier than scheduled. A payment on a date
that is earlier than forecasted will result in a shorter weighted average life,
and a payment on a date that is later than forecasted will result in a longer
weighted average life. In addition, if a larger portion of the delayed payments
on the transition bonds is received in later years, this will result in a longer
weighted average life of the transition bonds.
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THE SALE AGREEMENT
On the closing date of the issuance of the first series of transition bonds
authorized by the 2000 QRO, the sale agreement that was executed by the seller
and issuer on the closing date of the Series 1999-A Bonds will be amended and
restated to add provisions for the sale of intangible transition property
created by the 2000 QRO.
The following summary describes all material terms and provisions of the
sale agreement as it will be amended and restated as of the closing date. The
sale agreement, as amended and restated on the closing date, is referred to in
this prospectus and all related prospectus supplements as the sale agreement.
The indenture provides that the sale agreement may be further amended with the
consent of the bond trustee but without the consent of the transition
bondholders or the counterparty to any hedge or swap transaction, subject to the
conditions described under the caption "The Indenture--Modifications to the Sale
Agreement and the Master Servicing Agreement" below.
The form of the sale agreement has been filed as an exhibit to the
registration statement of which this prospectus forms a part. Please see that
form of sale agreement for a complete description of all its terms and
provisions.
The seller may sell intangible transition property retained by the seller
to one or more entities other than the issuer to finance stranded costs other
than through the issuer. Neither these sales nor the terms of any transition
bonds issued to finance these sales will be subject to the prior review by or
consent of the bondholders of transition bonds issued under the indenture. All
collections of intangible transition charges received by the servicer will be
allocated among the issuer and any other issuers based on their respective
Percentages. Intangible transition property may not be sold to another issuer if
the sale would result in the credit rating of any outstanding series of
transition bonds being reduced or withdrawn. In addition, the purchaser of that
intangible transition property must become a party to the master servicing
agreement. See "The Master Servicing Agreement--Addition of Other Issuers" in
this prospectus.
SALE AND ASSIGNMENT OF INTANGIBLE TRANSITION PROPERTY
The sale agreement and a related bill of sale were executed by the seller
and the issuer when the Series 1999-A Bonds were issued. At that time, the
seller sold and assigned to the issuer, without recourse, except as provided in
the sale agreement, the intangible transition property authorized by the First
QRO representing the irrevocable right to receive through intangible transition
charges amounts sufficient to recover qualified transition expenses related to
the Series 1999-A Bonds. The date that this intangible transition property,
referred to in this prospectus as the initial intangible transition property,
was sold by the seller is referred to in this prospectus as the initial transfer
date.
Under the sale agreement, the seller may sell additional intangible
transition property to the issuer, subject to the satisfaction of several
conditions including the execution of a subsequent bill of sale and the delivery
of notice of the transfer to the rating agencies and the issuer. The sale of the
intangible transition property authorized by the 2000 QRO is a sale of
additional intangible transition property and is referred to in this prospectus
as a sale of subsequent intangible transition property. The sale of subsequent
intangible transition property will be effective on a date, to be referred to as
a subsequent transfer date, specified in the written notice provided by the
seller to the rating agencies and the issuer. On the series issuance date for
the first series of transition bonds authorized under the 2000 QRO and each
series issuance date after that, pursuant to the sale agreement, the seller will
sell to the issuer, without recourse, except as provided in the sale agreement,
the subsequent intangible transition property authorized by the 2000 QRO which
represents the irrevocable right to receive through intangible transition
charges amounts sufficient to recover qualified transition expenses with respect
to the subsequent transition bonds.
In accordance with the Pennsylvania Competition Act, upon the execution and
delivery of the original sale agreement and the related bill of sale, the sale
of the initial intangible transition property was perfected as against all third
persons, including judicial lien creditors, and upon the execution of the
amended and restated sale agreement and a subsequent bill of sale and the
delivery of written notice to the rating agencies
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and the issuer, the sale of subsequent intangible transition property described
in that notice and bill of sale will also be perfected against all third
persons, including judicial lien creditors.
The seller's accounting records and computer systems reflect the sale of
intangible transition property to the issuer. The seller treats the Series
1999-A Bonds and will treat all transition bonds as its debt for federal income
tax purposes as long as the transition bonds are outstanding.
Each sale of intangible transition property under the sale agreement is
subject to the satisfaction or waiver of each of the following conditions:
(1) on or prior to each transfer date, the seller shall have delivered
to the issuer a duly executed bill of sale identifying the
intangible transition property to be conveyed on that date, in the
form required by the sale agreement,
(2) as of the transfer date, the seller was not insolvent and will not
have been made insolvent by that sale, and the seller is not aware
of any pending insolvency with respect to itself,
(3) as of the transfer date, no breach by the seller of its
representations, warranties or covenants in the sale agreement
shall exist, and no servicer default under the master servicing
agreement shall have occurred and be continuing,
(4) as of the transfer date, the issuer shall have sufficient funds
available to pay the purchase price for the transferred intangible
transition property to be conveyed on that date under the sale
agreement, and all conditions to the issuance of one or more
series of transition bonds intended to provide those funds set
forth in the indenture shall have been satisfied or waived,
(5) on or prior to the transfer date, the seller shall have taken all
action required to transfer to the issuer ownership of the
transferred intangible transition property to be conveyed on that
date, free and clear of all liens other than liens created by the
issuer under the indenture, and the issuer shall have taken, or
the servicer shall have taken on behalf of the issuer, any action
required for the issuer to grant the bond trustee a first priority
perfected security interest in the collateral and maintain that
security interest as of that date,
(6) in the case of a sale of subsequent intangible transition property
only, the seller shall have provided the issuer and the rating
agencies with a timely written notice specifying the subsequent
transfer date for that subsequent intangible transition property,
on or prior to that subsequent transfer date,
(7) the seller shall have delivered to the rating agencies and the
issuer the opinion of counsel specified in the sale agreement and
other opinions of counsel to the issuer trustee and the bond
trustee, and
(8) the seller shall have delivered to the bond trustee and the issuer
an officers' certificate confirming the satisfaction of each
condition precedent specified above.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
In the sale agreement, the seller makes representations and warranties to
the issuer and the bond trustee, as collateral assignee of the issuer--as of
each transfer date with respect to the intangible transition property being sold
on that date to the effect, that:
(1) all information provided by the seller to the issuer with respect
to the transferred intangible transition property is correct in
all material respects,
(2) the transfers and assignments contemplated by the sale agreement,
when completed, constitute outright sales of the intangible
transition property from the seller to the issuer, and the
beneficial interest in and title to the transferred intangible
transition property would not be part of the debtor's estate in
the event of the filing of a bankruptcy petition by or against the
seller under any bankruptcy law,
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(3) the seller is the sole owner of the intangible transition property
being sold to the issuer on the relevant transfer date, the
transferred intangible transition property has been validly
transferred and sold to the issuer free and clear of all liens
other than liens created by the issuer under the indenture and all
filings, including filings with the Pennsylvania Public Utility
Commission under the Pennsylvania Competition Act, necessary in
any jurisdiction to give the issuer a valid ownership interest in
transferred intangible transition property free and clear of all
liens of the seller or anyone claiming through the seller and to
give the issuer a first priority perfected security interest in
transferred intangible transition property have been made, other
than any of those filings--except for filings with the
Pennsylvania Public Utility Commission under the Pennsylvania
Competition Act and filings under the Uniform Commercial Code with
the Secretary of State of the State of Delaware--the absence of
which would not have an adverse impact on:
(x) the ability of the servicer to collect intangible transition
charges with respect to the transferred intangible transition
property, or
(y) the rights of the issuer with respect to the transferred
intangible transition property,
(4) each of the qualified rate orders has been issued by the
Pennsylvania Public Utility Commission in accordance with the
Pennsylvania Competition Act, each of the qualified rate orders
and the process by which it was issued comply with all applicable
laws, rules and regulations and the qualified rate orders are in
full force and effect,
(5) as of the date of issuance of any series of transition bonds
issued under this prospectus, those transition bonds are entitled
to the protections provided by the Pennsylvania Competition Act
and, accordingly, the provisions of each of the qualified rate
orders relating to the intangible transition property and
intangible transition charges are not revocable by the
Pennsylvania Public Utility Commission,
(6) (x) under the Pennsylvania Competition Act, neither the
Commonwealth of Pennsylvania nor the Pennsylvania Public
Utility Commission may limit, alter or in any way impair or
reduce the value of intangible transition property or
intangible transition charges approved by the qualified rate
orders or any rights under the qualified rate orders, except
such a limitation or alteration may be made by the
Commonwealth of Pennsylvania or the Pennsylvania Public
Utility Commission if adequate compensation is made by law
for the full protection of the intangible transition charges
and of transition bondholders,
(y) under the Contract Clauses of the Constitutions of the
Commonwealth of Pennsylvania and the United States, neither
the Commonwealth of Pennsylvania nor the Pennsylvania Public
Utility Commission can take any action that substantially
impairs the rights of the transition bondholders unless that
action is a reasonable exercise of the Commonwealth of
Pennsylvania's sovereign powers and appropriate to further a
legitimate public purpose, and
(z) under the Takings Clauses of the Constitutions of the
Commonwealth of Pennsylvania and the United States, if that
action constitutes a permanent appropriation of the property
interest of transition bondholders in the intangible
transition property and deprives the transition bondholders
of their reasonable expectations arising from their
investments in transition bonds, just compensation, as
determined by a court of competent jurisdiction, must be
provided to transition bondholders,
(7) there is no order by any court providing for the revocation,
alteration, limitation or other impairment of the Pennsylvania
Competition Act, the First QRO, the 2000 QRO, the intangible
transition property or the intangible transition charges or any
rights arising under any of them or which seeks to enjoin the
performance of any obligations under the First QRO or the 2000
QRO,
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(8) no other approval, authorization, consent, order or other action
of, or filing with any court, federal or state regulatory body,
administrative agency or other governmental instrumentality is
required in connection with the creation of intangible transition
property, except those that have been obtained or made,
(9) except as disclosed by the seller to the issuer, there are no
proceedings or investigations pending or, to the best of the
seller's knowledge, threatened before any court, federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the seller or its
properties challenging the First QRO, the 2000 QRO or the
Pennsylvania Competition Act,
(10) no failure on any subsequent transfer date or any time after
those dates to satisfy any condition imposed by the Pennsylvania
Competition Act with respect to the recovery of stranded costs
will adversely affect the creation or sale under the sale
agreement of the intangible transition property or the right to
collect intangible transition charges,
(11) the assumptions used in calculating intangible transition charges
are reasonable and made in good faith,
(12) (x) intangible transition property, other than intangible
transition property, if any, retained by the seller,
constitutes a current property right,
(y) intangible transition property includes (A) the irrevocable
right of the issuer and any other issuers, to receive through
intangible transition charges an amount sufficient to recover
all of the seller's qualified transition expenses described
in the qualified rate orders in an amount equal to the
aggregate principal amount of transition bonds plus an amount
sufficient to provide for any credit enhancement, including
the overcollateralization amount relating to each series of
transition bonds, to fund any reserves and to pay interest,
premium, if any, servicing fees and other expenses relating
to the transition bonds, and (B) all right, title and
interest of the seller or its assignee applicable to the
transition bonds in the qualified rate orders and in all
revenues, collections, claims, payments, money, or proceeds
of or arising from the intangible transition charges
applicable to the transition bonds set forth in the qualified
rate orders to the extent that in accordance with the
Pennsylvania Competition Act, the qualified rate orders and
the rates and charges authorized under the qualified rate
orders are declared to be irrevocable, and
(z) designated parts of the qualified rate orders, including
those covering the right to collect intangible transition
charges, have been declared to be irrevocable by the
Pennsylvania Public Utility Commission,
(13) the seller is a corporation duly organized and in good standing
under the laws of the Commonwealth of Pennsylvania, with
corporate power and authority to own its properties and conduct
its business as currently owned or conducted,
(14) the seller has the corporate power and authority to execute and
deliver the sale agreement and to carry out its terms; the seller
has full corporate power and authority to own the intangible
transition property and sell the subsequent intangible transition
property, on the applicable subsequent transfer date; the seller
has duly authorized that transfer to the issuer by all necessary
corporate action; and the execution, delivery and performance of
the sale agreement have been duly authorized by the seller by all
necessary corporate action,
(15) the sale agreement constitutes a legal, valid and binding
obligation of the seller, enforceable against the seller in
accordance with its terms, subject to customary exceptions
relating to bankruptcy and equitable principles,
(16) the consummation of the transactions contemplated by the sale
agreement and the fulfillment of the terms of that agreement do
not conflict with, result in any breach of any of the terms and
provisions of, nor constitute, with or without notice or lapse of
time, a default under, the articles of incorporation or by-laws
of the seller, or any indenture, agreement or other
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instrument to which the seller is a party or by which it shall be
bound; nor result in the creation or imposition of any lien upon
any of its properties--other than the lien of seller's mortgage
on seller's monthly servicing fee under the master servicing
agreement and any rights under the sale agreement--under the
terms of any indenture, agreement or other instrument; nor
violate any law or any order, rule or regulation applicable to
the seller of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality
having jurisdiction over the seller or its properties,
(17) except for continuation filings under the Uniform Commercial
Code, no approval, authorization, consent, order or other action
of, or filing with, any court, federal or state regulatory body,
administrative agency or other governmental instrumentality is
required in connection with the execution and delivery by the
seller of the sale agreement, the performance by the seller of
the transactions contemplated by the sale agreement or the
fulfillment by the seller of the terms of the sale agreement,
except those which have previously been obtained or made,
(18) there are no proceedings or investigations pending or, to the
seller's best knowledge, threatened, before any court, federal or
state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the seller
or its properties:
(x) asserting the invalidity of the sale agreement, the master
servicing agreement, any bills of sale for intangible
transition property, the issuer's trust agreement, or the
certificate of trust filed with the State of Delaware to form
the issuer, collectively referred to in this prospectus as
the basic documents, or the transition bonds,
(y) seeking to prevent the issuance of transition bonds or the
consummation of the transactions contemplated by the basic
documents or the transition bonds, or
(z) except as disclosed by the seller to the issuer, seeking any
determination or ruling that could be reasonably expected to
materially and adversely affect the performance by the seller
of its obligations under, or the validity or enforceability
of, the basic documents or the transition bonds,
(19) after giving effect to the sale of any transferred intangible
transition property under the sale agreement, the seller:
(v) is solvent and expects to remain solvent,
(w) is adequately capitalized to conduct its business and affairs
considering its size and the nature of its business and
intended purposes,
(x) is not engaged nor does it expect to engage in a business for
which its remaining property represents unreasonably small
capital,
(y) believes that it will be able to pay its debts as they become
due and that such belief is reasonable,
(z) is able to pay its debts as they mature and does not intend
to incur, or believe that it will incur, indebtedness that it
will not be able to repay at its maturity,
(20) the seller is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the
ownership or lease of property or the conduct of its business
shall require those qualifications, licenses or approvals, except
where the failure to so qualify would not be reasonably likely to
have a material adverse effect on the seller's business,
operations, assets, revenues, properties or prospects, and
(21) fixed amounts payable by the issuer to any swap counterparty
under any swap or hedge transaction with the issuer are properly
includable in intangible transition charges.
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Subject to the conditions set forth below, the seller will be required to
pay liquidated damages in the following two circumstances:
o first, if the seller breaches any representation or warranty specified in
(2), (3), (4), (5), (7) and (12) above that has a material adverse effect
on the transition bondholders of any series, or
o second, if the seller breaches any representation or warranty specified
in (6), (8), (9), (13), (14), (15) and (16) above and the full amount of
losses attributable to that breach are reasonably expected to be incurred
beyond a 90-day period immediately following that breach.
However, if the seller is obligated to pay liquidated damages for a breach
of one of the representations and warranties specified above and that breach
relates to one or more of the qualified rate orders, but not all of the
qualified rate orders, then:
o the amount of liquidated damages will include the then outstanding
principal amount of only the series of transition bonds issued in
connection with the affected qualified rate order or orders as of the
redemption date, plus accrued interest to the redemption date, and
o only the series of transition bonds issued in connection with the
affected qualified rate order or orders will be subject to mandatory
redemption.
In both circumstances, the seller will pay the liquidated damages to the
bond trustee, as assignee of the issuer, for deposit into the general subaccount
of the collection account for application to the relevant series subaccounts.
In the first circumstance, the liquidated damages will be payable 90 days
after the breach if the seller had, immediately prior to the breach, a long term
debt rating of at least "A3" by Moody's and "BBB" by Standard & Poor's and the
equivalent of "BBB" by any other rating agency and the seller enters into a
binding agreement with the issuer to pay any amounts necessary so that all
interest payments which will become due on the transition bonds during that
90-day period will be paid in full. If the seller does not have those long term
debt ratings, the seller may still pay liquidated damages 90 days after that
breach so long as it deposits an amount in escrow with the bond trustee
sufficient, taking into account amounts on deposit in the collection account
which will be available for that purpose, to pay all interest payments which
will become due on the transition bonds during that 90-day period. This deposit
must occur within two business days after that breach. If the seller does not
have those long term debt ratings and does not make that deposit, liquidated
damages will be payable two business days after the date of the breach.
The seller will not be obligated, however, for a breach in the first
circumstance (i.e., a breach of the representations or warranties in (2), (3),
(4), (5), (7) and (12) above) if:
(i) within 90 days after the date of the occurrence of the breach,
that breach is cured or the seller takes remedial action such that
there is not and will not be a material adverse effect on the
transition bondholders as a result of that breach, and
(ii) either:
(x) if the seller had, immediately prior to the breach, the long
term debt ratings specified in the preceding paragraph, the
seller enters into the binding agreement also specified in the
preceding paragraph, or
(y) if the seller does not have those long term debt ratings, the
seller makes the escrow deposit specified in the preceding
paragraph.
In the event that within that 90-day period, the breach is cured or the
seller takes the remedial action described in subsection (i) above, any amounts
paid by the seller to the bond trustee, as assignee of the issuer, which have
not been distributed pursuant to the indenture will be returned to the seller at
the end of that 90-day period.
In the second circumstance (i.e., a breach of the representations or
warranties in (6), (8), (9), (13), (14), (15) and (16) above), liquidated
damages will be payable on the first monthly allocation date following the
expiration of the 90-day period which follows that breach.
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The seller need not pay the liquidated damages, however, if the full amount
of losses attributable to the breach is reasonably expected not to exceed the de
minimis loss amount. In that case, on the monthly allocation date immediately
following the initial loss calculation date, the seller shall pay to the bond
trustee, as assignee of the issuer, for deposit in the loss subaccount of the
collection account, the aggregate expected amount of those losses for all
monthly allocation dates on which losses are expected to be incurred. Following
this deposit, the seller's obligation to pay indemnification or liquidated
damages, as applicable, as a result of those losses shall be waived so long as
actual losses incurred on any monthly allocation date do not exceed the de
minimis loss amount. If the aggregate amount of those losses exceeds the amounts
paid by the seller, on the next monthly allocation date, the seller shall pay to
the bond trustee, as assignee of the issuer, the amount of that excess for that
monthly allocation date and the expected amount of excess for all subsequent
monthly allocation dates.
The seller also shall indemnify the issuer and the bond trustee and
specified related parties, against:
(1) all taxes, other than any taxes imposed on transition bondholders
solely as a result of their ownership of transition bonds,
resulting from the acquisition or holding of transferred
intangible transition property by the issuer or the issuance and
sale by the issuer of transition bonds, and
(2) losses, damages, payments or expenses which result from:
(x) the seller's willful misconduct, bad faith or gross negligence
in the performance of its duties under the sale agreement,
(y) the seller's reckless disregard of its obligations and duties
under the sale agreement, or
(z) the seller's breach of any representations or warranties in
(1), (6), (8), (9), (10), (11), (13), (14), (15), (16), (17),
(18), (19), (20) and (21) above.
The indemnity amounts will not exceed liquidated damages.
The obligation to pay liquidated damages and the indemnities described
above will survive the termination of the sale agreement and include reasonable
fees and expenses of investigation and litigation, including reasonable
attorneys' fees and expenses. If the seller receives written notice of a breach
described in (x), (y) or (z) above from the issuer or bond trustee, the seller
will notify the servicer of the occurrence of the breach so that the servicer
may calculate the amount of indemnification in accordance with the provisions of
the master servicing agreement. Amounts on deposit in the reserve subaccount,
the overcollateralization subaccount and the capital subaccount shall not be
available to satisfy any indemnification amounts owed by the seller under the
sale agreement.
In addition, if the seller breaches its representation and warranty in (21)
above, the seller will indemnify the applicable swap counterparty in accordance
with the provisions of the preceding paragraph and any indemnification payments
will be paid to the applicable swap counterparty as provided in "The Indenture--
Allocations and Payments" in this prospectus.
The seller will not indemnify the issuer or the bond trustee on behalf of
the transition bondholders as a result of the Commonwealth of Pennsylvania's
exercise of its power under the Pennsylvania Competition Act or a change in law
by legislative enactment or constitutional amendment or the Commonwealth's
limitation, alteration, impairment or reduction of the value of intangible
transition property or intangible transition charges after the issuance date of
any series of transition bonds in breach of the pledge of the Commonwealth under
the Pennsylvania Competition Act. See "Risk Factors--Legal, Legislative or
Regulatory Actions Could Adversely Affect Transition Bondholders--Legal
Challenges Could Adversely Affect Transition Bondholders" and "--Changes in Law
May Result in Losses to Transition Bondholders" in this prospectus.
In addition to the foregoing representations and warranties, the seller has
also covenanted that it will deliver all collections of intangible transition
charges it receives or the proceeds of collections of intangible transition
charges, other than collections of intangible transition charges relating to
intangible transition property retained by the seller, to the servicer and will
promptly notify the bond trustee of any lien on any intangible transition
property other than the conveyances under the sale agreement or the indenture,
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conveyances to other issuers, or in the case of intangible transition property
retained by the seller, the lien of seller's mortgage.
The seller is also be obligated to take those legal or administrative
actions, including defending against or instituting and pursuing legal actions
and appearing or testifying at hearings or similar proceedings, as may be
reasonably necessary:
(1) to protect the issuer and the transition bondholders from claims,
state actions or other actions or proceedings of third parties
which, if successfully pursued, would result in a breach of any of
the seller's representations and warranties in the sale agreement,
or
(2) to block or overturn any attempts to cause a repeal of,
modification of or supplement to the Pennsylvania Competition Act,
the qualified rate orders or the rights of holders of intangible
transition property by legislative enactment or constitutional
amendment that would be adverse to the holders of intangible
transition property.
In addition, the seller is required to execute and file those filings,
including filings with the Pennsylvania Public Utility Commission under the
Pennsylvania Competition Act, as may be required to fully preserve, maintain and
protect the interests of the issuer in the transferred intangible transition
property. Other than as described in the previous paragraph, the seller is not
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its obligations under the sale agreement and that in its
opinion may involve it in any expense or liability.
MATTERS REGARDING THE SELLER
The sale agreement provides that certain persons which succeed to the major
part of the electric distribution business of the seller shall be the successor
to the seller if those persons execute an agreement of assumption to perform
every obligation of the seller under the sale agreement. The sale agreement
further requires that:
(1) immediately after giving effect to that transaction, no
representation or warranty made in the sale agreement shall have
been breached and no servicer default, and no event that, after
notice or lapse of time, or both, would become a servicer default
shall have occurred and be continuing,
(2) the rating agencies shall have received prior written notice of
that transaction, and
(3) specified officers' certificates and opinions of counsel shall
have been delivered to the issuer and the bond trustee.
GOVERNING LAW
The sale agreement will be governed by and construed under the laws of the
Commonwealth of Pennsylvania.
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THE MASTER SERVICING AGREEMENT
On the closing date for the issuance of the first series of transition
bonds under the 2000 QRO, the master servicing agreement that was executed by
the seller and the issuer on the closing date of the Series 1999-A Bonds will be
amended and restated to add provisions allowing for the intangible transition
property created by the 2000 QRO to be serviced by the servicer in the same
manner and subject to the same standards and conditions that it is servicing the
intangible transition property created by the First QRO. Therefore, the
following description should be read to apply equally to all intangible
transition property, whether it is currently being serviced by the servicer or
will be serviced once that intangible transition property is transferred to the
issuer.
The following summary describes all material terms and provisions of the
master servicing agreement as amended and restated under which the servicer is
undertaking to service all transferred intangible transition property. The
master servicing agreement as amended and restated on the closing date will be
referred to in this prospectus and all related prospectus supplements as the
master servicing agreement.
The form of the master servicing agreement has been filed as an exhibit to
the registration statement of which this prospectus forms a part. Please see
that form of master servicing agreement for a complete description of all its
terms and provisions.
The master servicing agreement may be further amended by the parties to
that agreement with the consent of the bond trustee under the indenture and all
bond trustees of any other issuer, if any. The indenture provides that the
master servicing agreement may be further amended with the consent of the bond
trustee but without the consent of the transition bondholders or the
counterparty to any hedge or swap transaction, subject to the conditions
described under the caption "The Indenture--Modification to the Sale Agreement
and the Master Servicing Agreement" below.
Because the master servicing agreement relates to all serviced intangible
transition property (as opposed to just the serviced intangible transition
property owned by the issuer), the rights and obligations set forth in that
agreement will involve other bond trustees to the extent that the purchasers of
intangible transition property from the seller (other than the issuer) do not
select the same bond trustee as the issuer.
SERVICING PROCEDURES
General. The servicer will manage, service and administer, and make
collections in respect of, the serviced intangible transition property. The
servicer's duties will include:
(1) calculating and billing the intangible transition charges and
collecting, from customers, electric generation suppliers and
other third parties, as applicable, all collections of intangible
transition charges,
(2) responding to inquiries by customers, electric generation
suppliers and other third parties, the Pennsylvania Public Utility
Commission, or any federal, local or other state governmental
authority with respect to the serviced intangible transition
property and intangible transition charges,
(3) accounting for collections of intangible transition charges,
investigating delinquencies, processing and depositing collections
and making periodic remittances, furnishing periodic reports to
the issuer, the bond trustee and the rating agencies,
(4) selling, as agent for the issuer and any other issuers, defaulted
or written-off accounts in accordance with the servicer's usual
and customary practices, and
(5) taking action in connection with adjustments to the intangible
transition charges as described below under "--Intangible
Transition Charge Adjustment Process."
See also "The Qualified Rate Orders and the Intangible Transition
Charges--Competitive Billing" in this prospectus.
The servicer will notify the issuer, the bond trustees and the rating
agencies in writing of any laws or Pennsylvania Public Utility Commission
regulations promulgated after the execution of the master servicing agreement
that have a material adverse effect on the servicer's ability to perform its
duties.
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Any collections of intangible transition charges received by the servicer
shall be allocated between the issuer and any other issuers based on their
respective Percentages of intangible transition property during the calendar
month the charges are expected to be collected.
The servicer will institute any action or proceeding necessary to compel
performance by the Pennsylvania Public Utility Commission or the Commonwealth of
Pennsylvania of any of their obligations or duties under the Pennsylvania
Competition Act or any of the qualified rate orders. The cost of this kind of
action reasonably allocated by the servicer to the serviced intangible
transition property, based on the ratio that property bears to all intangible
transition property, will be payable from collections of intangible transition
charges as an operating expense at the time those costs are incurred.
Intangible Transition Charge Adjustment Process. The master servicing
agreement requires the servicer to seek, and the Pennsylvania Competition Act
and the First QRO and the 2000 QRO require the Pennsylvania Public Utility
Commission to approve, adjustments to the intangible transition charges charged
to each rate class within any customer category based on actual collections of
intangible transition charges and updated assumptions by the servicer as to
projected future sales from which intangible transition charges are allocated,
expected delinquencies and write-offs and future payments and expenses relating
to the intangible transition property and the transition bonds. The servicer is
required to file requests with the Pennsylvania Public Utility Commission for
those adjustments on May 14th of each year and on the additional date or dates
specified in the prospectus supplement for any series of transition bonds. In
accordance with the Pennsylvania Competition Act and the First QRO and the 2000
QRO, the Pennsylvania Public Utility Commission has 90 days to approve annual
adjustments. In addition, those qualified rate orders provide that adjustments
during the final calendar year of collections of intangible transition charges
for any series of transition bonds may be implemented quarterly or monthly.
The servicer agrees to calculate these adjustments to result in:
(1) the outstanding principal balance of each series equaling the
amount provided for in the expected amortization schedule for that
series, and
(2) the amount on deposit in the overcollateralization subaccount
equaling the calculated overcollateralization level,
by
(1) the next adjustment date or the payment date closest to the next
adjustment date, or
(2) the expected final payment date, as applicable, for each series,
taking into account any amounts on deposit in the reserve subaccount other than
specified customer prepayments.
The annual adjustments to the intangible transition charges are expected to
be implemented on or prior to August 12th of each year, and, for each series of
transition bonds, during the period commencing 12 months prior to the last
scheduled payment date for the payment of principal on the last class of each
series of transition bonds on the date or dates specified in the related
prospectus supplement. Those adjustments to the intangible transition charges
will cease for each series on the final adjustment date specified in the
prospectus supplement for that series.
Intangible Transition Charge Collections. The servicer is required to
remit all collections of intangible transition charges, from whatever source,
and all proceeds of other collateral, if any, of the issuer received by the
servicer, to the bond trustee and other issuers' bond trustees for deposit under
the indenture on each remittance date. As long as PECO Energy or any successor
to PECO Energy's electric distribution business is the servicer, the remittance
date is the 3rd day of each month (or if the 3rd is not a business day, the
immediately following business day) --provided that:
(1) no servicer default has occurred and is continuing under the
master servicing agreement, and
(2) (x) PECO Energy or its successor maintains a short-term rating of
at least "A-1" by Standard & Poor's, "P-1" by Moody's and, if
rated by Fitch IBCA, "F-2" by Fitch IBCA--and for five
business days following a reduction in, any such rating, or
(y) the rating agency condition will have been satisfied for each
of the rating agencies other than Moody's, to which notice will
be sent, and any conditions or limitations imposed by
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those rating agencies in connection with that satisfaction of
the rating agency condition are complied with.
Otherwise, the remittance date is two business days after any collections
of intangible transition charges or proceeds of other collateral are received by
the servicer. The monthly period represented by each calendar month is referred
to in this prospectus as the collection period. Until collections of intangible
transition charges are remitted to the collection account, the servicer will not
segregate them from its general funds. Remittances of collections of intangible
transition charges will not include interest on these collections prior to the
remittance date or late fees from customers, which the servicer will be entitled
to retain.
SERVICER ADVANCES
If specified in the related annex to the master servicing agreement, the
servicer will make advances of interest or principal on the related series of
transition bonds in the manner and to the extent specified in that annex.
SERVICING COMPENSATION; RELEASES
The issuer and each other issuer, individually and not jointly, agrees to
pay the servicer the servicing fees for their respective series of transition
bonds. The servicing fee for each series, together with any portion of that
servicing fee that remains unpaid from prior payment dates, will be paid solely
to the extent funds are available for payment as described under "The
Indenture--Allocations and Payments" in this prospectus. The servicing fee will
be paid prior to the payment of or provision for any amounts of interest on and
principal of the transition bonds.
In the master servicing agreement, the servicer releases the issuer, every
other issuer, the bond trustee and all other bond trustees from any and all
claims, subject to exceptions relating to the serviced intangible transition
property or the servicer's servicing activities with respect to the serviced
intangible transition property.
SERVICER DUTIES
In the master servicing agreement, the servicer has agreed that, in
servicing the serviced intangible transition property:
(1) except where the failure to comply with any of the following would
not adversely affect the issuer's, any other issuer's, the bond
trustee's or another issuer's bond trustee's interests in
intangible transition property,
(w) it will manage, service, administer and make collections in
respect of the serviced intangible transition property with
reasonable care and in material compliance with applicable
law, including all applicable Pennsylvania Public Utility
Commission regulations and guidelines, using the same degree
of care and diligence that the servicer exercises with respect
to billing and collection activities that the servicer
conducts for itself and others,
(x) it will follow standards, policies and procedures in
performing its duties as servicer that are customary in the
servicer's industry,
(y) it will use all reasonable efforts, consistent with its
customary servicing procedures, to enforce and maintain rights
in respect of the serviced intangible transition property, and
(z) it will calculate the intangible transition charges in
compliance with the Pennsylvania Competition Act, any
applicable qualified rate orders and any applicable tariffs,
(2) it will keep on file, in accordance with customary procedures, all
documents related to intangible transition property and will
maintain accurate and complete accounts, records and computer
systems pertaining to the intangible transition property, and
(3) it will use all reasonable efforts consistent with its customary
servicing procedures to collect all amounts owed in respect of
intangible transition property as they become due.
The duties of the servicer set forth in the master servicing agreement are
qualified by any Pennsylvania Public Utility Commission regulations or orders in
effect at the time those duties are to be performed.
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SERVICER REPRESENTATIONS AND WARRANTIES
In the master servicing agreement, the servicer makes representations and
warranties as of each date that the seller sells or otherwise transfers any
intangible transition property to the issuer and any other issuer to the effect
that:
(1) the servicer is a corporation duly organized and in good standing
under the laws of the state of its incorporation, with the
corporate power and authority to own its properties and conduct
its business as those properties are currently owned and that
business is presently conducted and to execute, deliver and carry
out the terms of the master servicing agreement and has the power,
authority and legal right to service the serviced intangible
transition property,
(2) the servicer is duly qualified to do business as a foreign
corporation in good standing in all jurisdictions in which it is
required to do so,
(3) the servicer's execution, delivery and performance of the master
servicing agreement have been duly authorized by the servicer by
all necessary corporate action,
(4) the master servicing agreement constitutes a legal, valid and
binding obligation of the servicer, enforceable against the
servicer in accordance with its terms, subject to customary
exceptions relating to bankruptcy and equitable principles,
(5) the consummation of the transactions contemplated by the master
servicing agreement does not conflict with or result in any breach
of the terms and provisions of or constitute a default under the
servicer's articles of incorporation or by-laws or any material
agreement to which the servicer is a party or bound, result in the
creation or imposition of any lien upon the servicer's properties
(other than the lien of seller's mortgage on its interest in the
master servicing agreement) or violate any law or any order, rule
or regulation applicable to the servicer or its properties,
(6) except for filings with the Pennsylvania Public Utility Commission
for revised intangible transition charges and Uniform Commercial
Code continuation filings, no governmental approvals,
authorizations, consents, orders, or other actions or filings are
required for the servicer to execute, deliver and perform its
obligations under the master servicing agreement, except those
which have previously been obtained or made, and
(7) no proceeding or investigation is pending or, to the servicer's
best knowledge, threatened before any court, federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the servicer or its
properties:
(x) except as disclosed by the servicer to the issuer and any other
issuers, seeking any determination or ruling that might
materially and adversely affect the performance by the servicer
of its obligations under, or the validity or enforceability
against the servicer of, the master servicing agreement, or
(y) relating to the servicer and which might adversely affect the
federal or state income tax attributes of the transition bonds.
SERVICER INDEMNIFICATION
Under the master servicing agreement, the servicer agrees to indemnify the
issuer, any other issuers, the bond trustee, on behalf of the transition
bondholders, any bond trustees of any other issuers on behalf of any holders of
transition bonds issued by other issuers, and certain other specified parties,
against any costs, expenses, losses, damages, claims and liabilities that may be
imposed upon, incurred by or asserted against that person as a result of:
(1) the servicer's willful misfeasance, bad faith or gross negligence
in the performance of its duties or observance of its covenants
under the master servicing agreement or the servicer's reckless
disregard of its obligations and duties under the master servicing
agreement, and
(2) the servicer's breach of any of its representations or warranties
under the master servicing agreement.
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STATEMENTS TO ISSUER AND BOND TRUSTEE
For each date on which adjustments to intangible transition charges are
calculated, the servicer provides to the issuer, the bond trustee and each of
the rating agencies a statement indicating, with respect to the serviced
intangible transition property:
(1) the outstanding principal balance for each series and the amount
provided in the expected amortization schedule for each series as
of the immediately preceding payment date,
(2) the amount on deposit in the overcollateralization subaccount and
the calculated overcollateralization level as of the immediately
preceding payment date,
(3) the sum of the amounts provided in the expected amortization
schedule for each outstanding series for each payment date prior
to the next adjustment date and the servicer's projection of the
aggregate principal amount of all series as of each payment date
prior to the next adjustment date,
(4) the calculated overcollateralization level for each payment date
prior to the next adjustment date and the servicer's projection of
the amount on deposit in the overcollateralization subaccount as
of each payment date prior to the next adjustment date, and
(5) the projected collections of intangible transition charges for the
payment date immediately before the next adjustment date through
that adjustment date.
On or before each remittance date, the servicer prepares and furnishes to
the issuer and the bond trustee a statement setting forth the aggregate amount
remitted or to be remitted by the servicer to the bond trustee for deposit on
that remittance date under the indenture.
Moreover, at least three business days before each monthly allocation date,
the servicer prepares and furnishes to the issuer, the bond trustee, each
counterparty to a hedge or swap transaction and the rating agencies a statement
setting forth the transfers and payments to be made on each monthly allocation
date and the relevant amounts. Further, at least three business days before each
payment date for each series of transition bonds, the servicer prepares and
furnishes to the issuer and the bond trustee a statement of the amounts to be
paid to the holders of transition bonds of each series. On the basis of this
information, the bond trustee will furnish to transition bondholders the payment
date report described under "The Indenture-Reports to Transition Bondholders" in
this prospectus.
EVIDENCE AS TO COMPLIANCE
The master servicing agreement provides that a firm of independent public
accountants will furnish to the issuer, any other issuers, the bond trustee and
any bond trustees of any other issuers and the rating agencies, on or before
March 31 of each year, beginning March 31, 2001, a statement as to compliance by
the servicer during the preceding calendar year, or the relevant portion of that
year, with standards relating to the servicing of intangible transition
property. This annual accountant's report will state that the firm has performed
specified procedures in connection with the servicer's compliance with the
servicing procedures of the master servicing agreement, identifying the results
of those procedures and including any exceptions noted. The annual accountant's
report will also indicate that the accounting firm providing that report is
independent of the servicer within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants.
The master servicing agreement also provides for delivery to the issuer,
any other issuers, the bond trustee and any bond trustees of any other issuers
and the rating agencies, on or before March 31 of each year, a certificate
signed by an officer of the servicer to the effect that the servicer has
fulfilled its obligations under the master servicing agreement for the preceding
calendar year, or the relevant portion of that year, or, if there has been a
default in the fulfillment of any such obligation, describing each default. The
servicer has agreed to give the issuer, any other issuers, the bond trustee and
any bond trustees of any other issuers and the rating agencies notice of any
servicer default under the master servicing agreement.
MATTERS REGARDING THE SERVICER
Under the First QRO and the 2000 QRO, PECO Energy may assign its
obligations under the master servicing agreement to any electric distribution
company, as that term is defined in the Pennsylvania Competition Act, which
succeeds to the major part of PECO Energy's electric distribution business.
Prior to
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any assignment, the servicer shall provide written notice of that assignment to
each of the rating agencies. Under the master servicing agreement, persons which
succeed to the major part of the electric distribution business of the servicer,
which persons assume the obligations of the servicer, will be the successor of
the servicer under the master servicing agreement. The master servicing
agreement further requires that:
(1) immediately after giving effect to that transaction, no
representation or warranty made by the servicer in the master
servicing agreement shall have been breached and no servicer
default, and no event which, after notice or lapse of time, or
both, would become a servicer default shall have occurred and be
continuing,
(2) specified officers' certificates and opinions of counsel shall
have been delivered to the issuer, any other issuer, the bond
trustee (and any bond trustees of other issuers) and the rating
agencies, and
(3) prior written notice shall have been received by the rating
agencies.
The master servicing agreement provides that, subject to the foregoing
provisions, PECO Energy shall not resign from the obligations and duties imposed
on it as servicer except upon a determination, communicated to the issuer, any
other issuer, the bond trustee (and any bond trustee of other issuers) and each
rating agency and evidenced by an opinion of counsel, that the performance of
its duties under the master servicing agreement are no longer permissible under
applicable law. No such resignation shall become effective until a successor
servicer has assumed the servicing obligations and duties of PECO Energy under
the master servicing agreement.
In addition, the First QRO and the 2000 QRO and the Pennsylvania
Competition Act require that the servicer's responsibility to collect the
applicable intangible transition charges and other obligations under the master
servicing agreement must be undertaken and performed by any other entity that
provides transmission and distribution service to the customers.
Except as expressly provided in the master servicing agreement, the
servicer will not be liable to the issuer or any other issuer for any action
taken or for refraining from taking any action under the master servicing
agreement or for errors in judgment, except to the extent that liability is
imposed by reason of the servicer's willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of obligations and duties under the master servicing agreement.
SERVICER DEFAULTS
Servicer defaults under the master servicing agreement include:
(1) any failure by the servicer to deliver to the bond trustee, on
behalf of the issuer, or to the bond trustee of any other issuer
(on behalf of any other issuer) any required remittance that shall
continue unremedied for a period of three business days after
written notice of that failure is received by the servicer,
(2) any failure by the servicer duly to observe or perform in any
material respect any other covenant or agreement in the master
servicing agreement or any other basic document to which it is a
party, which failure materially and adversely affects intangible
transition property and which continues unremedied for 30 days
after notice of that failure has been given to the servicer, by
the issuer, any other issuer or the bond trustee (or any bond
trustee of any other issuer) or after discovery of that failure by
an officer of the servicer, as the case may be,
(3) any representation or warranty made by the servicer in the master
servicing agreement shall prove to have been incorrect when made,
which has a material adverse effect on any of the transition
bondholders, the issuer or any other issuer and which continues
unremedied for 60 days after notice of that failure has been given
to the servicer by the issuer or any other issuer or the bond
trustee (or any bond trustee of any other issuer), and
(4) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities, or similar proceedings of the servicer and
actions by the servicer indicating its insolvency, reorganization
under bankruptcy proceedings or inability to pay its obligations.
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The bond trustee, together with the bond trustees of any other issuers, if
any, may waive any default by the servicer, except a default in making any
required remittances to the bond trustee or any bond trustee of any other
issuer, if any.
RIGHTS UPON SERVICER DEFAULT
As long as a servicer default under the master servicing agreement remains
unremedied, the bond trustee, or, if transition bonds issued by other issuers
are outstanding, one or more of the bond trustees of these other issuers and the
bond trustee representing a majority of the outstanding principal amount of all
transition bonds issued, may terminate all the rights and obligations of the
servicer under the master servicing agreement, other than the servicer's
indemnification obligation and obligation to continue performing its functions
as servicer until a successor servicer is appointed. After that, a successor
servicer appointed by the bond trustee (or if there is more than one, the bond
trustees representing a majority of all the transition bondholders of the issuer
and any other issuer) will succeed to all the responsibilities, duties and
liabilities of the servicer under the master servicing agreement and will be
entitled to similar compensation arrangements. Upon a servicer default based
upon the commencement of a case by or against the servicer under the Bankruptcy
Code or similar laws, the bond trustees and the issuers may be prevented from
effecting a transfer of servicing. See "Risk Factors--Bankruptcy; Creditors'
Rights" in this prospectus.
The bond trustee may make arrangements for compensation to be paid to any
successor servicer, which in no event may be greater than the servicing
compensation paid to the servicer under the master servicing agreement.
In addition, upon a servicer default because of a failure to make required
remittances, the issuer, any other issuers or their respective pledgees or
transferees will have the right to apply to the Pennsylvania Public Utility
Commission for sequestration and payment of revenues arising from the intangible
transition property.
SUCCESSOR SERVICER
In accordance with the provisions of the First QRO and the 2000 QRO and
under the provisions of the master servicing agreement, if for any reason a
third party assumes or succeeds to the role of the servicer under the master
servicing agreement, the master servicing agreement requires the servicer to
cooperate with the issuer, any other issuer, the bond trustee, any bond trustees
of any other issuers and the successor servicer in terminating the servicer's
rights and responsibilities under the master servicing agreement, including the
transfer to the successor servicer of all documentation pertaining to intangible
transition property and all cash amounts then held by the servicer for
remittance or subsequently acquired by the servicer. The master servicing
agreement provides that the servicer will be liable for all reasonable costs and
expenses incurred in transferring servicing responsibilities to the successor
servicer. A successor servicer may not resign unless it is prohibited from
serving by law. The predecessor servicer is obligated, on an ongoing basis, to
cooperate with the successor servicer and provide whatever information is, and
take whatever actions are, reasonably necessary to assist the successor servicer
in performing its obligations under the master servicing agreement.
ADDITION OF OTHER ISSUERS
Upon the execution and delivery by the servicer and a purchaser of
intangible transition property from the seller of a supplement to the master
servicing agreement entered into for the purpose of adding that purchaser as a
party, that purchaser will become a party to the master servicing agreement, as
if originally named in it. The addition of any such purchaser will not require
the consent of the issuer or any other issuer under the master servicing
agreement.
GOVERNING LAW
The master servicing agreement is and will be governed by and construed
under the laws of the Commonwealth of Pennsylvania.
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THE INDENTURE
The following summary describes all material terms and provisions of the
indenture under which the Series 1999-A Bonds were issued and the transition
bonds offered by this prospectus will be issued. The indenture and a
supplemental indenture were originally executed in connection with the issuance
of the Series 1999-A Bonds.
The indenture, including the form of the supplemental indenture under which
subsequent series of transition bonds will be issued, has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
Please see the indenture, including the form of supplemental indenture, for a
complete description of all terms and provisions of the indenture and
supplemental indenture, portions of which are summarized in this section.
SECURITY
To secure the payment of principal of and premium, if any, and interest on,
and any other amounts owing in respect of, the transition bonds issued under the
indenture, the issuer grants to the bond trustee for the benefit of the
transition bondholders a security interest in all of the issuer's right, title
and interest in and to the following collateral:
(1) the serviced intangible transition property sold by the seller to
the issuer from time to time under the sale agreement and all
proceeds of that property,
(2) the sale agreement (except for specific provisions related to the
indemnification of the issuer),
(3) all bills of sale delivered by the seller under the sale
agreement,
(4) the master servicing agreement (except for specific provisions
related to the indemnification of the issuer),
(5) the collection account and all amounts on deposit in that account
from time to time,
(6) any hedge or swap agreements to which the issuer is a party,
(7) all other property of whatever kind owned from time to time by the
issuer, including all accounts, accounts receivable and chattel
paper,
(8) all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing, and
(9) all payments on or under, and all proceeds of every kind and
nature whatsoever in respect of, any or all of the foregoing,
provided that cash or other property distributed to the issuer
from the collection account in accordance with the provisions of
the indenture will not be subject to the lien of the indenture.
See "--Allocation and Payments" below.
ISSUANCE IN SERIES OR CLASSES
Transition bonds may be issued under the indenture from time to time to
finance the purchase by the issuer of intangible transition property (a
"financing issuance") or to pay the cost of refunding, through redemption or
payment, all or part of the transition bonds issued under the indenture (a
"refunding issuance"). Any series of transition bonds may include one or more
classes which differ as to interest rate and amortization of principal. The
terms of all transition bonds of the same series are to be identical, unless
that series is comprised of more than one class, in which case the terms of all
transition bonds of the same class will be identical. The particular terms of
the transition bonds of any series and, if applicable, classes of that series,
will be set forth in the related prospectus supplement for that series. The
terms of that series and any classes of that series are not subject to prior
review by, or consent of, the transition bondholders of any previously issued
series. See "Risk Factors--The Transition Bonds--Issuance of Additional Series
May Adversely Affect Outstanding Transition Bonds" and "The Transition Bonds" in
this prospectus.
Under the indenture, the bond trustee will authenticate and deliver an
additional series of transition bonds only upon receipt by the bond trustee of,
among other things, a certificate of the issuer that no event of default has
occurred and is continuing, an opinion of counsel to the issuer and evidence of
satisfaction that the issuance of that additional series of transition bonds
will not result in any rating agency reducing or
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withdrawing its then-current rating of any outstanding series or class of
transition bonds. The notification in writing by each rating agency to PECO
Energy, the servicer, the bond trustee and the issuer that any action will not
result in such a reduction or withdrawal is referred to in this prospectus as
the rating agency condition.
In addition, in connection with the issuance of each new series, the issuer
will have to provide a certificate or opinion of a firm of independent certified
public accountants of recognized national reputation to the effect that, based
on the assumptions used in calculating the initial intangible transition charges
with respect to the transferred intangible transition property or, if
applicable, the most recent revised intangible transition charges with respect
to the transferred intangible transition property, after giving effect to the
issuance of that series and the application of the proceeds from that issuance,
those intangible transition charges will be sufficient to pay all fees and
expenses of servicing the transition bonds, interest on each series of
transition bonds when due and principal of each series of transition bonds in
accordance with the expected amortization schedule for that series and to fund
the calculated overcollateralization level and to replenish the capital
subaccount as of each payment date.
If the issuance is a refunding issuance, the amount of money necessary to
pay premiums, if any, and the outstanding principal balance of and interest on
the transition bonds being refunded shall be deposited into a separate account
with the bond trustee.
COLLECTION ACCOUNT
Under the indenture, the issuer has established one or more segregated
trust accounts in the bond trustee's name, which collectively comprise the
collection account, with the bond trustee or at another eligible institution.
The collection account is divided into subaccounts, which need not be separate
bank accounts:
o the general subaccount,
o one or more series subaccounts,
o one or more class subaccounts,
o the overcollateralization subaccount,
o the capital subaccount,
o the reserve subaccount, and
o if required by the indenture, one or more defeasance subaccounts, a loss
subaccount and an interest deposit subaccount.
All amounts in the collection account not allocated to any other subaccount
will be allocated to the general subaccount. Unless the context indicates
otherwise, references in this prospectus to the collection account include all
of the subaccounts contained in the collection account. The indenture requires
that all monies deposited from time to time in the collection account, all
deposits in the collection account under the indenture and all investments made
in eligible investments with those monies be held by the bond trustee in the
collection account as part of the collateral.
"Eligible institution" means:
(1) the corporate trust department of the bond trustee, or
(2) a depository institution organized under the laws of the United
States of America or any state (or any domestic branch of a
foreign bank), which
(x) has (A) a long-term unsecured debt rating of "AAA" by Standard
& Poor's and "Aa3" by Moody's and (B) a short-term rating of
"A-1+" by Standard & Poor's and "P-1" by Moody's, or any other
long-term, short-term or certificate of deposit rating
acceptable to the rating agencies and
(y) whose deposits are insured by the Federal Deposit Insurance
Corporation.
So long as no default or event of default under the indenture has occurred
and is continuing, all funds in the collection account may be invested in any of
the following eligible investments:
(1) direct obligations of, or obligations fully and unconditionally
guaranteed as to timely payment by, the United States of America,
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(2) demand deposits, time deposits, certificates of deposit, or
bankers' acceptances of eligible institutions which are described
in clause (x) of the preceding paragraph,
(3) commercial paper, other than commercial paper issued by PECO
Energy or the servicer or any of their affiliates, having, at the
time of investment or contractual commitment to invest, a rating
in the highest rating category from each rating agency,
(4) money market funds which have the highest rating from each rating
agency,
(5) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of
America or agencies or instrumentalities of the United States of
America the obligations of which are backed by the full faith and
credit of the United States of America, entered into with an
eligible institution, or
(6) any other investment permitted by each rating agency, in each case
which mature no later than the business day prior to the next
payment date for the applicable series or class.
The bond trustee has access to the collection account for the purpose of
making deposits in and withdrawals from the collection account in accordance
with the indenture. Eligible investments, however, may not be sold, liquidated
or disposed of at a loss prior to their respective maturities.
On each remittance date, the servicer remits all collections of intangible
transition charges, from whatever source, allocated to the issuer under the
master servicing agreement and all proceeds of other collateral received by the
servicer to the bond trustee under the indenture for deposit pursuant to the
indenture. In addition, amounts remitted by any counterparty to any hedge or
swap transaction are required to be deposited in the class subaccount for the
class to which these amounts relate. Further, the bond trustee will deposit all
indemnity amounts remitted to the bond trustee by the seller or servicer or
otherwise received by the bond trustee and liquidated damages remitted by the
seller into the general subaccount of the collection account. Loss amounts
remitted by the seller to the bond trustee will be deposited in the loss
subaccount, and interest deposit amounts remitted by the seller to the bond
trustee shall be deposited in the interest deposit subaccount. Interest deposit
amounts refer to the regular fixed payments to a counterparty to a hedge or swap
agreement, if any, in the case of any series or class of floating rate
transition bonds, but not payments in respect of breakage or termination of that
agreement. These payments must be made under a binding agreement with the issuer
entered into by the seller or an escrow agreement pursuant to the sale
agreement.
General Subaccount. Collections of intangible transition charges remitted
by the servicer to the bond trustee, as well as any liquidated damages and
indemnity amounts remitted by PECO Energy or the servicer or otherwise received
by the bond trustee or the issuer, are deposited in the general subaccount. On
each monthly allocation date, the bond trustee draws on available amounts in the
general subaccount to make the allocations and payments described in
"--Allocations and Payments" below.
Reserve Subaccount. Collections of intangible transition charges available
on any monthly allocation date above that necessary to pay:
(1) amounts payable in respect of fees and expenses of the bond
trustee and the servicer and other fees and expenses,
(2) amounts distributable to series subaccounts for principal of and
interest paid on the next payment date and to class subaccounts,
if any, for principal of and interest paid on the day before the
next payment date, and
(3) amounts allocable to the overcollateralization subaccount
are deposited in the reserve subaccount.
Amounts in the reserve subaccount are invested in eligible investments, and
the issuer is entitled to earnings on those amounts, subject to the limitations
described under "--Allocations and Payments" below. On each monthly allocation
date, the bond trustee draws on amounts in the reserve subaccount, if any, to
the extent amounts available in the general subaccount, the interest deposit
subaccount (with respect to the payment of Interest) and the loss subaccount
(for payments contemplated by (1) through (8) in "--Allocations and Payments"
below) are insufficient to:
(1) make scheduled distributions to the series subaccounts, and
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(2) pay expenses of the issuer, the bond trustee, the servicer and
other specified fees and expenses.
See "--Allocations and Payments" below.
Overcollateralization Subaccount. Collections of intangible transition
charges to the extent available, as described under "--Allocation and Payments"
below, are deposited in the overcollateralization subaccount on each monthly
allocation date up to the monthly allocated overcollateralization balances for
all series. Amounts in the overcollateralization subaccount are invested in
eligible investments, and the issuer is entitled to earnings on those amounts,
subject to the limitations described under "--Allocations and Payments" below.
On each monthly allocation date, the bond trustee draws on amounts in the
overcollateralization subaccount to the extent amounts on deposit in the general
subaccount, the interest deposit subaccount (with respect to the payment of
Interest), the loss subaccount (for payments contemplated by (1) through (8) in
"--Allocations and Payments" below) and the reserve subaccount are insufficient
to:
(1) make scheduled distributions to the series subaccounts, and
(2) pay expenses of the issuer, the bond trustee and the servicer and
other specified fees and expenses.
If any series or class of transition bonds is redeemed or any series is
fully amortized as of any monthly allocation date, the amount by which amounts
on deposit in the overcollateralization subaccount exceed the monthly allocated
overcollateralization balances for all series will be released to the issuer,
free of the lien of the indenture.
Capital Subaccount. Upon or prior to the issuance of each series of
transition bonds, PECO Energy must make a capital contribution in the amount of
the required capital amount to the issuer, and the issuer is required to pay
that amount to the bond trustee for deposit into the capital subaccount which is
invested in eligible investments. The issuer is entitled to earnings on those
amounts subject to the limitations described under "--Allocations and Payments"
below. The bond trustee will draw on amounts in the capital subaccount, if any,
to the extent amounts available in the general subaccount, the interest deposit
subaccount (with respect to the payment of Interest), the loss subaccount (for
payments contemplated by (1) through (8) in "--Allocations and Payments" below),
the reserve subaccount and the overcollateralization subaccount are insufficient
to:
(1) make scheduled distributions to the series subaccounts, and
(2) pay expenses of the issuer, the bond trustee and the servicer and
other specified fees and expenses.
If any series or class of transition bonds is redeemed or any series is
fully amortized as of any monthly allocation date, the amount by which amounts
on deposit in the capital subaccount exceed the required capital amount will be
released to the issuer, free of the lien of the indenture.
Series Subaccount. Upon the issuance of each series of transition bonds, a
series subaccount must be established with respect to that series. On each
monthly allocation date, deposits are made to each series subaccount as
described under "--Allocations and Payments" below. On each payment date, the
bond trustee withdraws funds from the series subaccount to make payments on the
related series of transition bonds including any payments due to any provider of
any applicable swap agreement, as specified in the related prospectus
supplement. Any balance remaining in any series subaccount on any payment date
after payments have been made to transition bondholders of the related series
and to any applicable swap counterparty will be transferred to the general
subaccount for allocation on the next monthly allocation date.
Class Subaccount. If specified in the related prospectus supplement, a
class subaccount will be established with respect to the designated class or
classes. Payments to and from any counterparty to a hedge or swap transaction
are made from or deposited to, as applicable, the applicable class subaccounts
as described in the related prospectus supplement. On each payment date, amounts
on deposit in the class subaccount are applied to make payments with respect to
the related class, as specified in the related prospectus supplement. Any
balance remaining in any class subaccount on any payment date after payments
have been made to transition bondholders of the related class is transferred to
the general subaccount for allocation on the next monthly allocation date.
Loss Subaccount. Prior to the deposit of any loss amounts in the
collection account, the issuer shall establish the loss subaccount, and any loss
amounts remitted by the seller to the bond trustee shall be
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deposited in that subaccount. The bond trustee will draw on amounts in the loss
subaccount, if any, as described under "--Allocations and Payments" below.
Interest Deposit Subaccount. Prior to the deposit of any interest deposit
amounts in the collection account, the issuer shall establish the interest
deposit subaccount and any interest deposit amounts remitted by the seller to
the bond trustee shall be deposited in that subaccount. The bond trustee will
draw on amounts in the interest deposit subaccount, if any, as described under
"--Allocations and Payments" below.
Defeasance Subaccount. In the event funds are remitted to the bond trustee
in connection with the exercise of the legal defeasance option or the covenant
defeasance option, the issuer shall establish a defeasance subaccount for each
series to be defeased into which those funds shall be deposited. All amounts in
the defeasance subaccount will be applied by the bond trustee, in accordance
with the provisions of the transition bonds and the indenture, to the payment to
the holders of the particular transition bonds for the payment or redemption of
which those amounts were deposited with the bond trustee, including all sums due
for principal, premium, if any, and interest. The indenture requires that no
funds in the defeasance subaccount for any series of transition bonds be
invested in eligible investments or otherwise. U.S. government obligations
deposited by the issuer with the bond trustee for a covenant or legal defeasance
may, however, remain as such. See "--Legal Defeasance and Covenant Defeasance"
below.
ALLOCATIONS AND PAYMENTS
On each monthly allocation date, the bond trustee applies all amounts on
deposit in the general subaccount of the collection account and any investment
earnings on those amounts in the following priority:
(1) all amounts owed to the bond trustee (including legal fees and
expenses, indemnity amounts and loss amounts) are paid to the bond
trustee,
(2) all amounts owed to the issuer trustee (including legal fees and
expenses, indemnity amounts and loss amounts) are paid to the
issuer trustee,
(3) the monthly servicing fee and all unpaid monthly servicing fees
from prior monthly allocation dates are paid to the servicer,
(4) so long as no event of default has occurred and is continuing or
would be caused by that payment, all operating expenses other than
those referred to in clauses (1), (2) and (3) above are paid to
the persons entitled to that payment, provided that the amount
paid on any monthly allocation date pursuant to this clause (4)
may not exceed $12,500 in the aggregate for all series,
(5) an amount equal to Interest--which means in the case of any series
or class for which a hedge or swap agreement is in effect and the
issuer receives payments due from the applicable swap
counterparty, the regular fixed payment to the counterparty
without regard to netting, but not payment for the breakage or
termination of the related hedge or swap agreement--on each series
of transition bonds for that monthly allocation date are
transferred on a Pro Rata basis to the series subaccount for that
series,
(6) an amount equal to any Principal of any series or class of the
transition bonds payable as a result of acceleration triggered by
an event of default, any Principal of any series or class of
transition bonds payable on a series termination date or class
termination date, as applicable, that will occur prior to the next
monthly allocation date and any Principal of and premium on a
series or class of transition bonds payable on a redemption date
that will occur prior to the next monthly allocation date are
transferred on a Pro Rata basis to the series subaccount for that
series, taking into account amounts on deposit in that subaccount
in respect of Principal as of that monthly allocation date,
(7) an amount equal to Principal with respect to each series of
transition bonds for that monthly allocation date not provided for
pursuant to clause (6) above is transferred on a Pro Rata basis to
the series subaccount for that series,
(8) all unpaid operating expenses, indemnity amounts and loss amounts
are paid to the persons entitled to that payment,
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(9) overcollateralization with respect to all series of transition
bonds for that monthly allocation date is transferred to the
overcollateralization subaccount,
(10) any termination or breakage amounts owed to any counterparty to a
swap or hedge transaction under any hedge or swap agreement,
(11) provided that no event of default has occurred and is continuing,
an amount up to the amount of net investment earnings on amounts
in the general subaccount of the collection account since the
previous monthly allocation date will be released to the issuer
free from the lien of the indenture,
(12) the balance, if any, is allocated to the reserve subaccount, and
(13) following repayment of all outstanding series of transition
bonds, the balance, if any, will be released to the issuer free
from the lien of the indenture.
The payment of the bond trustee's and issuer trustee's indemnities
specified in items (1) and (2) above will be made only if:
o those indemnity payments would not result in an event of default under
the indenture and
o the issuer provides notice to the rating agencies of the indemnity amount
and, if reasonably required by the rating agencies, an officer's
certificate and other documentation that certifies that those payments
are not reasonably expected to result in an event of default.
If on any monthly allocation date funds on deposit in the general
subaccount are insufficient to make the allocations contemplated by clauses (1)
through (9) above, the bond trustee will draw from amounts on deposit in the
following subaccounts up to the amount of that shortfall, in order to make those
payments and transfers:
o first, from the interest deposit subaccount, with respect to the payments
or transfers contemplated by clause (5) above only,
o then from the loss subaccount, with respect to the payments or transfers
contemplated by clauses (1) through (8) above only, and
o thereafter from the reserve subaccount, then from the
overcollateralization subaccount and finally from the capital subaccount.
On each payment date for any series, the amounts on deposit in the series
subaccount for that series remaining after the allocations, if any, described in
the next paragraph (other than net income or other gain thereon, which, so long
as no event of default has occurred and is continuing, are released to the
issuer free of the lien of the indenture) are applied as follows (in the
priority indicated):
o interest due and payable on the transition bonds of that series, together
with any overdue interest and, to the extent permitted by law, interest
thereon, are paid to the holders of transition bonds of that series (in
the case of classes with hedge or swap transactions, only amounts on
deposit in the applicable class subaccount will be so applied),
o the balance, if any, up to the principal amount of the transition bonds
of that series that is scheduled to be paid by that payment date in
accordance with the expected amortization schedule for that series or,
with respect to any series of transition bonds payable as a result of
acceleration triggered by an event of default or to be redeemed pursuant
to the indenture, the outstanding principal amount of that series and
premium, if any, is paid to the holders of transition bonds of that
series, and
o the balance, if any, is transferred to the general subaccount for
allocation on the next monthly allocation date.
On the business day preceding each payment date, the amounts on deposit in
any series subaccount for classes of that series for which one or more class
subaccounts have been established (other than net income or other gain, which,
so long as no event of default has occurred and is continuing, is released to
the issuer free of the lien of the indenture) is allocated to the applicable
class subaccount in accordance with the related prospectus supplement, up to the
gross amount, if any, owed to the applicable counterparty to any hedge or swap
transaction entered into by the issuer in respect of regular fixed payments in
accordance with the related hedge or swap agreement but not breakage or
termination of that agreement. On that day, net amounts
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owed to that counterparty are paid from, or net amounts paid by that
counterparty are deposited into, that class subaccount. See "The
Indenture--Allocations and Payments" in this prospectus.
All payments to transition bondholders of a series pursuant to the first
and second bullet points of the second preceding paragraph are made pro rata
based on the respective principal amounts of transition bonds of that series
held by those transition bondholders, unless, in the case of a series comprised
of two or more classes, the applicable supplemental indenture for that series
specifies otherwise. All payments to transition bondholders of a class pursuant
to the first or second bullet points of the second preceding paragraph are made
pro rata based on the respective principal amounts of transition bonds of that
class held by those transition bondholders. If on any payment date a
counterparty to any hedge or swap transaction entered into by the issuer has
failed to fully pay amounts due to the issuer under the applicable hedge or swap
agreement related to a class of transition bonds for which a class subaccount
has been established, after all series subaccounts have accessed the reserve
subaccount as provided for in the indenture, the bond trustee will transfer
amounts on deposit in the reserve subaccount up to the amount of any applicable
shortfall; provided, that the bond trustee shall have received from the servicer
a certificate to the effect that, based on the servicer's best assumptions and
projections at the time, those amounts will not be needed to cover shortfalls on
any other class or series on any monthly allocation date prior to the next
adjustment date.
LIQUIDATED DAMAGES
Liquidated damages will be deposited into the general subaccount of the
collection account as provided in the sale agreement and applied on the date
specified by the issuer for the redemption of the transition bonds as a result
of receiving such liquidated damages (referred to in this prospectus as the
liquidated damages redemption date), which date may not be more than five days
after receipt of liquidated damages by the issuer, in the following amounts and
priority:
(1) all amounts owed by the issuer to the bond trustee and the issuer
trustee (including legal fees and expenses) shall be paid to the
bond trustee and the issuer trustee, respectively,
(2) the monthly servicing fee or the portion of the servicing fee
accrued from and including the immediately preceding monthly
allocation date to but excluding the liquidated damages redemption
date and all unpaid monthly servicing fees from prior monthly
allocation dates shall be paid to the servicer,
(3) all other operating expenses shall be paid to the persons entitled
to that payment; provided that if PECO Energy is the servicer, all
amounts owed to the servicer will be paid per clause (5) below; if
PECO Energy is not the servicer, then payments to the servicer
under this clause may not exceed $150,000,
(4) the redemption price and accrued interest for each series of
transition bonds shall be paid to transition bondholders of that
series and any amounts due to any counterparty under a hedge or
swap agreement shall be paid to that counterparty; provided, that
if the issuer receives liquidated damages from the seller as a
result of a breach of a representation and warranty which relates
to one or more of the qualified rate orders, but not all of the
qualified rate orders:
(x) only the series of transition bonds issued in connection with
the affected qualified rate order or orders will be redeemed,
and
(y) only the redemption price and accrued interest for the series
of transition bonds being redeemed shall be paid to transition
bondholders of that series and any amounts due to any
counterparty under a hedge or swap agreement entered into in
connection with the issuance of the affected transition bonds
shall be paid to that counterparty,
(5) any other operating expenses owed to the servicer not yet paid
shall be paid to the servicer, and
(6) the balance, if any, will be released to the issuer, free from the
lien of the indenture; provided that if the issuer receives
liquidated damages from the seller as a result of a breach of a
representation and warranty which relates to one of the qualified
rate orders, but not both qualified rate orders, then the balance,
if any, will remain in the general subaccount of the collection
account.
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REPORTS TO TRANSITION BONDHOLDERS
With respect to each series of transition bonds, on or prior to each
payment date, the bond trustee delivers a statement prepared by the bond trustee
to each transition bondholder of that series which includes, to the extent
applicable, the following information, and any other information so specified in
the applicable supplemental indenture, as to the transition bonds of that series
with respect to that payment date or the period since the previous payment date,
as applicable:
(1) the amount paid to those transition bondholders in respect of
principal,
(2) the amount paid to those transition bondholders in respect of
interest,
(3) the outstanding principal balance and the amount provided in the
expected amortization schedule, in each case for that series and
as of the most recent payment date,
(4) the amount on deposit in the overcollateralization subaccount and
the calculated overcollateralization level, in each case for all
series and as of the most recent payment date,
(5) the amount on deposit in the capital subaccount as of the most
recent payment date and the required capital amount, and
(6) the amount, if any, on deposit in the reserve subaccount as of the
most recent payment date.
The bond trustee's responsibility to provide this information is limited to
the availability, timeliness and accuracy of the information provided to it by
the servicer, as required by the master servicing agreement.
MODIFICATION OF INDENTURE
Without the consent of any of the holders of the outstanding transition
bonds or the counterparty to any hedge or swap transaction but with prior notice
to the rating agencies, the issuer and the bond trustee may execute a
supplemental indenture for any of the following purposes:
(1) to correct or amplify the description of the collateral, or to
better assure, convey and confirm unto the bond trustee the
collateral, or to subject to the lien of the indenture additional
property,
(2) to evidence the succession, in compliance with the applicable
provisions of the indenture, of another person to the issuer, and
the assumption by any such successor of the covenants of the
issuer contained in the indenture and in the transition bonds,
(3) to add to the covenants of the issuer, for the benefit of the
holders of the transition bonds, or to surrender any right or
power in the indenture conferred upon the issuer,
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the bond trustee,
(5) to cure any ambiguity, to correct or supplement any provision of
the indenture or in any supplemental indenture which may be
inconsistent with any other provision of the indenture or in any
supplemental indenture or to make any other provisions with
respect to matters or questions arising under the indenture or in
any supplemental indenture, provided, however, that:
(x) that action will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any
transition bondholder or any swap or hedge counterparty and
(y) the rating agency condition will have been satisfied with
respect to that action other than Moody's (however, notice of
that action will be provided to Moody's),
(6) to evidence and provide for the acceptance of the appointment
under the indenture by a successor bond trustee with respect to
the transition bonds and to add to or change any of the provisions
of the indenture as shall be necessary to facilitate the
administration of the trusts under the indenture by more than one
bond trustee, under requirements of the indenture,
(7) to modify, eliminate or add to the provisions of the indenture to
the extent as shall be necessary to effect the qualification of
the indenture under the Trust Indenture Act of 1939, as amended,
or under any similar federal statute hereafter enacted and to add
to the indenture the other provisions as may be expressly required
by the Trust Indenture Act of 1939, as amended,
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(8) to set forth the terms of any series that has not previously been
authorized by a supplemental indenture, or
(9) to provide for any hedge or swap transactions with respect to any
floating rate series or class of transition bonds or any series or
class specific credit enhancement, provided, however, that:
(x) that action will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any
transition bondholder, and
(y) the rating agency condition will have been satisfied with
respect thereto by all rating agencies other than Moody's
(however, notice of that action will be provided to Moody's).
Additionally, without the consent of any of the transition bondholders or
the counterparty to any hedge or swap transaction, the issuer and bond trustee
may execute a supplemental indenture to add provisions to, or change in any
manner or eliminate any provisions of, the indenture, or to modify in any manner
the rights of the transition bondholders under the indenture; provided, however:
(1) that action will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any
transition bondholder, and
(2) that the rating agency condition will have been satisfied with
respect to that action.
The issuer and the bond trustee also may, with prior notice to the rating
agencies and with the consent of the holders of not less than a majority of the
outstanding amount of the transition bonds of each series or class to be
affected, execute a supplemental indenture for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the indenture or modifying in any manner the rights of the transition
bondholders under the indenture; provided, however, that no such supplemental
indenture will, without the consent of the holder of each outstanding transition
bond of each series or class affected by that supplemental indenture:
(1) change the date of payment of any installment of principal of or
premium, if any, or interest on any transition bond, or reduce the
principal amount of any transition bond, the interest rate
specified on any transition bond or the redemption price or the
premium, if any, with respect to any transition bond, change the
provisions of the indenture and the related applicable
supplemental indenture relating to the application of collections
on, or the proceeds of the sale of, the collateral to payment of
principal of or premium, if any, or interest on the transition
bonds, or change any place of payment where, or the coin or
currency in which, any transition bond or any interest on a
transition bond is payable,
(2) impair the right to institute suit for the enforcement of
provisions of the indenture regarding payment,
(3) reduce the percentage of the aggregate amount of the outstanding
transition bonds, or of a series or class of transition bonds, the
consent of the holders of which is required for any supplemental
indenture, or the consent of the holders of which is required for
any waiver of compliance with specified provisions of the
indenture or of specified defaults under the indenture and their
consequences provided for in the indenture,
(4) reduce the percentage of the outstanding amount of the transition
bonds required to direct the bond trustee to direct the issuer to
sell or liquidate the collateral,
(5) modify any provision of the section of the indenture relating to
the consent of transition bondholders with respect to supplemental
indentures, except to increase any percentage specified in the
indenture or to provide that specified additional provisions of
the indenture or the basic documents cannot be modified or waived
without the consent of the holder of each outstanding transition
bond affected by that modification or waiver,
(6) modify any of the provisions of the indenture in a manner as to
affect the amount of any payment of interest, principal or
premium, if any, payable on any transition bond on any payment
date or to affect the rights of transition bondholders to the
benefit of any provisions for the mandatory redemption of the
transition bonds contained in the indenture or change the
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redemption dates, expected amortization schedule or series
termination dates or class termination dates of any transition
bonds,
(7) decrease the required capital amount or the overcollateralization
amount with respect to any series, or the calculated
overcollateralization level with respect to any payment date,
(8) modify or alter the provisions of the indenture regarding the
voting of transition bonds held by the issuer, the seller, an
affiliate of either of them or any obligor on the transition
bonds,
(9) decrease the percentage of the aggregate principal amount of the
transition bonds required to amend the sections of the indenture
which specify the applicable percentage of the aggregate
principal amount of the transition bonds necessary to amend the
indenture or related agreements, or
(10) permit the creation of any lien ranking prior to or on a parity
with the lien of the indenture with respect to any of the
collateral for the transition bonds or, except as otherwise
permitted or contemplated in the indenture, terminate the lien of
the indenture on any property at any time subject to the lien of
the indenture or deprive the holder of any transition bond of the
security provided by the lien of the indenture.
ENFORCEMENT OF THE SALE AGREEMENT AND THE MASTER SERVICING AGREEMENT
The indenture provides that the issuer will take all lawful actions to
enforce its rights under the sale agreement and the master servicing agreement
and to compel or secure the performance and observance by PECO Energy and the
servicer of each of their respective obligations to the issuer under or in
connection with the sale agreement and the master servicing agreement. So long
as no event of default occurs and is continuing, the issuer may exercise any and
all rights, remedies, powers and privileges lawfully available to the issuer
under or in connection with the sale agreement and the master servicing
agreement. However, if the issuer or servicer proposes to amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
supplement, termination, waiver or surrender of, the process for adjusting
intangible transition charges, the issuer will notify the bond trustee and each
counterparty to a hedge or swap transaction, the bond trustee will notify
transition bondholders of that proposal and the bond trustee will consent to
that amendment, modification, supplement, termination, waiver or surrender only
with the consent of the holder of each outstanding transition bond of each
series or class affected by that amendment, modification, supplement,
termination, waiver or surrender.
If an event of default occurs and is continuing, the bond trustee may, and,
at the direction of the holders of a majority of the outstanding principal
amount of the transition bonds of all series will, exercise all rights,
remedies, powers, privileges and claims of the issuer against the seller or the
servicer under or in connection with the sale agreement and the master servicing
agreement, and any right of the issuer to take that action will be suspended.
MODIFICATIONS TO THE SALE AGREEMENT AND THE MASTER SERVICING AGREEMENT
With the consent of the bond trustee, the sale agreement and the master
servicing agreement may be amended at any time and from time to time, without
the consent of the transition bondholders or the counterparty to any hedge or
swap transaction, provided that the amendment will not, as evidenced by an
officer's certificate, adversely affect the interest of any transition
bondholder or the counterparty to any hedge or swap transaction (except, in the
case of a swap counterparty, with the consent of that counterparty, which
consent may not be unreasonably withheld) or change the adjustment process for
the intangible transition charges. The bond trustee will not withhold its
consent to that amendment so long as the rating agency condition is satisfied in
connection with that amendment by each rating agency other than Moody's--and the
issuer will have furnished Moody's with written notice of that amendment prior
to the effectiveness of that amendment--and the foregoing officer's certificate
is provided.
No amendment, modification, waiver, supplement, termination or surrender of
the terms of the sale agreement or master servicing agreement, or waiver of
timely performance or observance by the seller or the servicer under the sale
agreement or master servicing agreement, respectively, in each case in a way as
would adversely affect the interests of transition bondholders or the
counterparty to any hedge or swap transaction
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(except, in the case of a swap counterparty, with the consent of that
counterparty, which consent may not be unreasonably withheld) is permitted nor
will the bond trustee consent to any of these amendments, modifications,
waivers, supplements, terminations or surrenders. If the issuer, the seller or
the servicer will otherwise propose to amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, waiver,
supplement, termination or surrender of the terms of the sale agreement or the
master servicing agreement or waive timely performance or observance by the
seller or the servicer under the sale agreement or master servicing agreement,
respectively, the issuer will notify the bond trustee and any applicable hedge
or swap counterparty and the bond trustee will notify the transition
bondholders. The bond trustee will consent to any of these amendments,
modifications, waivers, supplements, terminations or surrenders only with the
consent of the holders of at least a majority of the outstanding principal
amount of the transition bonds of each series or class.
The issuer will furnish to each of the rating agencies:
(1) prior to the execution of any such amendment or consent, written
notification of the substance of that amendment or consent, and
(2) promptly after the execution of any such amendment or consent, a
copy of that amendment or consent.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
An event of default is defined in the indenture as being:
(1) a default for five days or more in the payment of any interest on
any transition bond,
(2) a default in the payment of the then unpaid principal of any
transition bond of any series on the series termination date for
that series or, if applicable, any class on the class termination
date for that class,
(3) a default in the payment of the redemption price for any
transition bond on the redemption date for that transition bond,
(4) a default in the observance or performance of any covenant or
agreement of the issuer made in the indenture, other than those
specifically dealt with in (1), (2) or (3) above, and the
continuation of any of these defaults for a period of thirty days
after notice of that default is given to the issuer by the bond
trustee or to the issuer and the bond trustee by the holders of at
least 25% in outstanding principal amount of the transition bonds
of any series, and
(5) events of bankruptcy, insolvency, receivership or liquidation of
the issuer.
If an event of default occurs and is continuing and is known to the bond
trustee, the bond trustee is required to mail notice of the event of default to
each holder of transition bonds within 90 days after the event of default
occurs. The bond trustee may withhold notice of an event of default if:
(1) the event of default does not relate to a default in payment of
principal or interest on any transition bond and
(2) a committee of responsible officers of the bond trustee determines
in good faith that it is in the interest of the holders of
transition bonds to withhold notice.
If an event of default occurs and is continuing, the bond trustee or
holders of a majority in principal amount of the transition bonds of all series
then outstanding may declare the principal of all series of the transition bonds
to be immediately due and payable. That declaration may, under specified
circumstances, be rescinded by the holders of a majority in principal amount of
all series of the transition bonds then outstanding.
If the transition bonds of all series have been declared to be due and
payable following an event of default, the bond trustee may, in its discretion,
either sell the collateral or elect to have the issuer maintain possession of
the collateral and continue to apply distributions on the collateral as if there
had been no declaration of acceleration. The bond trustee is prohibited from
selling the collateral following an event of default other than a default in the
payment of any principal, a default for five days or more in the payment of
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any interest on any transition bond of any series or a default on the payment of
the price set for redemption in the related supplemental indenture for any
transition bond on the date for redemption for that transition bond set in the
related supplemental indenture unless:
(1) the holders of 100% of the principal amount of all series of
transition bonds consent to that sale,
(2) the proceeds of that sale or liquidation are sufficient to pay in
full the principal of and premium, if any, and accrued interest on
the outstanding transition bonds, or
(3) the bond trustee determines that funds provided by the collateral
would not be sufficient on an ongoing basis to make all payments
on the transition bonds of all series as those payments would have
become due if the transition bonds had not been declared due and
payable, and the bond trustee obtains the consent of the holders
of 66 2/3% of the aggregate outstanding amount of the transition
bonds of each series.
Subject to the provisions of the indenture relating to the duties of the
bond trustee, in case an event of default occurs and is continuing, the bond
trustee will be under no obligation to exercise any of the rights or powers
under the indenture at the request or direction of any of the holders of
transition bonds of any series if the bond trustee reasonably believes it will
not be adequately indemnified against the costs, expenses and liabilities which
might be incurred by it in complying with that request. Subject to those
provisions for indemnification and limitations contained in the indenture, the
holders of a majority in principal amount of the outstanding transition bonds of
all series will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the bond trustee; provided
that:
(1) that direction shall not conflict with any rule of law or with the
indenture,
(2) subject to provisions in the indenture, any direction to the bond
trustee to sell or liquidate the collateral shall be by the
holders of 100% of the principal amount of all series of
transition bonds then outstanding, and
(3) the bond trustee may take any other action deemed proper by the
bond trustee that is not inconsistent with that direction.
If the bond trustee elects to retain the collateral in accordance with the
indenture, then any direction to the bond trustee by holders of transition bonds
representing less than 100% of the outstanding amount of the transition bonds of
all series to sell or liquidate the collateral will be of no force and effect.
The holders of a majority in principal amount of the transition bonds of
all series then outstanding may, in some cases, waive any default with respect
to the transition bonds, except a default in the payment of principal of or
premium, if any, or interest on any of the transition bonds or a default in
respect of a covenant or provision of the indenture that cannot be modified
without the waiver or consent of all of the holders of the outstanding
transition bonds of all series and classes affected.
No transition bondholder of any series will have the right to institute any
proceeding, judicial or otherwise, or to avail itself of the remedies provided
in Section 2812(d)(3)(v) of the Pennsylvania Competition Act, with respect to
the indenture, unless:
(1) that holder previously has given to the bond trustee written
notice of a continuing event of default,
(2) the holders of not less than 25% in principal amount of the
outstanding transition bonds of each series have made written
request of the bond trustee to institute that proceeding in its
own name as bond trustee,
(3) that holder or holders have offered the bond trustee security or
indemnity reasonably satisfactory to the bond trustee against the
costs, expenses, and liabilities to be incurred in complying with
that request,
(4) the bond trustee for 60 days after its receipt of that notice,
request and offer has failed to institute that proceeding, and
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(5) no direction inconsistent with that written request has been given
to the bond trustee during that 60-day period by the holders of a
majority in principal amount of the outstanding transition bonds
of all series.
COVENANTS
The issuer will keep in effect its existence, rights and franchises as a
statutory business trust under Delaware law, provided that the issuer may
consolidate with or merge into another entity or sell substantially all of its
assets to another entity and dissolve if:
(1) the entity formed by or surviving that consolidation or merger or
to whom substantially all of those assets are sold is organized
under the laws of the United States or any state of the United
States and shall expressly assume by a supplemental indenture the
due and punctual payment of the principal of and premium, if any,
and interest on all transition bonds and the performance of the
issuer's obligations under the indenture,
(2) that entity expressly assumes all obligations and succeeds to all
rights of the issuer under the sale agreement and the master
servicing agreement under an assignment and assumption agreement
executed and delivered to the bond trustee,
(3) no default or event of default will have occurred and be
continuing immediately after giving effect to that merger,
consolidation or sale,
(4) the rating agency condition will have been satisfied with respect
to that consolidation or merger or sale by each rating agency,
except Moody's--and the issuer shall have furnished Moody's with
prior written notice of that consolidation, merger or sale,
(5) the issuer has received an opinion of counsel to the effect that
the consolidation, merger or sale of assets would have no material
adverse tax consequence to the issuer or any transition
bondholder, that consolidation, merger or sale complies with the
indenture and all conditions precedent in the indenture relating
to that transaction and will result in the bond trustee
maintaining a continuing valid first priority security interest in
the collateral,
(6) none of the intangible transition property, the qualified rate
orders or PECO Energy's, the seller's, the servicer's or the
issuer's rights under the Pennsylvania Competition Act or the
qualified rate orders are impaired by that consolidation, merger
or sale, and
(7) any action that is necessary to maintain the lien and security
interest created by the indenture will have been taken.
The issuer will from time to time execute and deliver those documents, make
all filings and take any other action necessary or advisable to maintain and
preserve the lien and security interest--and priority of that lien and security
interest--of the indenture and will not permit the validity of the indenture to
be impaired, the lien to be amended, hypothecated, subordinated or terminated or
discharged, or any person to be released from any covenants or obligations
except as expressly permitted by the indenture, nor will it permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance, other
than the lien and security interest created by the indenture, to be created on
or extend to or otherwise arise upon or burden the collateral or any part of the
collateral or any interest in the collateral or the proceeds of the collateral,
or permit the lien of the indenture not to constitute a continuing valid first
priority security interest in the collateral.
The issuer may not:
(1) except as expressly permitted by the indenture, the sale agreement
or the master servicing agreement sell, transfer, exchange or
otherwise dispose of any of the collateral unless directed to do
so by the bond trustee in accordance with the indenture, or
(2) claim any credit on, or make any deduction from the principal or
premium, if any, or interest payable in respect of, the transition
bonds, other than amounts properly withheld under the Internal
Revenue Code, or assert any claim against any present or former
transition bondholder because of the payment of taxes levied or
assessed upon the issuer.
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The issuer may not engage in any business other than purchasing and owning
the transferred intangible transition property, issuing transition bonds from
time to time, pledging its interest in the collateral to the bond trustee under
the indenture in order to secure the transition bonds, and performing activities
that are necessary, suitable or convenient to accomplish the foregoing or are
incidental to the foregoing.
The issuer may not issue, incur, assume or guarantee any indebtedness
except for the transition bonds or guarantee or otherwise become contingently
liable in connection with the obligations, stocks or dividends of, or own,
purchase, repurchase or acquire--or agree contingently to do so--any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other person, except that the issuer may invest
funds in eligible investments. The issuer may not, except as contemplated by the
indenture, the sale agreement, the master servicing agreement and related
documents, including the trust agreement, make any loan or advance or credit to
any person. The issuer will not make any expenditure--by long-term or operating
lease or otherwise--for capital assets--either realty or personalty--other than
intangible transition property purchased from the seller under, and in
accordance with, the sale agreement. The issuer may not make any payments,
distributions or dividends to any holder of beneficial interests in the issuer
in respect of that beneficial interest, except in accordance with the indenture.
The issuer is also obligated to duly and punctually perform all of its
obligations pursuant to any hedge or swap agreement to which it is a party.
Further, the issuer may not terminate or amend any hedge or swap agreement to
which it is a party while any related floating rate transition bonds of a class
remain outstanding except pursuant to the terms of that hedge or swap agreement
and then only with the consent of holders of two-thirds of the aggregate
outstanding amount of the related class.
The issuer will cause the servicer to deliver to the bond trustee the
annual accountant's report, compliance certificates and monthly reports
regarding distributions and other statements required by the master servicing
agreement. See "The Master Servicing Agreement" in this prospectus.
LIST OF TRANSITION BONDHOLDERS
Any transition bondholder or group of transition bondholders--each of whom
has owned a transition bond for at least six months--may, by written request to
the bond trustee, obtain access to the list of all transition bondholders
maintained by the bond trustee for the purpose of communicating with other
transition bondholders with respect to their rights under the indenture or the
transition bonds. The bond trustee may elect not to afford the requesting
transition bondholders access to the list of transition bondholders if it agrees
to mail the desired communication or proxy, on behalf and at the expense of the
requesting transition bondholders, to all transition bondholders.
ANNUAL COMPLIANCE STATEMENT
The issuer is required to file annually with the bond trustee a written
statement as to the fulfillment of its obligations under the indenture. In
addition, the issuer must furnish to the bond trustee an opinion of counsel
concerning filings made by the issuer on an annual basis and before the
effectiveness of any amendment to the sale agreement or the master servicing
agreement.
BOND TRUSTEE'S ANNUAL REPORT
If required by the Trust Indenture Act of 1939, as amended, the bond
trustee will be required to mail each year to all transition bondholders a brief
report relating to, among other things, its eligibility and qualification to
continue as the bond trustee under the indenture, any amounts advanced by it
under the indenture, the amount, interest rate and maturity date of indebtedness
owing by the issuer to it in the bond trustee's individual capacity, the
property and funds physically held by the bond trustee as such, any additional
issue of a series of transition bonds not previously reported and any action
taken by it that materially affects the transition bonds of any series and that
has not been previously reported.
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SATISFACTION AND DISCHARGE OF INDENTURE
The indenture will be discharged with respect to the transition bonds of
any series upon the delivery to the bond trustee for cancellation of all the
transition bonds of that series or upon the expected final payment date or the
date of redemption for that series, provided that the issuer has deposited funds
sufficient for the payment in full of all of the transition bonds of that series
with the bond trustee and the issuer has delivered to the bond trustee the
officer's certificate and opinion of counsel specified in the indenture. Those
deposited funds will be segregated and held apart solely for paying those
transition bonds, and those transition bonds shall not be entitled to any
amounts on deposit in the collection account other than amounts on deposit in
the defeasance subaccount for those transition bonds.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The issuer may, at any time, terminate:
(1) all of its obligations under the indenture with respect to the
transition bonds of any series ("legal defeasance option"), or
(2) its obligations to comply with specified covenants, including some
of the covenants described under "The Indenture--Covenants" (the
"covenant defeasance option").
The issuer may exercise the legal defeasance option with respect to any
series of transition bonds notwithstanding its prior exercise of the covenant
defeasance option with respect to that series.
If the issuer exercises the legal defeasance option with respect to any
series, interest will cease to accrue on that series of transition bonds.
Further, that series shall be entitled to payment only from the funds or other
obligations set aside under the indenture for payment of that amount on the
expected final payment date or redemption date for that series as described
below. That series of transition bonds shall not be subject to payment through
redemption or acceleration prior to that expected final payment date or
redemption date, as applicable. If the issuer exercises the covenant defeasance
option with respect to any series, the transition bonds of that series may not
be accelerated because of an event of default relating to a default in the
observance or performance of any covenant or agreement of the issuer made in the
indenture.
The issuer may exercise the legal defeasance option or the covenant
defeasance option with respect to any series of transition bonds only if:
(1) the issuer irrevocably deposits or causes to be deposited in trust
with the bond trustee cash or U.S. Government Obligations for the
payment of principal of and premium, if any, and interest on those
transition bonds to the expected final payment date or redemption
date for those transition bonds, as applicable, that deposit to be
made in the defeasance subaccount for that series of transition
bonds,
(2) the issuer delivers to the bond trustee a certificate from a
nationally recognized firm of independent accountants expressing
its opinion that the payments of principal and interest when due
and without reinvestment will provide cash at the times and in the
amounts as will be sufficient to pay in respect of the transition
bonds of that series:
(x) principal in accordance with the expected amortization schedule
for that series, or if that series is to be redeemed, the
redemption price of that redemption on the redemption date for
that series, and
(y) interest when due,
(3) in the case of the legal defeasance option, 95 days pass after the
deposit is made and during the 95-day period no default relating
to events of bankruptcy, insolvency, receivership or liquidation
of the issuer occurs and is continuing at the end of the period,
(4) no default has occurred and is continuing on the day of that
deposit and after giving effect to that deposit,
(5) in the case of the legal defeasance option, the issuer delivers to
the bond trustee an opinion of counsel stating that:
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(x) the issuer has received from, or there has been published by,
the Internal Revenue Service a ruling, or
(y) since the date of execution of the indenture, there has been a
change in the applicable federal income tax law,
in either case to the effect that, and based on that ruling that
opinion shall confirm that, the holders of the transition bonds of
that series will not recognize income, gain or loss for federal
income tax purposes as a result of the exercise of that legal
defeasance option and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if that legal defeasance had not occurred,
(6) in the case of the covenant defeasance option, the issuer delivers
to the bond trustee an opinion of counsel to the effect that the
holders of the transition bonds of that series will not recognize
income, gain or loss for federal income tax purposes as a result
of the exercise of that covenant defeasance option and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if that
covenant defeasance had not occurred, and
(7) the issuer delivers to the bond trustee a certificate of an
authorized officer of the issuer and an opinion of counsel, each
stating that all conditions precedent to the satisfaction and
discharge of the transition bonds of that series have been
complied with as required by the indenture.
There will be no other conditions to the exercise by the issuer of its
legal defeasance option or its covenant defeasance option.
THE BOND TRUSTEE
The Bank of New York is and will be the bond trustee under the indenture.
The bond trustee may resign at any time by so notifying the issuer. The holders
of a majority in principal amount of the transition bonds of all series then
outstanding may remove the bond trustee by so notifying the issuer and the bond
trustee and may appoint a successor bond trustee. The issuer will remove the
bond trustee if the bond trustee ceases to be eligible to continue as such under
the indenture, the bond trustee becomes insolvent, a receiver or other public
officer takes charge of the bond trustee or its property or the bond trustee
becomes incapable of acting. If the bond trustee resigns or is removed or a
vacancy exists in the office of bond trustee for any reason, the issuer will be
obligated to appoint a successor bond trustee eligible under the indenture. Any
resignation or removal of the bond trustee and appointment of a successor bond
trustee will not become effective until acceptance of the appointment by a
successor bond trustee. The issuer is required under the indenture to provide
the rating agencies with written notice of any successor bond trustee.
The bond trustee will at all times satisfy the requirements of the Trust
Indenture Act of 1939, as amended, and have a combined capital and surplus of at
least $50 million and a long term debt rating of "Baa3" or better by Moody's and
"BBB-" by Fitch IBCA (if currently rated by Fitch IBCA). If the bond trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business or assets to, another entity, the resulting,
surviving or transferee entity shall without any further action be the successor
bond trustee.
GOVERNING LAW
The indenture is and will be governed by and construed under the laws of
the Commonwealth of Pennsylvania.
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UNITED STATES TAXATION
GENERAL
This section summarizes the material U.S. tax consequences to holders of
transition bonds offered by this prospectus. However, the discussion is limited
in the following ways:
o The discussion only covers you if you buy your transition bonds in the
initial offering.
o The discussion only covers you if you hold your transition bonds as a
capital asset--that is, for investment purposes--and if you do not have a
special tax status.
o The discussion does not cover tax consequences that depend upon your
particular situation in addition to your ownership of transition bonds.
We suggest that you consult your tax advisor about the consequences of
holding transition bonds in your particular situation.
o The discussion is based on current law. Changes in the law may change the
tax treatment of the transition bonds.
o The discussion generally does not cover state, local or foreign law.
o The discussion does not apply to you if you are a non-U.S. holder of
transition bonds and if you (a) own 10% or more of the voting stock of
PECO Energy, (b) are a "controlled foreign corporation" with respect to
PECO Energy, or (c) are a bank making a loan in the ordinary course of
its business.
TAXATION OF THE ISSUER AND OF THE TRANSITION BONDS
In connection with the issuance of the First QRO and the Series 1999-A
Bonds, PECO Energy obtained a ruling from the Internal Revenue Service regarding
certain aspects of those transactions. It is the opinion of our special tax
counsel, Ballard Spahr Andrews & Ingersoll, LLP, that the principles set forth
in the Internal Revenue Service ruling will be equally applicable to the 2000
QRO and the related series of transition bonds. As a consequence, our tax
counsel is of the opinion that:
(1) the issuance of the 2000 QRO by the Pennsylvania Public Utility
Commission will not result in the recognition of gross income by
PECO Energy,
(2) the issuance of the transition bonds offered by this prospectus
will not result in the recognition of gross income by PECO Energy,
and
(3) the transition bonds offered by this prospectus will be classified
as obligations of PECO Energy.
The issuer is a wholly owned subsidiary of PECO Energy and has not elected
to be taxed as a corporation for federal income tax purposes. In the opinion of
our tax counsel, Ballard Spahr Andrews & Ingersoll, LLP, based on the foregoing,
for U.S. federal income tax purposes:
(1) the issuer will be treated as a division of PECO Energy and will
not be treated as a separate taxable entity, and
(2) the transition bonds offered by this prospectus will be treated as
debt of PECO Energy secured by a pledge of the collateral.
We have relied on the ruling and the opinion in preparing this section.
IF YOU ARE CONSIDERING BUYING TRANSITION BONDS OFFERED BY THIS PROSPECTUS,
WE SUGGEST THAT YOU CONSULT YOUR TAX ADVISORS ABOUT THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF HOLDING THE TRANSITION BONDS IN YOUR PARTICULAR
SITUATION.
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TAX CONSEQUENCES TO U.S. HOLDERS
This section applies to you if you are a "U.S. Holder." A "U.S. Holder" is:
o an individual U.S. citizen or resident alien,
o a corporation, or entity taxable as a corporation, that was created under
U.S. law (federal or state), or
o an estate or trust whose worldwide income is subject to U.S. federal
income tax.
If a partnership or a similar entity holds transition bonds, the tax treatment
of a partner will generally depend upon the status of the partner and upon the
activities of the partnership. We suggest that partners of partnerships or
similar entities holding transition bonds consult their tax advisors.
INTEREST
o If you are a cash method taxpayer, including most individual holders, you
must report interest paid on the transition bonds offered by this
prospectus in your income when you receive it.
o If you are an accrual method taxpayer, you must report interest paid on
the transition bonds offered by this prospectus in your income as it
accrues.
SALE OR RETIREMENT OF TRANSITION BONDS
On a sale or retirement of a transition bond:
o You will have taxable gain or loss equal to the difference between the
amount received by you and your tax basis in the transition bond. Your
tax basis in the transition bond is your cost, subject to adjustments.
o Your gain or loss will generally be capital gain or loss, and will be
long-term capital gain or loss if you held the transition bond for more
than one year. Generally, with minor exceptions, taxpayers are not
permitted to offset capital losses against ordinary income.
o If you sell the transition bond between interest payment dates, a portion
of the amount you receive reflects interest that has accrued on the
transition bond but has not yet been paid by the sale date. That amount
is treated as ordinary interest income and not as sale proceeds.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the tax rules concerning information reporting to the Internal
Revenue Service:
o Assuming you hold your transition bonds through a broker or other
securities intermediary, the intermediary is required to provide
information to the Internal Revenue Service concerning interest and
retirement proceeds we pay on transition bonds you own, unless an
exemption applies.
o Similarly, unless an exemption applies, you must provide the intermediary
with your Taxpayer Identification Number for its use in reporting
information to the Internal Revenue Service. If you are an individual,
this is your social security number. You are also required to comply with
other Internal Revenue Service requirements concerning information
reporting.
o If you are subject to these requirements but do not comply, the
intermediary is required to withhold 31% of all amounts payable to you on
the transition bonds, including principal payments. If the intermediary
withholds payments, you may use the withheld amount as a credit against
your federal income tax liability.
o All U.S. Holders that are individuals are subject to these requirements.
Some U.S. Holders, including all corporations, tax-exempt organizations
and individual retirement accounts, are exempt from these requirements.
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TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section applies to you if you are a "Non-U.S. Holder." A "Non-U.S.
Holder" is:
o an individual that is a nonresident alien,
o a corporation organized or created under non-U.S. law, or
o an estate or trust that is not taxable in the U.S. on its worldwide
income.
WITHHOLDING TAXES
Generally, payments of principal and interest on the transition bonds will
not be subject to U.S. withholding taxes.
However, in order for the exemption from withholding taxes to apply to you,
you must meet one of the following requirements:
o You provide your name, address, and a signed statement that you are the
beneficial owner of the transition bond and are not a U.S. Holder. This
statement is generally made on Form W-8 or Form W-8BEN.
o You or your agent claim an exemption from withholding tax under an
applicable tax treaty. This claim is generally made on Form 1001 or Form
W-8BEN.
o You or your agent claim an exemption from withholding tax on the ground
that the income is effectively connected with the conduct of a trade or
business in the U.S. This claim is generally made on Form 4224 or Form
W-8ECI.
We suggest that you consult your tax advisor about the specific methods to
satisfy these requirements. These procedures will change on January 1, 2001. In
addition, a claim for exemption will not be valid if the person receiving the
claim has actual knowledge that the statements on the applicable form are false.
SALE OR RETIREMENT OF TRANSITION BONDS
If you sell a transition bond or it is redeemed, you will not be subject to
federal income tax on any gain unless one of the following applies:
o The gain is connected with a trade or business that you conduct in the
U.S.
o You are an individual, you are present in the U.S. for at least 183 days
during the year in which you dispose of the transition bond, and other
conditions are satisfied.
o The gain represents accrued interest, in which case the rules for
interest would apply.
U.S. TRADE OR BUSINESS
If you hold a transition bond in connection with a trade or business that
you are conducting in the U.S.:
o Any interest on the transition bond, and any gain from disposing of the
transition bond, generally will be subject to income tax as if you were a
U.S. Holder.
o If you are a corporation, you may be subject to the "branch profits tax"
on your earnings that are connected with your U.S. trade or business,
including earnings from the transition bond. This tax is 30%, but may be
reduced or eliminated by an applicable income tax treaty.
ESTATE TAXES
If you are an individual, the transition bonds will not be subject to U.S.
estate tax when you die. However, this rule only applies if, at the time of your
death, payments on the transition bond would not have been connected to a trade
or business that you were conducting in the U.S.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. rules concerning information reporting and backup withholding are
described above under "Tax Consequences to U.S. Holders--Information Reporting
and Backup Withholding." Under these rules:
o Principal and interest payments received by you will be automatically
exempt from the usual rules if you provide the tax certifications needed
to avoid withholding tax on interest, as described above under "--Tax
Consequences to Non-U.S. Holders--Withholding Taxes." The exemption does
not apply if the recipient of the applicable form knows that the form is
false. However, interest payments made to you will be reported to the
Internal Revenue Service on Form 1042-S.
o Sale proceeds you receive on a sale of your transition bonds through a
broker may be subject to information reporting or backup withholding if
you are not eligible for an exemption. In particular, information
reporting and backup reporting may apply if you use the U.S. office of a
broker, and information reporting--but not backup withholding--may apply
if you use the foreign office of a broker if the broker has specified
connections to the U.S. We suggest that you consult your tax advisor
concerning information reporting and backup withholding on a sale.
MATERIAL COMMONWEALTH OF PENNSYLVANIA TAX MATTERS
In the opinion of Ballard Spahr Andrews & Ingersoll, LLP, interest from the
transition bonds received by a person who is not otherwise subject to corporate
or personal income tax in Pennsylvania will not be subject to these taxes.
Transition bonds held by deceased Pennsylvania residents may be subject to
Pennsylvania inheritance and estate taxes.
Due to the pendency of litigation involving the constitutionality of
personal property taxes heretofore in effect, none are currently imposed in
Pennsylvania. In the event enforcement of the personal property tax is resumed,
residents of Pennsylvania, other than corporations and specified other exempt
persons holding transition bonds, would be subject to these taxes. Nonresidents
would be exempt. The taxes referred to include the County Personal Property Tax
and the additional property taxes imposed on Pittsburgh residents by the School
District of Pittsburgh and the City of Pittsburgh.
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ERISA CONSIDERATIONS
Employee benefit plans are permitted to purchase transition bonds offered
by this prospectus.
ERISA and Section 4975 of the Internal Revenue Code impose specified
requirements on employee benefit plans and some other plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and some
collective investment funds or insurance company general or separate accounts in
which those plans, accounts or arrangements are invested (collectively,
"Plans"), and on persons who are fiduciaries with respect to Plans. ERISA
imposes on Plan fiduciaries certain general fiduciary requirements including the
obligation to discharge their duties solely in the interest of, and for the
exclusive purpose of providing benefits to, a Plan's participants and
beneficiaries and with the skill and diligence of a prudent person acting in a
like capacity. In addition, Section 406 of ERISA and Section 4975 of the
Internal Revenue Code prohibit a broad range of "prohibited transactions"
involving assets of a Plan ("Plan Assets") and persons who have certain
specified relationships to the Plan ("parties in interest" under ERISA and
"disqualified persons" under the Internal Revenue Code), unless a statutory or
administrative exemption is available.
There is a greater likelihood that prohibited transactions may arise if the
assets of the issuer were considered to be Plan Assets with respect to any Plan
that acquired transition bonds. Under certain circumstances currently effective
Department of Labor regulations apply a "look through" rule under which the
assets of any entity in which a Plan makes an equity investment may constitute
Plan Assets. However, the transition bonds are debt for state law purposes and
should not be considered to have "substantial equity features." As a result, a
Plan's acquisition of transition bonds should not cause assets of the issuer to
be considered to be Plan Assets.
If you are considering whether to purchase transition bonds with Plan
Assets, we suggest that you consult with your legal advisor and refer to the
related prospectus supplement for further guidance.
PLAN OF DISTRIBUTION
The transition bonds of each series offered by this prospectus may be sold
to or through underwriters named in the related prospectus supplement by a
negotiated firm commitment underwriting and public reoffering by the
underwriters or any other underwriting arrangement as may be specified in the
related prospectus supplement or may be offered or placed either directly or
through agents. The issuer intends that transition bonds will be offered through
various methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of a particular
series of transition bonds may be made through a combination of these methods.
The distribution of transition bonds may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to the
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
The transition bonds may be offered through one or more different methods,
including offerings through underwriters. It is not anticipated that any of the
transition bonds will be listed on any securities exchange.
In connection with the sale of the transition bonds, underwriters or agents
may receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell transition bonds to particular dealers at prices less a
concession. Underwriters may allow, and these dealers may reallow, a concession
to other dealers. Underwriters, dealers and agents that participate in the
distribution of the transition bonds of a series may be deemed to be
underwriters, and any discounts or commissions received by them from the issuer
and any profit on the resale of the transition bonds by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933. These
underwriters or agents will be identified, and any compensation received from
the issuer will be described, in the related prospectus supplement.
Under agreements which may be entered into by PECO Energy, the issuer,
underwriters and agents who participate in the distribution of the transition
bonds may be entitled to indemnification by PECO Energy and the issuer against
liabilities specified in those agreements, including under the Securities Act of
1933.
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<PAGE>
The underwriters may, from time to time, buy and sell transition bonds, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
RATINGS
It is a condition of any underwriter's obligation to purchase the
transition bonds that each class receive the rating indicated in the related
prospectus supplement, which will be in one of the four highest categories, from
at least one rating agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
agency. No person is obligated to maintain the rating on any transition bonds,
and, accordingly, there can be no assurance that the ratings assigned to any
class of transition bonds upon initial issuance will not be lowered or withdrawn
by a rating agency at any time after that initial issuance. If a rating of any
class of transition bonds is revised or withdrawn, the liquidity of that class
of transition bonds may be adversely affected. In general, ratings address
credit risk and do not represent any assessment of any particular rate of
principal payments on the transition bonds other than the payment in full of
each series or class of transition bonds by the applicable series termination
date or class termination date.
LEGAL MATTERS
Some legal matters relating to the issuance of the transition bonds will be
passed upon for the issuer by Ballard Spahr Andrews & Ingersoll, LLP,
Philadelphia, Pennsylvania, and for the underwriters by Cravath, Swaine & Moore,
New York, New York. Some legal matters relating to the issuer and issuance of
the transition bonds under the laws of the State of Delaware will be passed upon
for the issuer by Richards, Layton & Finger, P.A., Wilmington, Delaware.
EXPERTS
The balance sheet of the issuer as of December 31, 1999, included in this
prospectus has been audited by PricewaterhouseCoopers LLP, independent public
accountants, as stated in their report included in this prospectus.
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<PAGE>
GLOSSARY OF DEFINED TERMS
Set forth below is a glossary of defined terms used in this prospectus.
"2000 QRO" means the qualified rate order issued by the Pennsylvania Public
Utility Commission to PECO Energy on March 16, 2000.
"ADDITIONAL SECURITIZATION SETTLEMENT" means the settlement agreement dated
March 8, 2000 among PECO Energy and some of the parties from its restructuring
proceeding filed with the Pennsylvania Public Utility Commission.
"ADJUSTMENT REQUEST" means each request filed by the servicer with the
Pennsylvania Public Utility Commission for adjustments to the intangible
transition charges assessed to each rate class within any customer category
based on actual collections of intangible transition charges and updated
assumptions by the servicer as to the projected future usage of electricity by
customers on which intangible transition charges are assessed, expected
delinquencies and write-offs and future payments and expenses relating to the
intangible transition property and the transition bonds.
"BANKRUPTCY CODE" means Title 11 of the United States Code, as the same may
be amended, modified or supplemented from time to time.
"BASIC DOCUMENTS" means, collectively, the sale agreement, the master
servicing agreement, any bills of sale for intangible transition property, the
indenture, the trust agreement, and the certificate of trust filed with the
State of Delaware to form the issuer.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which banking institutions in the City of Philadelphia, the City of New York or
the State of Delaware are required by law or executive order to remain closed.
"CALCULATED OVERCOLLATERALIZATION LEVEL" means the amount anticipated to be
on deposit in the overcollateralization subaccount for all series of transition
bonds as of each payment date, as specified in each prospectus supplement.
"CALCULATION DATE" means, with respect to any series of transition bonds,
each date on which the servicer is required to file an adjustment request, as
specified in the related prospectus supplement.
"CAPITAL SUBACCOUNT" means a subaccount of the collection account in which
the amount of capital required to be held by the issuer for a series of
transition bonds will be deposited by the issuer on the date of issuance of that
series.
"CLEARSTREAM, LUXEMBOURG" means Clearstream Bank Societe Anonyme,
Luxembourg.
"COLLECTION ACCOUNT" means the single collection account for all series of
transition bonds established by the issuer and held by the bond trustee under
the indenture.
"COVENANT DEFEASANCE OPTION" means the right of the issuer to, at any time,
terminate its obligations to comply with specified covenants as described in
"The Indenture--Legal Defeasance and Covenant Defeasance."
"DE MINIMIS LOSS AMOUNT" means 1/12 of 1% of the annual outstanding balance
of the transition bonds per monthly allocation date.
"DTC" means The Depository Trust Company.
"EUROCLEAR" means the Euroclear System.
"EVENT OF DEFAULT" means an event specified as an event of default under
the indenture for the transition bonds described in this prospectus and the
related prospectus supplements.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
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<PAGE>
"EXPECTED AMORTIZATION SCHEDULE" means, with respect to any series or class
of transition bonds, the expected amortization schedule for the principal
balance of that series or class, as set forth in the related prospectus
supplement.
"FINAL ORDER" means the Pennsylvania Public Utility Commission's order
dated May 14, 1998, of which the First QRO is a part, approving the
restructuring plan settlement.
"FIRST QRO" means the qualified rate order dated May 14, 1998 issued by the
Pennsylvania Public Utility Commission to PECO Energy.
"FITCH IBCA" means Fitch IBCA, Inc., or its successor.
"GENERAL SUBACCOUNT" means a subaccount of the collection account into
which funds received from collections of intangible transition charges,
indemnity amounts and investment earnings will initially be allocated.
"INDEMNITY AMOUNTS" means any amounts paid by the seller or servicer to the
bond trustee, for itself or on behalf of all transition bondholders, related to
specified indemnification obligations under the sale agreement and the master
servicing agreement described in this prospectus and the related prospectus
supplement.
"INITIAL LOSS CALCULATION DATE" means the monthly allocation date
immediately following the day which is 90 days after the seller receives a
notice from the issuer or the bond trustee, that the seller is required to
indemnify the bond trustee under the sale agreement.
"INTEREST" means, for any monthly allocation date for any series of
transition bonds, the sum of, without duplication:
o an amount that would cause the amount on deposit for interest in each
series subaccount, without regard to investment income, to equal the
monthly allocated interest balance for that series and that monthly
allocation date,
o if the transition bonds have been declared due and payable, all accrued
and unpaid interest,
o for a series to be redeemed prior to the next monthly allocation date,
the amount of interest that will be payable as interest on that series on
the redemption date, and
o any interest due on that series on a payment date or other date for the
payment of interest and not paid and, to the extent permitted by law,
interest on that amount.
"INTEREST DEPOSIT SUBACCOUNT" means a subaccount of the collection account
into which designated interest payments remitted by seller to the bond trustee
will be deposited.
"IP&L" stands for Indianapolis Power & Light Company.
"LEGAL DEFEASANCE OPTION" means the right of the issuer to, at any time,
terminate all of its obligations under the indenture with respect to the
transition bonds of any series as described in "The Indenture--Legal Defeasance
and Covenant Defeasance."
"LIQUIDATED DAMAGES" means an amount sufficient to pay all expenses and
indemnity payments due to the bond trustee, the issuer trustee or the issuer and
the principal of all outstanding transition bonds adversely affected by the
breach of specified representations and warranties, plus accrued interest to the
date of redemption and breakage costs or termination fees, if any, due to any
counterparty to any hedge or swap transaction applicable to the applicable
transition bonds entered into by the issuer payable by PECO Energy for the
breach of designated representations concerning intangible transition property
under the sale agreement as described in this prospectus and the related
prospectus supplement.
"LOSS AMOUNTS" means any amounts remitted by the seller to the bond trustee
pursuant to the sale agreement in respect of losses as a result of willful
misconduct, bad faith, gross negligence or reckless disregard of its obligations
under the sale agreement or the breach of designated representations and
warranties in the sale agreement by the seller as described in this prospectus
and the related prospectus supplement.
114
<PAGE>
"LOSS SUBACCOUNT" means a subaccount of the collection account into which
loss amounts remitted by the seller to the bond trustee will be deposited.
"MASTER SERVICING AGREEMENT" means the Amended and Restated Master
Servicing Agreement between PECO Energy, as servicer, and the issuer, dated as
of March 25, 1999, as amended and restated as of the closing date for the
issuance of the first series of transition bonds under the 2000 QRO, as the same
may be further amended and supplemented from time to time.
"MONTHLY ALLOCATED INTEREST BALANCE" and the "MONTHLY ALLOCATED PRINCIPAL
BALANCE," if applicable, for each monthly allocation date and each series will
each be set forth in the related prospectus supplement for that series and will
be calculated such that amounts scheduled to be paid on each payment date for
interest and principal, respectively, for that series and that monthly
allocation date will be expected to be on deposit in the applicable series
subaccount as of the monthly allocation date prior to that payment date, whether
from collections of intangible transition charges or payments made by any
counterparty to a swap or hedge transaction entered into by the issuer.
"MONTHLY ALLOCATED OVERCOLLATERALIZATION BALANCE" for each monthly
allocation date will be set forth in the first prospectus supplement and
adjusted to reflect redemptions or defeasances of transition bonds and issuances
of additional series of transition bonds and will be calculated such that the
calculated overcollateralization level for each payment date will be expected to
be on deposit in the overcollateralization subaccount as of the monthly
allocation date prior to that payment date.
"MONTHLY ALLOCATION DATE" means the 6th day of each calendar month, or if
that day is not a business day, the following business day. On this date, the
bond trustee allocates amounts on deposit in the general subaccount as described
in "The Indenture--Allocations and Payments" in this prospectus.
"MOODY'S" means Moody's Investors Service, Inc., or its successor.
"OVERCOLLATERALIZATION" means, for any monthly allocation date, an amount
that would cause the balance in the overcollateralization subaccount to equal
the monthly allocated overcollateralization balance for that monthly allocation
date, without regard to investment earnings.
"OVERCOLLATERALIZATION SUBACCOUNT" means a subaccount of the collection
account into which the overcollateralization amount will be deposited over the
expected life of a series of transition bonds.
"PECO ENERGY" means PECO Energy Company, a Pennsylvania corporation.
"PERCENTAGE" means, for the issuer or any other issuer of transition bonds,
the percentage equivalent of a fraction:
o the numerator of which is the aggregate intangible transition charges (as
adjusted from time to time) applicable to all series of transition bonds
issued by the issuer or any other issuer, as applicable, and
o the denominator of which is the aggregate intangible transition charges
(as adjusted from time to time) applicable to all series of transition
bonds issued by the issuer and all other issuers.
"PRINCIPAL" means, for any monthly allocation date and any series of
transition bonds, an amount that:
o would cause the amount on deposit for principal in the series subaccount,
without regard to investment income, for that series to equal the monthly
allocated principal balance for that series and that monthly allocation
date,
o would be payable as principal as a result of the occurrence and
continuance of an event of default,
o for a series that is subject to redemption, would be payable as principal
as a result of a redemption of that series pursuant to the indenture, or
o any principal due on a series on a payment date or other date for the
payment of principal and not paid.
"PRO RATA" means, for any series of transition bonds, a ratio,
115
<PAGE>
o in the case of the amount of Interest allocated to the series subaccounts
(item (5) on page 95 of this prospectus), the numerator of which is the
monthly allocated interest balance for that series for that monthly
allocation date and the denominator of which is the sum of monthly
interest balances for all series for that monthly allocation date,
o in the case of the amount of Principal allocated to the series subaccount
as a result of designated events (item (6) on page 95 of this
prospectus), the numerator of which is the amount allocable under that
item for that series and the denominator of which is the amount allocable
to all series under that item, and
o in the case of the amount of Principal allocated to the series
subaccounts not provided for in this previous item (item (7) on page 95
of this prospectus), the numerator of which is the monthly allocated
principal balance for that series for that monthly allocation date and
the denominator of which is the sum of monthly allocated principal
balances for all series for that monthly allocation date.
"QUALIFIED RATE ORDERS" means the first qualified rate order issued by the
Pennsylvania Public Utility Commission to PECO Energy Company on May 14, 1998,
the second qualified rate order issued to PECO Energy Company on March 16, 2000
and any subsequent order of the Pennsylvania Public Utility Commission, adopted
in accordance with the Pennsylvania Competition Act, which creates intangible
transition property and authorizes the imposition and collection of intangible
transition charges by PECO Energy or its assignee. This term also includes any
order that is supplemental to any of the foregoing.
"QUALIFIED TRANSITION EXPENSES," as set forth in the qualified rate orders,
means, collectively, the aggregate principal amount of the transition bonds and
an amount sufficient to provide for any credit enhancement, to fund any
reserves, and to pay interest, premiums, if any, costs of defeasance, servicing
fees and other fees, costs and charges relating to transition bonds.
"RATING AGENCY" means any rating agency rating the transition bonds of any
class or series at the time of issuance of that class or series at the request
of the issuer.
"RATING AGENCY CONDITION" means, with respect to any action, the
notification in writing by each rating agency to PECO Energy, the servicer, the
bond trustee and the issuer that any such action will not result in a reduction
or withdrawal of the then current rating by that rating agency of any
outstanding series or class of transition bonds.
"REQUIRED CAPITAL AMOUNT" means the amount of capital required to be
deposited by the issuer into the capital subaccount upon the issuance of a
series of transition bonds, which represents a capital contribution from PECO
Energy.
"RESERVE SUBACCOUNT" means a subaccount of the collection account into
which will be deposited the excess, if any, of collections of intangible
transition charges over amounts then scheduled to be paid or due on a series of
transition bonds, plus related expenses, plus amounts needed to make required
deposits to the overcollateralization subaccount.
"RESTRUCTURING ORDER" means the Opinion and Order issued by the
Pennsylvania Public Utility Commission, revised in January and February 1998,
which deregulated PECO Energy's electric generation operations as described in
"PECO Energy's Restructuring Plan."
"RESTRUCTURING PLAN SETTLEMENT" means the settlement filed by PECO Energy
and other parties with the Pennsylvania Public Utility Commission on April 29,
1998 and approved by the Pennsylvania Public Utility Commission In the final
order.
"SALE AGREEMENT" means the Intangible Transition Property Sale Agreement
between the issuer and PECO Energy dated as of March 25, 1999, as amended and
restated as of the closing date for the issuance of the first series of
transition bonds under the 2000 QRO, as the same may be further amended and
supplemented from time to time.
"SEC" means the Securities and Exchange Commission.
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"SERIES OF TRANSITION BONDS" means the Series 1999-A Bonds, each series of
transition bonds offered by this prospectus and any other series of transition
bonds which are issued under and are subject to the terms of the indenture.
"SERIES SUBACCOUNT" means a subaccount of the collection account for each
series of transition bonds. On each monthly allocation date, the bond trustee
will deposit amounts to this account accruing for principal and interest for
each series, based on each series' percentage of the total allocated principal
and interest of all series.
"SERVICER DEFAULT" means a default of the servicer under the master
servicing agreement, including the defaults described under the "The Master
Servicing Agreement--Servicer Defaults."
"STANDARD & POOR'S" means Standard & Poor's Rating Services, or its
successor.
"TRANSFERRED INTANGIBLE TRANSITION PROPERTY" means intangible transition
property which is transferred from PECO Energy to the issuer under the sale
agreement and the related bills of sale.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations, or certificates
representing an ownership interest in those obligations, of the United States of
America, including any agency or instrumentality of the United States of
America, for the payment of which the full faith and credit of the United States
of America is pledged and which are not callable at the issuer's option.
117
<PAGE>
PECO ENERGY TRANSITION TRUST
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants ......................................... F-2
Statement of Net Assets Available for Trust Activities .................... F-3
Statement of Changes in Net Assets Available for Trust Activities ......... F-4
Notes to Financial Statements ....................................... F-5 to F-9
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees
PECO Energy Transition Trust
Wilmington, DE:
In our opinion, the accompanying statements of net assets available for trust
activities and the related statements of changes in net assets available for
trust activities present fairly, in all material respects, the net assets
available for trust activities of the PECO Energy Transition Trust (the "Trust")
as of December 31, 1999 and 1998, and the changes in net assets available for
trust activities for the year ended December 31, 1999 and for the period from
June 23, 1998 (date of Inception) to December 31, 1998, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Trust's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 16, 2000
F-2
<PAGE>
PECO ENERGY TRANSITION TRUST
STATEMENT OF NET ASSETS AVAILABLE FOR TRUST ACTIVITIES
(IN MILLIONS)
DECEMBER 31,
----------------
1999 1998
-------- ----
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 173.5 $ --
Interest Receivable....................................... 0.9 --
Due from Related Party.................................... 42.1 --
Current portion of Intangible Transition Property......... 134.7 --
-------- ----
Total Current Assets................................... 351.2 --
======== ====
Noncurrent Assets:
Debt Issuance Costs, net of amortization.................. 22.7 2.1
Intangible Transition Property, net of amortization....... 3,858.7 --
-------- ----
Total Assets........................................... 4,232.6 2.1
======== ====
LIABILITIES
Current Liabilities:
Accrued Interest Expense.................................. 82.8 --
Current portion of Transition Bonds....................... 120.0 --
-------- ----
Total Current Liabilities.............................. 202.8 --
======== ====
Due to Related Party........................................ 110.7 2.1
Long-Term Debt--Transition Bonds............................ 3,832.6 --
-------- ----
Total Liabilities...................................... 4,146.1 2.1
======== ====
Net Assets Available for Trust Activities................... $ 86.5 $ --
======== ====
See notes to financial statements.
F-3
<PAGE>
PECO ENERGY TRANSITION TRUST
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR TRUST ACTIVITIES
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
FOR THE (JUNE 23, 1998)
YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ADDITIONS
Contributions by Trust Grantor.................................... $ 20.0 $ --
ITC Collections................................................... 310.4 --
Debt Issuance Costs............................................... 22.9 2.1
Intangible Transition Property.................................... 4,080.2 --
Interest Income................................................... 3.9 --
--------- -----
Total Additions..................................................... 4,437.4 2.1
========= =====
DEDUCTIONS
Due to Related Party.............................................. 66.5 2.1
Transition Bonds.................................................. 3,994.6 --
Interest Expense.................................................. 192.6 --
Amortization of Debt Issuance Costs............................... 2.3 --
Amortization of Intangible Transition Property.................... 86.8 --
Amortization of Debt Discount..................................... 0.6 --
Service Fee Expense............................................... 7.5 --
--------- -----
Total Deductions.................................................. 4,350.9 2.1
--------- -----
Changes in Net Assets Available for Trust Activities................ 86.5 --
--------- -----
Net Assets Available for Trust Activities at Beginning of Period.... -- --
--------- -----
Net Assets Available for Trust Activities at End of Period.......... $ 86.5 $ --
========= =====
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PECO ENERGY TRANSITION TRUST
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
PECO Energy Transition Trust (PETT), a statutory business trust established
by PECO Energy Company (PECO Energy) under the laws of the State of Delaware and
a wholly owned subsidiary of PECO Energy, was formed on June 23, 1998 pursuant
to a trust agreement between PECO Energy, as grantor, First Union Trust Company,
N.A., as issuer trustee, and two beneficiary trustees appointed by PECO Energy.
PECO Energy is principally engaged in the production, purchase, transmission,
distribution, and sale of electricity to residential, commercial, industrial and
wholesale customers in its franchised services territory in southeastern
Pennsylvania. PETT was organized by PECO Energy as a special purpose,
bankruptcy-remote entity to issue bonds to securitize a portion of PECO Energy's
stranded cost recovery authorized by the Pennsylvania Public Utility Commission
(PUC) pursuant to the Pennsylvania Electric Generation Customer Choice and
Competition Act (Pennsylvania Competition Act).
The Pennsylvania Competition Act, enacted in December 1996, allows
utilities to recover the anticipated loss in value of their generation-related
assets caused by the transition from regulated rates for generation to market
pricing.
Under its trust agreement, PETT is authorized to purchase and own
Intangible Transition Property (ITP), issue transition bonds, pledge its
interest in ITP and other collateral to the bond trustee to secure the
transition bonds, and perform activities that are necessary and suitable to
accomplish these purposes. ITP represents the irrevocable right of PECO Energy,
or its successor or assignee, to collect a non-bypassable Intangible Transition
Charge (ITC) from customers. The Pennsylvania Public Utility Commission (PUC)
authorized PETT to collect ITC in the PUC's Qualified Rate Order issued on May
14, 1998 (1998 QRO). The 1998 QRO authorizes the ITC to be sufficient to recover
up to $4 billion of PECO Energy's stranded costs and an amount sufficient to
recover the aggregate principal amount of the Series 1999-A Transition Bonds
(Transition Bonds), plus an amount sufficient to provide for any credit
enhancement, to fund any reserves and to pay interest, redemption premiums, if
any, servicing fees and other expenses relating to the Transition Bonds which
are solely debt obligations of PETT. PETT used the proceeds of the Transition
Bonds to purchase ITP from PECO Energy for $4.080 billion which represented an
amount sufficient to recover the aggregate principal amount of the Transition
Bonds and related expenses including interest and servicing fees.
PECO Energy, as servicer, deposits ITC collections into a general
subaccount maintained by the bond trustee under the indenture. Each month, such
monies are used to make principal and interest payments on the Transition Bonds,
and to pay fees, costs, and charges specified in the indenture. The indenture
also includes a reserve subaccount that is maintained for the purpose of
retaining any ITC collections and investment earnings that are in excess of
specific fees and expenses and amounts allocable to the payment of principal of
and interest on the Transition Bonds and to the overcollateralization
subaccount. The indenture also provides for an overcollateralization subaccount,
which will be funded ratably, to a balance of $80 million, over the life of the
Transition Bonds. The balances of the reserve and overcollateralization
subaccounts as of December 31, 1999 were $15.0 million and $7.1 million,
respectively. Additionally, an amount of $20 million, representing PECO Energy's
initial capitalization of PETT, was deposited into the capital subaccount under
the indenture on the date of issuance. If amounts available in the general,
reserve, and overcollateralization subaccounts are not sufficient on any payment
date to make scheduled payments, the bond trustee will draw on accounts in the
capital subaccount. Any remaining amounts collateralizing the Transition Bonds
will be released to PETT upon payment of the Transition Bonds.
PETT's organizational documents require it to operate in such a manner that
it should not be consolidated in the bankruptcy estate of PECO Energy in the
event PECO Energy becomes subject to such a proceeding, and both PECO Energy and
PETT have treated the transfer of ITP to PETT as a sale under the Pennsylvania
Competition Act.
F-5
<PAGE>
PECO ENERGY TRANSITION TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
On or before May 14th of each year, the anniversary date of the 1998 QRO, a
report to determine the adequacy of ITC collections for the annual period is
submitted to the PUC by PECO Energy. If adjustments are needed, the PUC is
required to adjust collection rates on a prospective basis within 90 days of May
14th.
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 and liabilities, and
changes therein. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
PETT considers all cash investments purchased with an original maturity of
three months or less to be cash equivalents. Financial instruments which
potentially subject PETT to concentrations of credit risk consist principally of
cash equivalents. PETT places its cash equivalents with high-credit quality
financial institutions. Generally, such investments are in excess of the Federal
Deposit Insurance Corporation limit.
INTANGIBLE TRANSITION PROPERTY
The ITP is being amortized in conjunction with the reduction of Transition
Bond principal on an accrual basis. As of December 31, 1999, accumulated ITP
amortization was $86.8 million.
UNAMORTIZED DEBT ISSUANCE COSTS
The costs associated with the issuance of the Transition Bonds have been
capitalized and are being amortized on a straight line basis over the life of
the Transition Bonds. As of December 31, 1999, accumulated amortization of debt
issuance cost was $2.3 million.
INCOME TAXES
PETT is a wholly owned subsidiary of PECO Energy and has elected not to be
taxed as a corporation for federal income tax purposes. PETT is a special
purpose entity that is treated as a division of PECO Energy for federal income
tax purposes and has no separate income tax liability.
DERIVATIVE FINANCIAL INSTRUMENTS
Hedge accounting is applied only if the derivative reduces the risk of the
underlying hedged item and is designed at inception as a hedge, with respect to
the hedged item. If a derivative instrument ceased to meet the criteria for
deferral, any gains or losses, would be currently recognized in income. PETT
does not hold or issue derivative financial instruments for trading purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS
No. 133) to establish accounting and reporting standards for derivatives. The
new standard requires recognizing all derivatives as either assets or
liabilities on the balance sheet at their fair value and specifies the
accounting for changes in fair value depending upon the intended use of the
derivative. In June 1999, the FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," (SFAS No. 137) which delayed the effective date for
SFAS No. 133 until fiscal years beginning after June 15, 2000. PETT expects to
adopt SFAS No. 133 in the first quarter of 2001. PETT is in the process of
evaluating the impact of SFAS No. 133 on its financial statements.
F-6
<PAGE>
PECO ENERGY TRANSITION TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. TRANSITION BONDS
On March 25, 1999, PETT issued $4 billion aggregate principal amount of
Transition Bonds to securitize a portion of PECO Energy's authorized stranded
cost recovery. The Transition Bonds are solely obligations of PETT, secured by
ITP sold by PECO Energy to PETT concurrently with the issuance of the Transition
Bonds and certain other collateral related thereto. The following table
summarizes the outstanding principal balances of the Transition Bonds at
December 31:
<TABLE>
<CAPTION>
EXPECTED
FINAL PAYMENT TERMINATION
CLASSES RATE DATE(A) DATE(A) 1999 1998
- ------- ---- ------------- ----------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
A-1................................. 4.48% 2001 2003 $ 202 $ --
A-2................................. 5.63% 2003 2005 275 --
A-3................................. 6.06%(b) 2004 2006 667 --
A-4................................. 5.80% 2005 2007 459 --
A-5................................. 6.14%(b) 2007 2009 465 --
A-6................................. 6.05% 2007 2009 993 --
A-7................................. 6.13% 2008 2009 897 --
------
Unamortized debt discount.................................................... (5)
------
Total Long-Term Debt......................................................... 3,953
Due within one year.......................................................... 120
------
Long-Term Debt............................................................... $3,833 $ --
====== ======
</TABLE>
- ------------------
(a) The Expected Final Payment Date is the date when all principal and interest
of the related class of Transition Bonds is expected to be paid in full in
accordance with the expected amortization schedule for the applicable class.
The Termination Date is the date when all principal and interest of the
related class of Transition Bond must be paid in full. The current portion
of the Transition Bonds is based upon the expected maturity date.
(b) Floating rate, as of December 31, 1999, based upon the London Interbank
Offering Rate (LIBOR) plus 0.125% for the A-3 class and LIBOR plus 0.20% for
the A-5 class.
PETT makes semi-annual principal payments pursuant to an amortization
schedule in the Transition Bond indenture dated March 1, 1999. On September 1,
1999, the first principal payment was made in the amount of $42.5 million which
reduced the outstanding principal balance of the class A-1 Transition Bonds.
Long-term debt maturities, in the period 2000-2004 are as follows (in millions):
2000 - $120; 2001 - $188; 2002 - $277; 2003 - $470; 2004 - $518 and $2,380
thereafter.
Fair values of the Transition Bonds are estimated based on quoted market
prices. The carrying amounts and fair values of the Transition Bonds as of
December 31, 1999 were $3.953 billion and $3.700 billion, respectively.
PETT has entered into interest rate swaps to manage interest rate exposure
associated with the issuance of two floating rate classes of Transition Bonds.
The aggregate notional amount of these swaps was equal to the face values of
those two floating rate classes. At December 31, 1999, the fair value of these
instruments was $35.8 million based on the present value difference between the
contracted rate and the market rates at that date. The fixed interest rates of
classes A-3 and A-5 are 6.58% and 6.94%, respectively. A hypothetical 50 basis
point increase or decrease in the spot yield at December 31, 1999 would have
resulted in an aggregate fair value of these interest rate swaps of $52.0
million or $21.9 million, respectively. If the derivative instruments had been
terminated at December 31, 1999, these estimated fair values represent the
amount to be paid by the counterparties to PETT.
F-7
<PAGE>
PECO ENERGY TRANSITION TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. TRANSITION BONDS--(CONTINUED)
PETT would be exposed to credit-related losses in the event of
non-performance by the counterparties that issued the derivative instruments.
PETT does not expect that the counterparties to the interest rate swaps will
fail to meet these obligations, given their high credit ratings. The credit
exposure of derivatives contracts is represented by the fair value of the
contracts at the reporting date. PETT interest rate swaps are documented under
master agreements. Among other things, these agreements provide for a maximum
credit exposure for both parties. Payments are required by the appropriate party
when the maximum limit is reached.
3. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
PETT purchased ITP from PECO Energy pursuant to the Intangible Transition
Property Sale Agreement dated March 25, 1999 (Sale Agreement). Under the Sale
Agreement, PECO Energy makes certain representations and warranties about the
ITP and indemnifies PETT for losses caused by the breach of such representations
and warranties. To the extent a breach concerns the existence of the ITP or the
ability to charge ITC in the amounts sufficient to meet a pre-set amortization
schedule, PECO Energy must pay liquidated damages equal to the lost principal
and interest of the amortization schedule.
For financial reporting purposes and Federal and Commonwealth of
Pennsylvania income and franchise tax purposes the transfer of ITP to PETT will
be treated as a financing arrangement and not a sale.
Transition Bonds were issued pursuant to the Indenture dated as of March 1,
1999 (Indenture). Under the Indenture, PETT has pledged all of its property,
including the ITP to secure the Transition Bonds. The Indenture prohibits PETT
from selling, transferring, exchanging, or otherwise disposing of any of the
collateral unless directed to do so by the Trustee; from claiming any credit or
making any deduction from the principal, premium, if any, or interest on
Transition Bonds or against any Transition Bond holder; permitting the validity
of effectiveness of the Indenture to be impaired or permitting the lien of the
Indenture to be amended, hypothecated, subordinated, terminated, of discharged;
permitting any person to be released from any of the covenants or obligations
with respect to Transition Bonds as expressly permitted by the Indenture;
permitting any liens, charges, or claims, security interest or mortgage (other
than the lien created by the Indenture) to be created in or extend to or
otherwise arise upon or burden the collateral or any part thereof; or permitting
the lien of the Indenture not to constitute a valid, first priority security
interest in the collateral.
Under the Master Servicing Agreement entered into by PETT and PECO Energy
dated as of March 25, 1999, PECO Energy, as servicer, manages and administers
the ITP sold to PETT and collects the ITC related thereto on behalf of PETT.
In 1999, PETT recorded $353.3 million of ITC collections, of which $42.9
million have not yet been remitted from PECO Energy to PETT, and $7.5 million in
servicing fees based upon the outstanding principal amount of the Transition
Bonds, of which $0.8 million have not yet been remitted from PETT to PECO
Energy.
As of December 31, 1999, the Due to Related Party balance represents an
advance of $110.7 million for initial working capital requirements and operating
expenses and is not considered to be currently due by PECO Energy. As of
December 31, 1998, the Due to Related Party balance primarily represents legal
costs.
4. LITIGATION
Indianapolis Power and Light Company (IPL) filed an action which sought to
invalidate the Competition Act and thereby preclude PECO Energy from recovering
and securitizing stranded costs. IPL asserted that the Pennsylvania Competition
Act discriminates against interstate commerce in violation of the Commerce
Clause of the United States Constitution. The Commonwealth Court of Pennsylvania
dismissed this action. IPL sought review of this dismissal by the United States
Supreme Court which denied certiorari on March 8,
F-8
<PAGE>
PECO ENERGY TRANSITION TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LITIGATION--(CONTINUED)
1999. All appeals of the PUC's Final Order dated May 14, 1998 that were being
pursued have been resolved and all other appeals that were being held in
abeyance have been withdrawn with prejudice from the Commonwealth Court of
Pennsylvania and the United States District Court.
On February 7, 2000, the Mid-Atlantic Power Supply Association filed an
intervention to the PUC's proceedings on PECO Energy's January 7, 2000
application for a QRO (the 2000 QRO) to ensure that the proposed securitization
does not have an adverse effect on competition in the retail electrical services
market in Pennsylvania. Specifically, this association expressed concern that
the 2000 QRO would cause a reduction in the shopping credit established in the
1998 QRO and would enable PECO Energy to use the proposed rate reduction in 2001
to promote its provider of last resort service.
The Mid-Atlantic Power Supply Association subsequently agreed to join with
several of the parties who participated in PECO Energy's restructuring
proceeding in a second settlement, which was filed with the PUC on March 8,
2000. On March 16, 2000, the PUC issued an order approving a Joint Petition for
Full Settlement of PECO Energy Company's Application for Issuance of a QRO
authorizing PECO Energy to securitize up to an additional $1.0 billion of its
authorized recoverable stranded costs. In accordance with the terms of the Joint
Petition for Full Settlement, when the 2000 QRO becomes final and
non-appealable, PECO Energy, through its distribution business unit, will
provide its retail customers with rate reductions in the total amount of $60
million beginning on January 1, 2001. This rate reduction will be effective for
calendar year 2001 only and will not be contingent upon the issuance of
additional transition bonds pursuant to the 2000 QRO.
F-9
<PAGE>
ANNEX A
The following summary is provided only for your information. The prospectus
to which this annex is attached applies only to bonds issued under that
prospectus and not to the Series 1999-A Bonds.
SERIES 1999-A BONDS
$4,000,000,000
<TABLE>
<S> <C>
ISSUER: PECO ENERGY TRANSITION TRUST
SELLER: PECO ENERGY COMPANY
SERVICER: PECO ENERGY COMPANY
SWAP COUNTERPARTY FOR THE
CLASS A-3 BONDS: GOLDMAN SACHS MITSUI MARINE DERIVATIVE PRODUCTS, L.P.
SWAP COUNTERPARTY FOR THE
CLASS A-5 BONDS: CITIBANK, N.A., NEW YORK
BOND TRUSTEE: THE BANK OF NEW YORK
PRICING DATE: MARCH 18, 1999
SERIES ISSUANCE DATE: MARCH 25, 1999
CLEARANCE AND SETTLEMENT: DTC/CEDEL/EUROCLEAR
</TABLE>
<TABLE>
<CAPTION>
Initial Class Principal Balance Bond Rate % of Total Series Principal
------------------------------- ------------ ---------------------------
<S> <C> <C> <C>
Class A-1 $ 244,470,272 5.48% 6.11%
Class A-2 $ 275,371,325 5.63% 6.88%
Class A-3 $ 667,000,000 LIBOR+0.125%* 16.68%
Class A-4 $ 458,518,647 5.80% 11.46%
Class A-5 $ 464,600,000 LIBOR+0.200%* 11.62%
Class A-6 $ 993,386,331 6.05% 24.83%
Class A-7 $ 896,653,425 6.13% 22.42%
</TABLE>
* Calculated as described under "The Series 1999-A Bonds--Interest" in the
prospectus supplement for the Series 1999-A Bonds.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Monthly Servicing Fee: Either 1/12 of 0.25% of the outstanding principal balance of the Series 1999-A Bonds as long as
intangible transition charges are included in electric bills sent to customers or 1/12 of 1.50%
of the outstanding principal balance of the Series 1999-A Bonds if intangible transition
charges are not included in electric bills sent to Customers.
Anticipated Ratings: S&P/Fitch IBCA/Duff & Phelps AAA
Moody's Aaa
Credit Enhancement: ITC adjustments; overcollateralization, funded over the life of the Series 1999-A Bonds and
expected to be $80 million by the expected final payment date of the Class A-7 Bonds; capital
of the Issuer, funded upon the issuance of each Series and expected to be $20 million.
Payment Dates: March 1 and September 1 of each year or, if not a business day, the next business day.
First Payment Date: September 1, 1999.
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7
----------- ----------- ----------- ----------- -------------- ----------- --------------
Expected Final
Payment Date: March 1, March 1, March 1, March 1, September 1, March 1, September 1,
2001 2003 2004 2005 2007 2007 2008
Termination Date: March 1, March 1, March 1, March 1, March 1, March 1, March 1,
2003 2005 2006 2007 2009 2009 2009
Optional Redemption: No No On or After No On or After No No
March 1, March 1,
2001 2001
All Series 1999-A Bonds are subject to optional redemption in whole once the outstanding
principal balance of the Series 1999-A Bonds has been reduced to less than 5% of the initial
principal balance.
Record Date: Close of business on the day prior to any Payment Date.
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7
----------- ----------- ----------- ----------- -------------- ----------- --------------
CUSIP Numbers: 705220 AA9 705220 AB7 705220 AC5 705220 AD3 705220 AE1 705220 AF8 705220 AG6
</TABLE>
A-1
<PAGE>
================================================================================
$1,000,000,000
PECO ENERGY TRANSITION TRUST
ISSUER
PECO ENERGY COMPANY
SELLER AND SERVICER
SERIES 2000-A
TRANSITION BONDS
__________________
P R O S P E C T U S S U P P L E M E N T
APRIL 27, 2000
__________________
SALOMON SMITH BARNEY
BANC ONE CAPITAL MARKETS, INC.
FIRST UNION SECURITIES, INC.
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
JANNEY MONTGOMERY SCOTT LLC
BARCLAYS CAPITAL
BNY CAPITAL MARKETS, INC.
MELLON FINANCIAL MARKETS, LLC
PRUDENTIAL SECURITIES
PRYOR, COUNTS & CO., INC.
TD SECURITIES
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS OF THESE SECURITIES AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING THESE SECURITIES WILL DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS UNTIL MAY 27, 2000.
================================================================================
