As filed with the Securities and Exchange Commission on March 3, 2000
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PECO Energy Transition Trust
--------------------------------------------------------------
(Exact name as specified in registrant's Certificate of Trust)
Delaware 51-0382130
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
c/o First Union Trust Company, National Association
One Rodney Square, 920 King Street
Wilmington, DE 19801
(302) 888-7532
------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Thomas R. Miller
Beneficiary Trustee
P.O. Box 8699, 2301 Market Street
Philadelphia, PA 19101
(215) 841-4000
------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
<TABLE>
<CAPTION>
Copies to:
<S> <C> <C>
ROBERT C. GERLACH, ESQ. JAMES W. DURHAM, ESQ. GREGORY M. SHAW, ESQ.
LISA M. SLOAN, ESQ. Senior Vice President and Cravath, Swaine & Moore
Ballard Spahr Andrews & Ingersoll, LLP General Counsel Worldwide Plaza
1735 Market Street, 51st Floor P.O. Box 8699 825 Eighth Avenue
Philadelphia, PA 19103-7599 2301 Market Street New York, NY 10019
Philadelphia, PA 19101
</TABLE>
Approximate date of commencement of proposed sale to public: From time to time
after this Registration Statement becomes effective as determined by market
conditions.
<PAGE>
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed maximum Proposed maximum
Title of securities Amount to be aggregate offering aggregate offering Amount of
being registered registered price per unit* price* registration fee
------------------- ------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Transition Bonds.......... $1,000,000 100% $1,000,000 $264.00**
</TABLE>
* Estimated solely for the purposes of calculating the registration fee.
** Calculated pursuant to Rule 457(o) of the Securities Act.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. The prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of such State.
SUBJECT TO COMPLETION, DATED __________, 2000
PROSPECTUS SUPPLEMENT
(To Prospectus dated _______________, 2000)
PECO Energy Transition Trust
Issuer
PECO Energy Company
Seller and Servicer
Series _____
$__________ 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......................... $ $ $ $
Price ................................... $ $ $ $
( %) ( %) ( %) ( %)
Underwriters' Discounts and Commissions.. $ $ $ $
( %) ( %) ( %) ( %)
Proceeds to the Issuer................... $ $ $ $
Bond Rate................................
Interest Paid............................
First Payment Date.......................
Optional Redemption......................
Expected Final Payment Date..............
Termination Date.........................
</TABLE>
Before you purchase these securities, you should carefully
consider the Risk Factors beginning on page 22
in the accompanying prospectus.
o These securities are obligations of PECO Energy Transition Trust only
and are backed only by the assets of PECO Energy Transition Trust.
o The issuer 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 ______ Bonds, and
there is no assurance that one will develop.
[Underwriters]
The date of this prospectus supplement is _______________, 2000.
<PAGE>
TABLE OF CONTENTS
Where to Find Information in These Documents.................................S-1
Summary of Terms.............................................................S-2
Securities Offered..................................................S-2
Introduction........................................................S-4
The Collateral......................................................S-5
Interest............................................................S-6
Principal...........................................................S-6
Credit Enhancement..................................................S-7
Optional Redemption .........................................S-8
Mandatory Redemption................................................S-8
Intangible Transition Charge Adjustment Process.....................S-9
Tax Status.........................................................S-10
ERISA Considerations...............................................S-11
Risk Factors................................................................S-12
The Series _____ Bonds.............................................S-12
General............................................................S-12
Distributions to the Series _____ Subaccount.......................S-12
Distributions from the Series _____ Subaccount.....................S-13
Interest...........................................................S-13
Principal..........................................................S-14
Optional Redemption................................................S-16
Mandatory Redemption...............................................S-16
Overcollateralization..............................................S-17
Other Credit Enhancement...........................................S-19
Reports to Holders of Series _____ Bonds...........................S-19
Description of Intangible Transition Property...............................S-20
The Intangible Transition Charges..................................S-20
Adjustments to the Intangible Transition Charges...................S-24
Description of PECO Energy's Business.......................................S-25
Servicing...................................................................S-25
Monthly Servicing Fee..............................................S-25
Servicer Advances..................................................S-26
Underwriting the Series _____ Bonds.........................................S-26
Ratings.....................................................................S-28
Glossary of Defined Terms...................................................S-29
<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 22 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,
o The Series _____ Bonds describes the key structural features of your
series, and
o Description of Intangible Transition Property describes the intangible
transition charges that provide the source for payment of your series
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.
- --------------------------------------------------------------------------------
S-1
<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.
Securities Offered
Series _____ Transition Bonds
$__________
- --------------------------------------------------------------------------------
Issuer: PECO Energy Transition Trust
Seller and Servicer: PECO Energy Company
[Credit Enhancement Provider: _____________, provider of [to be provided at
issuance]]
Bond Trustee: The Bank of New York
Pricing Date: _____________, 2000
Series Issuance Date: _____________, 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 $ % %
Class A-2 $ % %
Class A-3 $ % %
Class A-4 $ % %
</TABLE>
<TABLE>
<S> <C> <C>
Monthly Servicing Fee: Either 1/12 of 0.25% of the outstanding principal
balance of the Series _____ Bonds so 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 _____
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: o Intangible transition charge adjustments,
</TABLE>
S-2
<PAGE>
o Overcollateralization for all series of transition
bonds, funded over the life of the Series _____
Bonds and expected to reach _____% of the initial
principal balance of this series of transition
bonds,
o Capital of the issuer, with an additional amount
funded upon the issuance of this series and equal
to _____% of the initial principal balance of this
series of transition bonds or $____________, and
o [Other to be provided at issuance]
Payment Dates: March 1 and September 1 of each year or, if not a
business day, the next business day.
First Payment Date: [to be provided at issuance]
Class A-1 Class A-2 Class A-3 Class A-4
--------- --------- --------- ---------
Expected Final
Payment Date:* [to be provided at issuance]
Termination Date: [to be provided at issuance]
* The expected final payment date is the date upon
which the issuer expects to make the final payment on
your Series _____ Bond. However, the final payment on
your Series _____ Bond may be made after that date.
Your Series _____ Bond will not be in default unless
it is not paid in full by its termination date set
forth above.
Optional Redemption: All Series _____ Bonds are subject to optional
redemption in whole once the outstanding principal
balance of the Series _____ Bonds has been reduced to
less than or equal to 5% of the initial principal
balance.
Mandatory Redemption: All Series _____ 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 business day prior to any
payment date.
Class A-1 Class A-2 Class A-3 Class A-4
--------- --------- --------- ---------
CUSIP Numbers: [to be provided at issuance]
S-3
<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 beginning in 1999.
Prior to enactment of the Pennsylvania Competition Act, electric utilities, such
as PECO Energy Company (referred to as PECO Energy throughout this prospectus
supplement), 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 fulfill 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 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 will 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, a qualified rate order issued by the Pennsylvania Public Utility Commission
to PECO Energy on May 14, 1998 and a second qualified rate order issued to PECO
Energy on ________, 2000. The first order authorized $4 billion of intangible
transition property which served, together with other assets, as collateral for
the Series 1999-A Bonds issued by PECO Energy Transition Trust 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. Upon issuance of the Series _____ Bonds, the
intangible transition property authorized by both qualified rate orders,
together with other assets, will serve as collateral for both the Series ____
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
S-4
<PAGE>
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 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,
which will then pledge all its property, including that intangible transition
property, to the bond trustee as the collateral for the Series _____ Bonds. 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."
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 _____ 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
S-5
<PAGE>
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 of the Series ____ Bonds will be allocated
among all series of transition bonds (which includes
the Series __ Bonds and the Series 1999-A Bonds) on a
Pro Rata basis, as described under the caption "The
Series _____ 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 ____ 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 _____ 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 _____ 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 _____
Bonds--Principal" in this prospectus supplement. The
actual amount of principal paid on any payment date on
your Series _____ 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
S-6
<PAGE>
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, including the
Series 1999-A Bonds and the Series _____ 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 _____ 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 these securities and is expected to reach
2% of the initial principal balance of all series of
transition bonds by the latest expected maturity date
of the Series __ Bonds.
Additional Credit Enhancement. In addition, capital of
the issuer (equal to .50% of the initial principal
balance of this series of
S-7
<PAGE>
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 _____ Bonds may be redeemed in whole once
the outstanding principal balance of the Series _____
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 _____ BondsCOptional Redemption" in this
prospectus supplement.
Mandatory Redemption If the seller is obligated to pay liquidated damages
under the sale agreement, the Series _____ Bonds will
be subject to mandatory redemption in whole at a
redemption price equal to the principal balance of the
Series _____ 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 solely to the First QRO and not the 2000 QRO,
then:
o the amount of liquidated damages will include the
then outstanding principal amount of only the
Series 1999-A Bonds as of the redemption date, plus
accrued interest to the redemption date, and
o only the Series 1999-A Bonds will be subject to
mandatory redemption.
Similarly, if the seller is obligated to pay
liquidated damages for a breach of a representation
and warranty which relates solely to the 2000 QRO and
not the First QRO, then:
o the amount of liquidated damages will include the
then outstanding principal amount of only the
Series _____
S-8
<PAGE>
Bonds as of the redemption date, plus accrued interest
to the redemption date, and
o only the Series _____ Bonds 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
(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 with
respect to the Series _____ Bonds:
Adjustment Date
Annual Adjustments..................5/14/00 - [______]
Monthly Adjustments
of Series _____ Bonds......[______]-Termination Date
The annual adjustments through [___________] 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
S-9
<PAGE>
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:
o Interest received by a holder of these transition
bonds that is a United States taxpayer will be
subject to federal income tax.
o A holder of the Series _____ Bonds will realize a
gain from the sale of the Series _____ 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
(ii) 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 _____ 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.
[o Discussion of tax consequences of OID, if
applicable.]
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 _____ Bonds in light of
their particular circumstances, as well as the effect
of any foreign, state, local or other laws.
S-10
<PAGE>
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
PrincipalExecutive 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.
S-11
<PAGE>
Risk Factors
For a discussion of the material risks associated with an investment in the
Series _____ Bonds, you should review the discussion under "Risk Factors," which
begins on page 22 of the accompanying prospectus.
[Series specific risks, if any, to be added at issuance]
The Series _____ Bonds
General
The Series _____ 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 _____ 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 160 of the accompanying prospectus.
The Series _____ 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 _____ Bonds will be paid
through The Depository Trust Company or, if the Series _____ 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 _____ 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, except that the final installment of principal and
premium, if any, payable with respect to any Series _____ Bond will be payable,
after prior notice to the holder, only upon presentation and surrender of the
Series _____ Bond at a place specified in that notice.
Distributions to the Series _____ 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. On each monthly allocation date,
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
S-12
<PAGE>
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. 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, see "The Indenture--Allocations and
Payments" in the accompanying prospectus.
Distributions from the Series _____ 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 _____ Bonds on each payment date as
follows:
(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 _____ 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 _______________, 2000, to the persons in whose names the Series _____
Bonds of each class are registered at the close of business on the applicable
record date.
Interest on the Series _____ 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 _____ 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
S-13
<PAGE>
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
Series 1999-A Series ____
Monthly Allocated Monthly Allocated
Monthly Allocation Date Interest Balance Interest Balance
- ----------------------- ----------------- -----------------
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 _____ subaccount, make
principal payments on each class of Series _____ Bonds in accordance with the
expected amortization schedule.
Available funds in the Series ____ subaccount will be allocated in a
sequential manner, to the extent funds are available, as follows:
(1) To the holders of the Series _____ Bonds, Class A-1, until this
class is retired in full,
(2) To the holders of the Series _____ Bonds, Class A-2, until this
class is retired in full,
(3) To the holders of the Series _____ Bonds, Class A-3, until this
class is retired in full, and
(4) To the holders of the Series _____ Bonds, Class A-4, until this
class is retired in full.
[etc., to be provided at issuance]
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.
S-14
<PAGE>
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 _____ Bonds
will be due and payable on the applicable class termination date.
In the event of an acceleration of payments following a default on the
Series _____ Bonds, principal payments on each class of Series _____ Bonds will
be made on a pro rata basis based on the respective outstanding principal
balance for each class as of the prior payment date.
The following expected amortization schedule sets forth the scheduled
outstanding class principal balance for each class of the Series _____ Bonds at
each payment date, after giving effect to the payments made on that date, from
the series issuance date to the expected final payment date for that class.
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 _____
- ------------------------ --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
series issuance date.............
</TABLE>
For various reasons, the actual class principal balance of any class of the
Series _____ 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 _____ Bonds.
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 _____ Bonds
is shown below. These balances are used for the allocation of funds from the
general subaccount to the series subaccounts on each
S-15
<PAGE>
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
Series 1999-A Series ____
Monthly Allocated Monthly Allocated
Monthly Allocation Date Principal Balance Principal Balance
- ----------------------- ----------------- -----------------
Optional Redemption
The Series _____ Bonds may be redeemed in whole on any payment date
commencing with the payment date on which the outstanding principal balance of
the Series _____ 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 _____ Bonds. Notice of redemption will be given
by the issuer to the bond trustee and Standard & Poor's Rating Group, Moody's
Investors Service Inc., Fitch IBCA, Inc. and Duff & Phelps.
Mandatory Redemption
If the seller, PECO Energy, is obligated to pay liquidated damages under
the sale agreement, the Series _____ 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 solely to the First QRO and not the
2000 QRO, then:
o the amount of liquidated damages will include the then outstanding
principal amount of only the Series 1999-A Bonds as of the
redemption date, plus accrued interest to the redemption date, and
o only the Series 1999-A Bonds will be subject to mandatory
redemption.
S-16
<PAGE>
Similarly, if the seller is obligated to pay liquidated damages for a
breach of a representation and warranty which relates solely to the 2000 QRO and
not the First QRO, then:
o the amount of liquidated damages will include the then outstanding
principal amount of only the Series _____ Bonds as of the
redemption date, plus accrued interest to the redemption date, and
o only the Series _____ Bonds 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 each series of transition bonds is
intended to be funded over the expected life of that series and is expected to
reach 2% of the initial principal amount of the Series 1999-A Bonds and the
Series _____ Bonds by the latest expected maturity date of the Series _____
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 _____ 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 Series ____
Calculated Calculated
Issuance or Overcollateralization Overcollateralization
Payment Date Level Level
- ------------ --------------------- ---------------------
<S> <C> <C>
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
..................................................... $ $
</TABLE>
TABLE 4A
Monthly Allocated Overcollateralization Balance
<TABLE>
<CAPTION>
Series 1999-A Series ______
Monthly Allocated Monthly Allocated
Monthly Allocation Date Overcollateralization Balance Overcollateralization Balance
- ----------------------- ----------------------------- -----------------------------
<S> <C> <C>
</TABLE>
S-18
<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 __________, 2000, the
balance in the reserve subaccount was $___________.
On each monthly allocation date, the bond trustee will 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 _____ Bonds, the issuer
will deposit the required capital amount of $_____ million in the capital
subaccount. As of __________, 2000, the balance in the capital subaccount was
$_______. On each monthly allocation date, 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 (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 _____ Bonds
On or prior to each payment date, the bond trustee will prepare and provide
statements to the holders of record of the Series _____ Bonds. These statements
will be available to the beneficial owners of the Series _____ 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.
S-19
<PAGE>
For a more detailed description of the statements provided to the holders
of record of the Series _____ Bonds, you should review the material under the
caption "The Indenture--Reports to Transition Bondholders" in the accompanying
prospectus.
Description of Intangible Transition Property
The Intangible Transition Charges
PECO Energy's customers belong to one of three customer categories. 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 be
allocated first from competitive transition charges, then to the extent
intangible transition charges exceed those amounts, from 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.
S-20
<PAGE>
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 _____ Bonds for each rate category.
TABLE 5
Average Intangible Transition Charges
<TABLE>
<CAPTION>
Projected Monthly
Calendar Year 1999 Intangible Charges
Average Monthly Initially Billed Upon
Calendar Year 1999 Intangible Transition Issuance of
Customer Category Average Monthly Bill Charges Series _____ Bonds
- ----------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Residential
Customers $______________ $____________ $____________
Small Commercial
and Industrial
Customers $______________ $____________ $____________
Large Commercial
and Industrial
Customers $______________ $____________ $____________
</TABLE>
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 ___ 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.
S-21
<PAGE>
TABLE 6
Projected Average Intangible Transition Charges for the Period ____ to ____
Residential Customers
Rate Class ITC Percentage
---------- --------------
Rate R %
Rate R-H %
Rate OP %
Small Commercial and Industrial Customers
Rate Class ITC Percentage
---------- --------------
Rate GS %
Rate POL %
Rate SL-P %
Rate SL-S %
Rate SL-E %
Rate TL %
Rate BLI(1) %
Large Commercial and Industrial Customers
Rate Class ITC Percentage
---------- --------------
Rate PD %
Rate HT %
Rate EP %
- ---------------
(1) No intangible transition charges are or will be imposed on Rate BLI
Customers.
S-22
<PAGE>
Rate Class Descriptions:
Rate classes 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 for nine years. These rate classes are:
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 also includes Rate RS customers receiving
service under a solar rate and 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, R-H and GS, for any customer receiving delivery at
certain voltage levels; during in-peak periods, PECO Energy can interrupt
service.
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.
S-23
<PAGE>
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.
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 both of
PECO Energy's 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
S-24
<PAGE>
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
Intangible Transition Charges
<TABLE>
<CAPTION>
Series 1999-A May 14, 1999 Series __
Rate Class Issuance Date (first adjustment date) Issuance Date
---------- ------------- ----------------------- -------------
<S> <C> <C> <C>
</TABLE>
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 will be entitled to receive
the monthly servicing fee in an amount equal to:
o one-twelfth of 0.25 percent of the outstanding principal balance of the
Series _____ Bonds for so long as intangible transition charges are
included in electric bills otherwise sent to customers, and
S-25
<PAGE>
o one-twelfth of 1.50 percent of the outstanding principal balance of the
Series _____ 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 the Series _____ 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 _____ Bonds.
Underwriting the Series _____ 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
____________________ 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 _____ 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>
$ $ $ $
</TABLE>
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to take and to pay for all of the Series _____ Bonds
offered hereby, if any are taken.
The Underwriters' Sales Price for the Series _____ Bonds. The underwriters
propose to offer the Series _____ 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:
S-26
<PAGE>
o __________ percent of the principal amount of the Series _____
Class A-1 Bonds,
o __________ percent of the principal amount of the Series _____
Class A-2 Bonds,
o __________ percent of the principal amount of the Series _____
Class A-3 Bonds and
o __________ percent of the principal amount of the Series _____
Class A-4 Bonds [etc. to be provided at issuance].
The underwriters may allow and the dealers may reallow a concession to
some brokers and dealers not in excess of:
o __________ percent of the principal amount of the Series _____
Class A-1 Bonds,
o __________ percent of the principal amount of the Series _____
Class A-2 Bonds,
o __________ percent of the principal amount of the Series _____
Class A-3 Bonds and
o __________ percent of the principal amount of the Series _____
Class A-4 Bonds [etc. to be provided at issuance].
After the Series _____ 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 _____
Bonds. The Series _____ Bonds are a new issue of securities with no established
trading market. The Series _____ Bonds 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 Series _____ 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 _____ Bonds.
Various Types of Underwriter Transactions Which May Affect the Price of the
Series _____ Bonds. The underwriters may engage in overallotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with
respect to the Series _____ 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 _____ Bonds so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Series _____ 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 _____ Bonds originally sold by the
syndicate member are purchased in a syndicate covering transaction.
S-27
<PAGE>
These overallotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the prices of the Series _____ 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
transition 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 _____ Bonds be rated "AAA" by Standard & Poor's, "AAA" by Fitch IBCA,
"AAA" by Duff & Phelps 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
_____ Bonds, and, accordingly, there can be no assurance that the ratings
assigned to any class of the Series _____ 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 _____ Bonds is revised or withdrawn, the liquidity of
that class of the Series _____ 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 _____ Bonds other than
payment in full of each class of the Series _____ 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 ____________, 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 first qualified rate order issued by the
Pennsylvania Public Utility Commission to PECO Energy Company on May 14, 1998
and the second qualified rate order issued by the Pennsylvania Public Utility
Commission to PECO Energy Company on __________, 2000, together.
"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 ____ Bonds, the Series
1999-A Bonds and any other series of transition bonds whether issued by the
issuer, or any other issuer, which in each case are subject to the terms of the
indenture.
S-29
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. The prospectus and the accompanying prospectus supplement shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of such State.
SUBJECT TO COMPLETION, DATED __________, 2000
PROSPECTUS
PECO Energy Transition Trust
Issuer
PECO Energy Company
Seller and Servicer
Up to $__________ of Transition Bonds Issuable in Series
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, and
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 the master
servicing agreement,
o trust accounts held by the bond trustee, and
o if so stated in the applicable prospectus
supplement, other credit enhancement.
o will own intangible transition property created by the
qualified rate order issued by the Pennsylvania Public
Utility Commission in _________, 2000 and collections of
intangible transition charges related to that qualified rate
order.
THE TRANSITION
BONDS OFFERED UNDER
THIS PROSPECTUS o will be payable only from assets of the issuer that are
allocable to your series of transition bonds,
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, and
o will be issued in series, each of which the issuer may
issue without the consent of existing transition
bondholders.
This prospectus applies only to bonds issued under this prospectus.
Consider carefully the Risk Factors beginning on page 22 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 _______________, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY..................................................................................2
RISK FACTORS.......................................................................................22
Unusual Nature of Intangible Transition Property................................................22
Servicing.......................................................................................31
Bankruptcy; Creditors' Rights...................................................................36
The Transition Bonds............................................................................41
GLOSSARY OF DEFINED TERMS..........................................................................47
AVAILABLE INFORMATION..............................................................................47
INCORPORATION OF DOCUMENTS BY REFERENCE............................................................47
THE PENNSYLVANIA COMPETITION ACT...................................................................49
The Pennsylvania Competition Act's General Effect on the
Electric Utility Industry in Pennsylvania.......................................................49
Recovery of Stranded Costs......................................................................49
Securitization of Stranded Costs................................................................50
Jurisdiction Over Disputes; Standing............................................................52
Possible Federal Preemption of the Pennsylvania Competition Act.................................53
Possible Commonwealth Amendment or Repeal of the Pennsylvania Competition Act...................53
PECO ENERGY'S RESTRUCTURING PLAN...................................................................54
General.........................................................................................54
Provider of Last Resort.........................................................................61
Prior Litigation................................................................................62
THE QUALIFIED RATE ORDERS AND THE
INTANGIBLE TRANSITION CHARGES......................................................................63
The Intangible Transition Charges...............................................................67
Competitive Billing.............................................................................69
THE SELLER AND SERVICER............................................................................71
Retail Electric Service Territory...............................................................71
Merger with UNICOM..............................................................................72
Customers and Operating Revenues................................................................73
Forecasting Customers and Usage.................................................................79
Billing Process.................................................................................84
Limited Information on Customers' Creditworthiness..............................................84
Electric Generation Suppliers and Other Third Party Billers.....................................88
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
THE ISSUER.........................................................................................89
USE OF PROCEEDS....................................................................................92
THE TRANSITION BONDS...............................................................................92
General.........................................................................................92
Interest and Principal..........................................................................94
Floating Rate Transition Bonds..................................................................94
Redemption......................................................................................95
Credit Enhancement..............................................................................96
Book-Entry Registration.........................................................................97
Definitive Transition Bonds....................................................................101
WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS....................................................102
THE SALE AGREEMENT................................................................................103
Sale and Assignment of Intangible Transition Property..........................................104
Representations and Warranties of the Seller...................................................106
Matters Regarding the Seller...................................................................115
Governing Law..................................................................................115
THE MASTER SERVICING AGREEMENT....................................................................115
Servicing Procedures...........................................................................116
Servicer Advances..............................................................................118
Servicing Compensation; Releases...............................................................119
Servicer Duties................................................................................119
Servicer Representations and Warranties........................................................120
Servicer Indemnification.......................................................................121
Statements to Issuer and Bond Trustee..........................................................121
Evidence as to Compliance......................................................................122
Matters Regarding the Servicer.................................................................123
Servicer Defaults..............................................................................124
Rights Upon Servicer Default...................................................................125
Successor Servicer.............................................................................125
Addition of Other Issuers......................................................................126
Governing Law..................................................................................126
THE INDENTURE.....................................................................................127
Security.......................................................................................127
Issuance in Series or Classes..................................................................128
Collection Account.............................................................................129
Allocations and Payments.......................................................................134
Liquidated Damages.............................................................................137
Reports to Transition Bondholders..............................................................138
Modification of Indenture......................................................................138
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Enforcement of the Sale Agreement and the Master Servicing Agreement...........................142
Modifications to the Sale Agreement and the Master Servicing Agreement.........................142
Events of Default; Rights Upon Event of Default................................................143
Covenants......................................................................................146
List of Transition Bondholders.................................................................148
Annual Compliance Statement....................................................................148
Bond Trustee's Annual Report...................................................................148
Satisfaction and Discharge of Indenture........................................................148
Legal Defeasance and Covenant Defeasance.......................................................149
The Bond Trustee...............................................................................151
Governing Law..................................................................................151
UNITED STATES TAXATION............................................................................152
General........................................................................................152
Taxation of the Issuer and of the Transition Bonds.............................................152
Tax Consequences to U.S. Holders...............................................................153
Tax Consequences to Non-U.S. Holders...........................................................154
MATERIAL COMMONWEALTH OF PENNSYLVANIA TAX MATTERS.................................................156
ERISA CONSIDERATIONS..............................................................................157
PLAN OF DISTRIBUTION..............................................................................158
RATINGS...........................................................................................159
LEGAL MATTERS.....................................................................................159
EXPERTS...........................................................................................159
GLOSSARY OF DEFINED TERMS.........................................................................160
INDEX TO FINANCIAL STATEMENT......................................................................F-1
ANNEX A...........................................................................................A-1
</TABLE>
iii
<PAGE>
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
<PAGE>
PROSPECTUS SUMMARY
This summary contains a brief description of the transition bonds that applies
to all series of transition bonds issued under 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 22 of this prospectus.
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 beginning in 1999.
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 fulfill 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 applicable rate caps.
2
<PAGE>
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 _______________, 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
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
___________, 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 will then pledge this
property to the bond trustee. This property, along
with:
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, the collection
account, and
o the collection account and the amounts
contained in that account
will serve as collateral for all series of
transition bonds.
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
3
<PAGE>
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 21 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.
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.
4
<PAGE>
Bond Trustee's
Telephone Number: (800) 524-4458
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 two qualified rate orders issued by the
Pennsylvania Public Utility Commission to PECO
Energy on May 14, 1998 and _______________, 2000.
The first order, the First QRO, authorized
intangible transition property of $4 billion,
which property has already been sold to the issuer
and now serves as collateral, together with other
assets, for 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 the
competitive generation market, may be transferred
to an affiliated or non-affiliated entity. PECO
Energy is currently in the process of merging with
an unrelated third party. 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
5
<PAGE>
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 of these third parties 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. In that event, the third party
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
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 the issuer as security
for the transition bonds offered under
this prospectus and related collections of
intangible transition charges, and
o other credit enhancement acquired or held to
ensure payment of the 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. These categories are:
residential, small commercial and industrial and
large commercial and industrial. Each customer
category is further divided into rate classes. The
customer categories and rate classes are
6
<PAGE>
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 pays
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, and
o 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 were 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,
7
<PAGE>
(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 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,
(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,
8
<PAGE>
(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 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.
9
<PAGE>
<TABLE>
<CAPTION>
BASIC ALLOCATIONS AND DISTRIBUTIONS
<S> <C> <C> <C> <C> <C>
Monthly payment of
- --------------- intangible transition ---------------- ---------------------
Customers charges to services PECO ENERGY COLLECTION
AND (SERVICER) ACCOUNT
EGSs* ---------------- Monthly remittance ---------------------
- --------------- of collections of
intangible transition
charges allocated to Application of amounts
the issuer in collection account
(including net
earnings), as follows:
</TABLE>
<TABLE>
<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 and metering
services
10
<PAGE>
If on any monthly allocation date, available
collections of intangible transition charges,
together with available amounts 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
11
<PAGE>
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 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 overcollateralization
subaccount, the capital subaccount and the
reserve 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.
12
<PAGE>
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
allocates 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 under this prospectus. On
each monthly allocation date, the bond
trustee deposits amounts to this account
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 to be funded by 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. That amount is
intended to 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 the capital subaccount by the issuer on
the date of issuance of that series. The
requisite deposit for the Series 1999-A
Bonds has already been made into the
capital subaccount.
13
<PAGE>
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. An interest
deposit subaccount will also be established
if the seller remits specified interest
amounts to the bond trustee (known as
interest deposit amounts).
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 under 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 under
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
14
<PAGE>
o on a redemption date,
the issuer will make principal payments on that
series only until the outstanding principal
balance of that series has been reduced 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 Mandatory
Redemption of Transition Bonds" and "Weighted
Average Life and Yield Considerations" in this
prospectus.
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" in this prospectus.
Optional Redemption: A prospectus supplement may provide for redemption
of a series of transition bonds at the option of
the issuer.
Mandatory Redemption: Except as described in the third paragraph below
under this section, each series of transition
bonds 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 in this case
15
<PAGE>
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 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 of the qualified
rate orders, but not both 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
breaching qualified rate order as of the
redemption date, plus accrued interest to
the redemption date, and
16
<PAGE>
o only the series of transition bonds issued
in connection with the breaching qualified
rate order will be subject to mandatory
redemption.
If the losses incurred as a result of a breach of
one of the foregoing representations is not
reasonably expected 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 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
corresponding 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 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 a default of that class or series unless there
is still an outstanding amount 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.
17
<PAGE>
Risk Factors: Prospective investors should consider the risks
associated with an investment in the transition
bonds. 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 discussion
under "Risk Factors" which begins on page 22 of
this prospectus.
The Transition Bonds;
Issuance of New Series: The issuer may issue transition bonds in one or
more series, each comprised of one or more
classes. Each series of transition bonds was and
will continue to 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
Transition 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 a floating
interest rate. 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 that 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, it is a condition to the issuance of
additional bonds under the indenture that each
rating agency provide assurance 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 withdrawal of the
then current rating by that rating agency of any
outstanding series or class of transition bonds.
18
<PAGE>
Denominations: Each class of transition bonds offered under 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 under 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, the
transition bonds will be treated as debt of PECO
Energy secured by a pledge of the collateral.
The issuer will be treated as a division of PECO
Energy and will not be treated as a separate
taxable entity.
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 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.
19
<PAGE>
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 under 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.
20
<PAGE>
PARTIES TO THE TRANSACTION
<TABLE>
<S> <C> <C> <C> <C>
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
-----------------------------
</TABLE>
* The Pennsylvania Public Utility Commission also supervises the
implementation of the Pennsylvania Competition Act and is authorized to
issue regulations thereunder.
21
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding to purchase
transition bonds:
Unusual Nature of Intangible Transition Property
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 issued under this prospectus
depends on the Pennsylvania Competition Act and
the qualified rate orders. If the Pennsylvania
Competition Act or either of the qualified rate
orders were challenged in a lawsuit and a court
decided that the Pennsylvania Competition Act or
either of the qualified rate orders, or all three,
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 of the qualified
rate orders, but not both 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
breaching qualified rate order 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 breaching qualified
rate order will be subject to mandatory
redemption.
See "The Sale Agreement--Representations and
Warranties of the Seller" in this prospectus.
22
<PAGE>
Also, PECO Energy may not be able to meet its
obligations to pay liquidated damages. As a
result, if the Pennsylvania Competition Act or
either 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.
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 each of the qualified rate
orders providing for collection of intangible
transition charges are stated in the Pennsylvania
Competition Act and the 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, 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. Also, in this case, PECO
Energy would not be required to pay liquidated
damages.
Changes in Law May Result in
Losses to Transition
Bondholders PECO Energy will not breach a representation or be
required to pay liquidated damages for 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. 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.
23
<PAGE>
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.
However, even if a court awarded just
compensation, it may not be enough 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.
24
<PAGE>
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. 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 enough 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. Also, in this case, 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 it may take actions
that adversely affect transition bondholders. For
example, it will:
o regulate all aspects of the business of
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.
25
<PAGE>
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 of PECO
Energy's representations 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.
26
<PAGE>
Future Pennsylvania Public Utility Commission
regulations may affect the rating 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.
Litigation and Other Events 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.
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
27
<PAGE>
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 not result in the issuer collecting
funds sufficient 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 qualified
rate orders 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 qualified rate orders 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.
Any of these factors could affect the sufficiency
of amounts available to pay the principal of the
transition bonds or the dates of the payment of
the principal of the transition bonds. As a
result, the weighted average lives of the
transition bonds could
28
<PAGE>
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 and 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 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.
29
<PAGE>
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.
Adjustments to Intangible
Transition Charges by Rate
Classes May Result in
Insufficient Collections The customers responsible for paying intangible
transition charges are divided into 12 rate
classes. These rate classes are 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 qualified
rate orders 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 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
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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 risks, such as 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.
Servicing
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 in only 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, 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 those 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, 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.
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<PAGE>
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 schedule. See "The Seller and
Servicer--Customers and Operating Revenues,"
"--Billing Process" and "--Limited Information on
Customers' Creditworthiness" in this prospectus.
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
those amounts from customers.
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<PAGE>
Billing by third parties as described in the
paragraph above 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
o a new billing system could cause customer
confusion.
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<PAGE>
Neither PECO Energy nor the 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 capital
subaccount, the overcollateralization subaccount
and the reserve 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 any lack of 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
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<PAGE>
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.
Bankruptcy; Creditors' Rights
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
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<PAGE>
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 will represent in the sale
agreement that the sale of the intangible
transition property that was created by the First
QRO was a sale and the intangible transition
property created by the 2000 QRO will be 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 mere fact of a PECO Energy
bankruptcy 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.
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<PAGE>
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.
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
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<PAGE>
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.
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 commencement of PECO Energy's
bankruptcy cannot be transferred to the issuer or
the bond trustee. This could result in delays or
reductions of payments of the transition bonds.
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<PAGE>
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 use of 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
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 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
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<PAGE>
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, a
successor servicer may be difficult to obtain.
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
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<PAGE>
offered under 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 issued under
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.
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 new series
of transition bonds without the prior review by or
consent of the transition bondholders of any
previously issued series. A new 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
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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
finance 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 rating 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.
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
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<PAGE>
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 issued under 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 the speed at
which the issuer will repay the principal of the
transition bonds. As a result, any series or class
of transition bonds might be paid later than
scheduled, 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.
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<PAGE>
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 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. 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,
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<PAGE>
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 transition bondholders
will be unsecured creditors 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 160 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.
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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.
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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 will 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. Under
the Pennsylvania Competition Act, each regulated electric utility was required
to implement a retail access pilot program for customers representing 5% of the
peak load of each customer class for the period from November 1, 1997 through
December 31, 1998.
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 will be 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
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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.
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
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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 from the time
the related transition bonds are issued and is enforceable against all third
parties, including judicial lien creditors, if:
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(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.
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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. 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 will take or whether this bill, 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
Competition Act or either 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
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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.
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
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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
original 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 original 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 original 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 to be 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 will be reconciled annually to actual sales.
All terms of the original 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 caps extensions.
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On ___________, 2000, PECO Energy and certain of the parties from its
restructuring proceeding agreed in a second settlement to allow the issuance of
an additional $1 billion of transition bonds in return for a rate decrease for
customers of $60 million in the year 2001.
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, this 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. [On __________, 2000, this
action was resolved by _________.]
For the calendar year 1999, annual retail electric revenues were
$2,630,991,000 and combined competitive transition charges and intangible
transition charges (billed from February through December) were $0.0171 per
kilowatt hour for a total of $588,836,455. 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 original settlement.
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TABLE 1
Annual Stranded Cost
Amortization And Return
<TABLE>
<CAPTION>
Annual CTC Revenue Excluding gross receipts tax(3)
Year Sales and/or ITC(2) Total Return @ 10.75% Amortization
---- ---------- ------------- ------- --------------- ------------
MWh(1) $/kWh ($000) ($000) ($000)
<S> <C> <C> <C> <C> <C> <C>
2000 33,837,913 0.0192 621,102 564,222 56,879
2001 34,108,610 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
original 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.
Authorization to Securitize. Under the original 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 original settlement and the second 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
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of its approval of the second settlement, the Pennsylvania Public Utility
Commission issued the 2000 QRO providing for securitization of an additional $1
billion of stranded costs.
Unbundling of Rates and Rate Reductions and Rate Caps. The original
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 original 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 original 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 original 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 second settlement required an additional one-time rate
cut of $60 million during the year 2001. PECO Energy's unbundled rates, rate
reductions (from the original settlement and the second settlement) and rate
caps are reflected in the schedule of system-wide average rates included in the
original settlement and the second settlement and are shown in Table 2 below.
See also "The Qualified Rate Orders and The Intangible Transition Charges."
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TABLE 2
Schedule of System-Wide Average Rates (per kilowatt-hour ("kWh"))(1)
<TABLE>
<CAPTION>
T&D CTC Shopping Generation
Effective Date Transmission(2) Distribution Rate Cap(3) and/or ITC(4) Credit Rate Cap
- -------------- --------------- ------------ ----------- ------------- -------- ----------
(1) (2) (3)=(1) + (2) (4) (5) (6)=(4) + (5)
$/kWh $/kWh $/kWh $/kWh $/kWh $/kWh
<S> <C> <C> <C> <C> <C> <C>
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 0.0698
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 second 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. As provided in PECO Energy's
restructuring plan, as modified by subsequent orders of the Public Utilities
Commission, the original settlement and the Final Order, 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. Effective January 1,
1999, 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 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 original 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.
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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. The right to provide
competitive default service will be rebid annually, unless an alternative
bidding term is approved by the Pennsylvania Public Utility Commission. If, 30
days prior to the annual bid, 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. 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.
In February, 1999, some utilities, customer advocates and electric
generation suppliers convened to develop proposed regulations on competitive
default service. On Friday, February 26, 1999, the Chairman of the group
forwarded a suggested procedure for choosing a competitive default supplier to
the Pennsylvania Public Utility Commission. By order entered April 30, 1999, the
Pennsylvania Public Utility Commission adopted the suggested procedures. Under
those suggested procedures, entities that desire to act as a competitive default
supplier have until April 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 suggested procedures would 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 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.
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Other Provisions. The original 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 original settlement with the Pennsylvania Public
Utility Commission. The original settlement was approved by the Pennsylvania
Public Utility Commission through the Final Order. Under the terms of the
original settlement, PECO Energy and all signatories to the original settlement
requested, and were granted, a general continuance of their appeals and
cross-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 original settlement, the appeals of PECO Energy and the other
signatories to the original 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 have been withdrawn with prejudice from the Commonwealth Court
and from the United States District Court in accordance with the terms of the
original settlement and the stipulation with IP&L.
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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 has
expired without appeals being filed and the dismissal of these actions is final
and non-appealable.
THE QUALIFIED RATE ORDERS AND THE INTANGIBLE TRANSITION CHARGES
As part of its approval of the original 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 original 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 original settlement was just
and reasonable and in the public interest. On __________, 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 __________, 2000.
The qualified rate orders provide that, to the extent that PECO Energy, or
any assignee, assigns, sells, transfers, or pledges any interest in intangible
transition property created by the 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 qualified rate orders 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
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replace PECO Energy under its contract with the issuers and perform the
obligations of PECO Energy contemplated in the qualified rate orders. The
obligations of PECO Energy:
o shall be binding upon PECO Energy, its successors and assigns,
and
o shall be 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 qualified rate
orders, the Pennsylvania Public Utility Commission authorized the issuance of
transition bonds in an aggregate principal amount not to exceed a combined total
of $5 billion. PECO Energy, or any assignee of PECO Energy to whom intangible
transition property is sold, may issue and sell, in reliance on the qualified
rate orders, 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 qualified rate orders 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
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
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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 $1
billion securitization which charges will be in addition to the intangible
transition charges for the $4 billion securitization authorized under the First
QRO. 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. After
_______________, competitive transition charges (or PECO Energy's distribution
rates) will be reduced by the amount of intangible transition charges associated
with the issuance of transition bonds offered under this prospectus and
transition bonds issued by other issuers, if any.
In the qualified rate orders, the Pennsylvania Public Utility Commission
approves the allocation and methodology for imposing competitive transition
charges and intangible transition charges on customers. The qualified rate
orders 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 qualified rate orders
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 qualified rate orders 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 and the corresponding reduction or increase in competitive
transition charges or PECO Energy's distribution rates, as the
case may be.
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The qualified rate orders 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 qualified
rate orders, 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 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 qualified rate orders also authorize the assignee to contract with an
alternate party to replace PECO Energy as servicer of the intangible transition
property. The qualified rate orders 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 qualified rate orders
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
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agrees that it will not, directly or indirectly, by any subsequent action,
reduce, postpone, impair or terminate the qualified rate orders or the related
intangible transition charges. In the qualified rate orders, the Pennsylvania
Public Utility Commission further declared that the right, title and interest of
PECO Energy and any assignee in the qualified rate orders and the intangible
transition charges, the rates and other charges authorized by the 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 qualified rate orders are to be 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 will be 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 will be 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.
Initial Billing and Termination of Intangible Transition Charge
Collections. Intangible transition charges for each series of transition bonds
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
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
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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 each 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 qualified rate
orders 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 qualified rate orders 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.
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
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transition charges, if any, not allocable to the period covered by the
applicable adjustment request. 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 qualified rate orders 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 gave customers who purchase electric generation from
electric generation suppliers the opportunity to choose from several billing
source options as of January 1, 1999:
o consolidated billing from the utility,
o consolidated billing from the electric generation supplier, or
o separate billing from the utility and from the electric
generation supplier providing billing services.
By Pennsylvania Public Utility Commission order dated November 4, 1998,
after July 15, 1999, third parties that are not electric generation suppliers
will also be able to provide 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:
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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 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 original 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 BondholdersCPennsylvania 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 will provide 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 already
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
will be eligible to exercise this option was 23.5% of total sales revenue for
the 1999 fiscal year. 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 will be 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 will determine 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.
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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 will bill 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.
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 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.
71
<PAGE>
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 23, 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 of 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, the SEC and the Federal Energy
Regulatory Commission. The companies intend to register the new holding company
with the SEC under the Public Utility Holding Company Act. The companies
anticipate that the regulatory process can be completed in approximately 12
months from the date of this prospectus.
The board of directors of the holding company may determine, in its
discretion, how PECO Energy's business will be disaggregated. This
disaggregation, if it occurs, may involve the formation of additional
subsidiaries and the transfer of some of PECO Energy's assets and liabilities to
those subsidiaries. PECO Energy's transmission and distribution business will
remain a utility regulated by the Pennsylvania Public Utility Commission.
72
<PAGE>
Customers and Operating Revenues
PECO Energy's customer base is divided into three categories: residential,
small commercial and industrial, and large commercial and industrial. Rate
classes 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 for nine years. The current rate
classes are:
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 also includes Rate RS customers
receiving service under a solar rate and 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 any customer receiving delivery at certain voltage levels;
during in-peak periods, PECO Energy can interrupt service.
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.
73
<PAGE>
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.
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 or will be 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,
74
<PAGE>
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.
TABLE 3
Retail Electric Customers For the Year Ended
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
---------------------- ------------------- ------------------ ------------------- ------------------
Number of % of Number of % of Number of % of Number of % of Number of % of
Customers Total Customers Total Customers Total Customers Total Customers Total
--------- ------ --------- ------ --------- ------ ---------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
R1 and OP2 1,167,866 79.60% 1,169,654 79.51% 1,177,996 79.47% 1,186,864 79.49% 1,194,370 79.47%
R-H 153,513 10.46 154,794 10.52 155,865 10.52 156,927 10.51 157,489 10.48
Total 1,321,379 90.06 1,324,448 90.03 1,333,861 89.99 1,343,791 90.00 1,351,859 89.95
Small Commercial
and Industrial
GS and POL3 141,653 9.65% 142,431 9.68% 144,142 9.72% 145,055 9.71% 146,771 9.77%
SL-P, SL-S, SL-E 940 0.06 987 0.07 985 0.07 1,050 0.07 1,076 0.07
and TL
Total (Excludes 142,593 9.71 143,418 9.75 145,127 9.79 146,105 9.78 147,847 9.84
POL)
Large Commercial
and Industrial
PD and HT 3,394 0.23% 3,299 0.22% 3,308 0.22% 3,248 0.22% 3,245 0.22%
EP 3 0.00 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 3,248 0.22
Total (Excludes 1,467,369 100.00% 1,471,168 100.00% 1,482,299 100.00% 1,493,147 100.00% 1,502,954 100.00%
OP and POL) ========= ====== ========= ====== ========= ====== ========= ====== ========= ======
</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 residence electric delivery service.
3 Rate POL is available in conjunction with small commercial and industrial
rate class GS.
75
<PAGE>
TABLE 4
Actual Retail Electric Usage (per megawatt-hour ("MWh")) For the Year Ended
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------------------- ------------------- -------------------- -------------------- -------------------
% of % of % of % of % of
MWh Total MWh Total MWh Total MWh Total MWh Total
---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
R1 and OP2 8,130,607 23.97% 7,906,048 23.81% 7,858,466 23.87% 8,214,347 24.21% 8,571,927 24.82%
R-H 2,728,472 8.04 2,765,279 8.33 2,548,231 7.75 2,408,645 7.10 2,560,223 7.41%
Total 10,859,079 32.01 10,671,327 32.14 10,406,697 31.62 10,622,992 31.31 11,132,150 32.24%
Small Commercial
and Industrial
GS and POL3 6,299,521 18.57% 6,490,621 19.55% 6,684,791 20.32% 6,887,794 20.30% 7,153,896 20.72%
SL-P, SL-S, SL-E
and TL 195,507 0.58 192,425 0.58 181,002 0.55 190,251 0.56 188,463 0.55%
Total 6,495,028 19.15 6,683,046 20.13 6,865,793 20.87 7,078,045 20.86 7,342,359 21.26%
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% 15,476,999 44.82%
EP 594,543 1.75 638,800 1.92 594,319 1.81 549,539 1.62 579,069 1.68%
Total 16,570,274 48.84 15,846,815 47.73 15,628,406 47.51 16,227,855 47.83 16,056,068 46.50%
Total 33,924,381 100.00% 33,201,188 100.00% 32,900,896 100.00% 33,928,892 100.00% 34,530,577 100.00%
========== ======= ========== ======= ========== ====== ========== ====== ========== =======
</TABLE>
- --------------------
1 For 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.
76
<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 12/31/99
-------------------- ------------------- -------------------- -------------------- -------------------
% of % of % of % of % of
$(000s) Total $(000s) Total $(000s) Total $(000s) Total $(000s) Total
---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
R1 and OP2 1,122,068 33.33% 1,092,398 33.13% 1,091,669 33.17% 1,121,346 33.93% 1,053,738 40.05%
R-H 279,228 8.29 277,760 8.43 265,781 8.08 255,891 7.74 236,020 8.97%
Total 1,401,296 41.62 1,370,158 41.56 1,357,450 41.25 1,377,237 41.67 1,289,758 49.02%
Small Commercial
and Industrial
GS and POL3 738,910 21.95% 748,561 22.71% 778,743 23.66% 783,682 23.72% 609,566 23.17%
SL-P, SL-S, SL-E
and TL 34,404 1.02 32,815 1.00 30,305 0.92 31,636 0.96 28,480 1.08%
Total 773,314 22.97 781,376 23.71 809,048 24.58 815,318 24.68 638,046 24.25%
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% 665,456 25.29%
EP 45,234 1.34 46,979 1.42 46,994 1.43 45,118 1.37 37,731 1.43%
Total 1,192,424 35.41 1,145,286 34.73 1,124,369 34.17 1,111,986 33.65 703,187 26.73%
Total 3,367,034 100.00% 3,296,820 100.00% 3,290,867 100.00% 3,304,541 100.00% 2,630,991 100.00%
========= ======= ========= ======= ========= ======= ========= ======= ========= =======
</TABLE>
- --------------------
1 For 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.
Concentrations. For the period ended December 31, 1999, the largest 10
customers represented approximately 10.7% 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.
77
<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. 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% 9.21%
60+ days 6.73 8.09 8.21 8.51 8.22
90+ days 5.79 7.08 7.18 7.67 7.52
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% 0.35%
60+ days 0.15 0.10 0.07 0.07 0.17
90+ days 0.12 0.07 0.04 0.04 0.08
</TABLE>
78
<PAGE>
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% 4.54
Small Commercial
and Industrial 0.88 0.72 0.65 0.91 0.85
Large Commercial
and Industrial 0.11 0.09 0.14 0.31 0.00
Total 2.05 2.09 2.18 2.27 2.43
(Weighted by Customer
Category)
</TABLE>
Through 1998, the residential customer category experienced increases in
delinquencies which were reduced during the past year. In addition, through
1997, the residential customer category experienced an increase in net
write-offs, which has subsequently been reduced during the past two years. These
reductions in delinquencies and net write-offs are due to the implementaton 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, these 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 deinquency 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 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
79
<PAGE>
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.
80
<PAGE>
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,
o the availability of more energy efficient appliances, new energy
conservation technologies, and
o the ability of customers to acquire these new products.
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 original settlement. The appropriate changes to revenues are
then reflected in the forecast.
81
<PAGE>
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>
82
<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>
83
<PAGE>
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.
Limited Information on Customers' Creditworthiness
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.
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.
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 original settlement, the initial maximum participation for the Customer
Assistance Program is 100,000 customers, subject to review by the participants
in the original 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
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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 which 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 which follows up on the account for 60 days
using letters and collection calls.
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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.
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 which 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 otherwise not 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
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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 through
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 will be 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 will be 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,
(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),
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(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, will be 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 will be 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, will pursue 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 will pursue
any failure by a customer to remit intangible transition charges. The servicer
will have 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
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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 will have 20 calendar days to cure that breach.
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 dated as of _____,
2000. 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 as an exhibit to 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
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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."
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:
Name Age Title
----------------- --- -------------------
George R. Shicora 52 Beneficiary Trustee
Thomas R. Miller 39 Beneficiary Trustee
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.
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Mr. Miller has served as Manager of Finance 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 of Financial Strategy.
The beneficiary trustees are not be 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 in the
three bullet points 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
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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.
USE OF PROCEEDS
The issuer will use the proceeds of the issuance of the transition bonds
offered under 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 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 under 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 under 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 form 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 under 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,
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(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,
(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. 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
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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 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,
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(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
(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 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 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 of the qualified rate orders, but not both 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 breaching qualified rate
order 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
breaching qualified rate order will be subject to mandatory
redemption.
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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 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 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,
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(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 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
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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.
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
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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.
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,
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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.
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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
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 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,
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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.
WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS
The rate of principal payments on each series or class of transition bonds,
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.
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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.
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 will be 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
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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 will be subject to the prior review by or consent of the transition
bondholders of any previously issued series. 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 some
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.
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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 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,
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(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 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,
(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:
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(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
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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,
(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
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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 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,
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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,
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(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.
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 of the qualified rate orders, but not both 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 breaching
qualified rate order 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 breaching qualified rate order will be subject to
mandatory redemption.
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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.
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
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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
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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,
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 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.
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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.
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
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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
will 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 either 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 qualified rate orders 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 qualified rate orders,
the Pennsylvania Public Utility Commission has 90 days to approve annual
adjustments. In addition, the 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.
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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 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.
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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,
(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
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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.
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,
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(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.
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:
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(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 furnishes 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
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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 qualified rate orders, 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 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.
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In addition, the qualified rate orders 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 qualified rate orders 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
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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 under this prospectus will be issued. The indenture and a
supplemental indenture was 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 under the
indenture, the issuer will grant 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,
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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 (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 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 bond
trustee 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.
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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. 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, are and will 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.
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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,
(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:
(1) for funds in the general subaccount, the overcollateralization
subaccount, the capital subaccount, the reserve subaccount, loss
subaccount and interest deposit subaccount, the next monthly
allocation date, or
(2) for funds in the series subaccount for any series of transition
bonds or the class subaccount for any class of transition bonds,
the next payment date for that series or class.
A book-entry security, instrument or security that has a maturity of one
month or less but that does not have the requisite ratings specified above may
still be an eligible investment if it has a long-term unsecured debt rating of
at least AA2" by Moody's (or the equivalent rating by the other rating agencies)
or a short-term rating of at least AP-1" by Moody's (or the equivalent rating by
the other rating agencies). This kind of security with a maturity of greater
than one month may also qualify as an eligible investment if it has a long-term
unsecured debt rating of at least AA1" by Moody's (or the equivalent rating by
the other rating agencies) and a short-term rating of at lest AP-1" by Moody's
(or the equivalent).
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The bond trustee will have 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 will 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.
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 will be 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:
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(1) make scheduled distributions to the series subaccounts, and
(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 will be entitled to earnings on those
amounts, subject to the limitations described under "--Allocations and Payments"
below. On each monthly allocation date, the bond trustee will draw 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 will make a capital contribution in the amount of
the required capital amount to the issuer, and the issuer will pay that amount
to the bond trustee for deposit into the capital subaccount which will be
invested in eligible investments, and the issuer will be 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.
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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 was and will 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 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
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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,
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(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,
(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.
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
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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 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
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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 of the
qualified rate orders, but not both qualified rate orders:
(a) only the series of transition bonds issued in connection with the
breaching qualified rate order will be redeemed, and
(b) 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,
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(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.
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.
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:
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(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
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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 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
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(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.
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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 (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
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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, 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 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:
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(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
(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.
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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
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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.
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
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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.
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
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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
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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:
(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.
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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. 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 will not result in the
recognition of gross income by PECO Energy, and
(3) the transition bonds will be classified as obligations of PECO Energy.
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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 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, 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.
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 that interest in your income when you receive it.
o If you are an accrual method taxpayer, you must report that interest
in your income as it accrues.
Sale or Retirement of Transition Bonds
On a sale or retirement of a transition bond:
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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.
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
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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.:
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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.
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.
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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.
ERISA CONSIDERATIONS
Employee benefit plans are permitted to purchase transition bonds.
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.
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PLAN OF DISTRIBUTION
The transition bonds of each series 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 and the bond
trustee intend 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 and
the bond trustee, 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.
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.
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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 _______________, 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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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 _______________, 2000.
"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.
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"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.
"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 original
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:
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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.
"loss subaccount" means a subaccount of the collection account into which
loss amounts remitted by the seller to the bond trustee will be deposited.
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"master servicing agreement" means the Amended and Restated Master
Servicing Agreement between PECO Energy, as servicer, and the issuer, as 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.
"original 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.
"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:
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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,
o in the case of the amount of Interest allocated to the series
subaccounts (item (5) on page 134 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 134
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 135 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.
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"qualified rate orders" means the first qualified rate order issued by the
Pennsylvania Public Utility Commission to PECO Energy Company on May 14, 1998
and the second qualified rate order issued to PECO Energy Company on _____,
2000, together.
"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."
"sale agreement" means the Amended and Restated Intangible Transition
Property Sale Agreement between the issuer and PECO Energy, as amended and
supplemented from time to time.
"SEC" means the Securities and Exchange Commission.
"second settlement" means the settlement agreement dated __________, 2000
among PECO Energy and certain of the parties from its restructuring proceeding
filed with the Pennsylvania Public Utility Commission.
"series of transition bonds" means the Series 1999-A Bonds, each series of
transition bonds issued under this prospectus and any other series of transition
bonds, whether issued by the issuer or any other issuer, which in each case are
subject to the terms of the indenture.
165
<PAGE>
"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 Group, 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.
166
<PAGE>
PECO Energy Transition Trust
INDEX TO FINANCIAL STATEMENT
[to be filed by pre-effective admendment]
F-1
<PAGE>
The date of this prospectus supplement is _______________, 2000.
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 90 days after the date of this
prospectus supplement.
<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
- --------------------------------------------------------------------------------
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 Counterpaty 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
- --------------------------------------------------------------------------------
Initial Class % of Total
Principal Balance Bond Rate Series Principal
----------------- --------- ----------------
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%
*Calculated as described under "The Series 1999-A Bonds--Interest" in the
prospectus supplement for the Series 1999-A Bonds.
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 the Series 1999-A Bonds
which was $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.
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4 Class A-5 Class A-6 Class A-7
------------- ------------- ------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Expected Final
Payment Date: March 1, 2001 March 1, 2003 March 1, 2004 March 1, 2005 September 1, 2007 March 1, 2007 September 1, 2008
Termination Date: March 1, 2003 March 1, 2005 March 1, 2006 March 1, 2007 March 1, 2009 March 1, 2009 March 1, 2009
Optional
Redemption No No On or After No On or After No No
March 1, 2001 March 1, 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>
PART II
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
Registration Fee...................................... $
Printing and Engraving Expenses.......................
Trustees' Fees and Expenses...........................
Legal Fees and Expenses...............................
Blue Sky Fees and Expenses............................
Accountants' Fees and Expenses........................
Rating Agency Fees
Miscellaneous Fees and Expenses.......................
--------
Total........................................ $
========
Item 15. Indemnification of Directors and Officers.
Section 3817 of the Delaware Business Trust Act (the "Delaware Trust Act")
provides that subject to such standards and restrictions, if any, as are set
forth in the governing instrument of a business trust, a business trust shall
have the power to indemnify and hold harmless any trustee or beneficial owner or
other person from and against any and all claims and demands whatsoever. The
Delaware Trust Act also provides that the absence of a provision for indemnity
in the governing instrument of a business trust shall not be construed to
deprive any trustee or beneficial owner or other person of any right to
indemnify which is otherwise available to such person under the laws of the
State of Delaware.
The Amended and Restated Trust Agreement (the "Trust Agreement") of PECO
Energy Transition Trust (the "Trust") provides that, to the fullest extent
permitted by law, the Trust shall indemnify its trustees against any liability
incurred in connection with any proceeding in which the trustees may be involved
as a party or otherwise by reason of the fact that such trustee is or was
serving in its capacity as a trustee, unless such liability is based on or
arises in connection with the trustee's own willful misconduct or gross
negligence, the failure to perform the obligations set forth in the Trust
Agreement, or taxes, fees or other charges on, based on or measured by any fees,
commissions or compensation received by the trustees in connection with any of
the transactions contemplated by the Trust Agreement and related agreements.
Item 16. Exhibits
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement.
II-1
<PAGE>
4.1 Form of Second Amended and Restated Trust Agreement for PECO
Energy Transition Trust.
4.2 Certificate of Trust for PECO Energy Transition Trust.
4.3.1 Indenture dated as of March 1, 1999.
4.3.2 Form of Series Supplement.
4.4 Form of Transition Bonds.
5.1 Opinion of Richards, Layton & Finger, P.A., relating to legality
of the Transition Bonds.
5.2 Opinion of Ballard Spahr Andrews & Ingersoll, LLP, relating to
legality of the Transition Bonds.
8.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP with respect
to material federal and state tax matters.
10.1 Form of Amended and Restated Intangible Transition Property Sale
Agreement.
10.2 Form of Amended and Restated Master Servicing Agreement.
10.3 Joint Petition for Full Settlement of PECO Energy Company's
Restructuring Plan and Related Appeals and Application for a
Qualified Rate Order and Application for Transfer of Generation
Assets dated April 29, 1998.
10.4 Joint Petition for Full Settlement of PECO Energy Company's
Application for Issuance of a Qualified Rate Order Under Section
2812 of the Public Utility Code dated __________, 2000.*
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
its opinions filed as Exhibit 5.2 and Exhibit 8.1).
23.2 Consent of Richards, Layton & Finger, P.A. (included in its
opinion filed as Exhibit 5.1).
23.3 Consent of PricewaterhouseCoopers LLP.*
24.1 Power of Attorney (included on page II-4 of the Registration
Statement).
25.1 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of The Bank of New York, as bond trustee under the
Indenture.
27.1 Financial Data Schedule.*
99.1 Qualified Rate Order issued by the Pennsylvania Public Utility
Commission to PECO Energy on May 14, 1998.
99.2 Qualified Rate Order issued by the Pennsylvania Public Utility
Commission to PECO Energy on __________, 2000.*
99.3 Internal Revenue Service Private Letter Ruling pertaining to
Transition Bonds.
- --------------------
* To be filed by amendment.
Item 17. Undertakings
The undersigned Registrant on behalf of the PECO Energy Transition Trust
(the "Trust") hereby undertakes as follows:
(a)(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement; (i) to include any
prospectus required
II-2
<PAGE>
by Section 10(a)(3) of the Securities Act of 1933, as amended; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) of the Securities Act of 1933, as amended,
if, in the aggregate, the changes in volume and price represent no more than a
twenty percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration Statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change in such information in the Registration Statement; provided,
however, that (a)(1)(i) and (a)(1)(ii) will not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended, that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering hereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended)
with respect to the Trust that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 15 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, theretofore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer of
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the
II-3
<PAGE>
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(d) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(i) or (4) or 497(h) under the Securities Act of 1933, as amended, shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
(e) That, for the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended, in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act of 1939, as amended.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and that the security rating
requirement of Form S-3 will be met by the time of sale, and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Philadelphia, Commonwealth of
Pennsylvania, on March 3, 2000.
PECO ENERGY TRANSITION TRUST
By: /s/ George Shicora
--------------------------------------
George Shicora, Beneficiary Trustee
By: /s/ Thomas R. Miller
--------------------------------------
Thomas R. Miller, Beneficiary Trustee
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
above constitutes and appoints Thomas R. Miller as their true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for and in each of their names, place and stead, in any and all capacities to
sign any or all amendments (including post-effective amendments) to this
Registration Statement and any or all other documents in connection therewith,
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each ane every act and thing requisite and
necessary to be done in and about the premises, as fully to all intent and
purposes as might or could be done in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
II-5
<PAGE>
INDEX TO EXHIBITS
1.1 Form of Underwriting Agreement.
4.1 Form of Second Amended and Restated Trust Agreement for PECO
Energy Transition Trust.
4.2 Certificate of Trust for PECO Energy Transition Trust.
4.3.1 Indenture dated as of March 1, 1999.
4.3.2 Form of Series Supplement.
4.4 Form of Transition Bonds.
5.1 Opinion of Richards, Layton & Finger, P.A., relating to legality
of the Transition Bonds.
5.2 Opinion of Ballard Spahr Andrews & Ingersoll, LLP, relating to
legality of the Transition Bonds.
8.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP with respect to
material federal and state tax matters.
10.1 Form of Amended and Restated Intangible Transition Property Sale
Agreement.
10.2 Form of Amended and Restated Master Servicing Agreement.
10.3 Joint Petition for Full Settlement of PECO Energy Company's
Restructuring Plan and Related Appeals and Application for a
Qualified Rate Order and Application for Transfer of Generation
Assets dated April 29, 1998.
10.4 Joint Petition for Full Settlement of PECO Energy Company's
Application for Issuance of a Qualified Rate Order Under Section
2812 of the Public Utility Code dated __________, 2000.*
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in its
opinions filed as Exhibit 5.2 and Exhibit 8.1).
23.2 Consent of Richards, Layton & Finger, P.A. (included in its
opinion filed as Exhibit 5.1).
23.3 Consent of PricewaterhouseCoopers LLP.*
24.1 Power of Attorney (included on page II-4 of the Registration
Statement).
25.1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as bond trustee under the
Indenture.
27.1 Financial Data Schedule.*
99.1 Qualified Rate Order issued by the Pennsylvania Public Utility
Commission to PECO Energy on May 14, 1998.
99.2 Qualified Rate Order issued by the Pennsylvania Public Utility
Commission to PECO Energy on __________, 2000.*
99.3 Internal Revenue Service Private Letter Ruling pertaining to
Transition Bonds.
- --------------------
* To be filed by amendment.
PECO ENERGY TRANSITION TRUST
PECO ENERGY COMPANY
UNDERWRITING AGREEMENT
----------------------
[ ], 2000
To Salomon Smith Barney Inc. as
representative of the Underwriters
named in Schedule II hereto
Ladies and Gentlemen:
PECO Energy Transition Trust, a statutory business trust created under the
laws of the State of Delaware (the "Issuer") and PECO Energy Company, a
Pennsylvania corporation (the "Company") as grantor and owner of all beneficial
interest in the Issuer, propose, subject to the terms and conditions stated
herein, that the Issuer issue and sell to the underwriters named in Schedule II
hereto (the "Underwriters"), for whom Salomon Smith Barney Inc. (the
"Representative") is acting as representative, the principal amount of its
securities identified in Schedule I hereto (the "Securities").
Each of the capitalized terms used and not otherwise defined herein shall
have the meaning given to it in the Amended and Restated Sale Agreement, dated
as of [ ], 2000 (the "Sale Agreement"), between the Company, as seller,
and the Issuer or, if not defined therein, in the Amended and Restated Master
Servicing Agreement, dated as of [ ], 2000 (the "Servicing Agreement"),
between the Company, as servicer, and the Issuer or, if not defined therein,
in the Indenture, dated as of March 1, 1999 (as amended and supplemented from
time to time, including by the supplemental indenture for the Securities, the
"Indenture"), between the Issuer and The Bank of New York (the "Bond Trustee")
or, if not defined therein, in the Second Amended and Restated Trust Agreement,
dated as of [ ], 2000 (the "Trust Agreement"), among the Company, First
Union Trust Company, National Association, as issuer trustee (the "Issuer
Trustee"), and George R. Shicora and Thomas R. Miller, as beneficiary trustees
(each a "Beneficiary Trustee").
1. As of the date hereof, each of the Company and the Issuer represents and
warrants to each of the Underwriters that:
<PAGE>
(a) The Issuer and the Securities meet the requirements for the use of
Form S-3 under the Securities Act of 1933, as amended (the "Act"), and a
registration statement on Form S-3 (File No. 333-[ ]) in respect of the
Securities has been filed with the Securities and Exchange Commission (the
"Commission"); such registration statement and any post-effective amendment
thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto but including all documents incorporated by reference in
the prospectus included therein, have been declared effective by the
Commission in such form; no other document with respect to such
registration statement or document incorporated by reference therein has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of such registration statement has been issued and no
proceeding for that purpose has been initiated or to the knowledge of the
Company or the Issuer threatened by the Commission (any preliminary
prospectus included in such registration statement or filed with the
Commission pursuant to Rule 424(b) of the rules and regulations of the
Commission under the Act, being hereinafter called a "Preliminary
Prospectus"; the various parts of such registration statement, including
all exhibits thereto and the documents incorporated by reference in the
prospectus contained in the registration statement at the time such part of
the registration statement became effective, each as amended at the time
such part of the registration statement became effective, being hereinafter
called the "Registration Statement"; such final prospectus, in the form
first filed pursuant to Rule 424(b) under the Act, being hereinafter called
the "Prospectus"; any reference herein to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Act, as of the date of such Preliminary Prospectus or Prospectus, as the
case may be; and any reference to any amendment or supplement to the
Registration Statement, any Preliminary Prospectus or the Prospectus shall
be deemed to refer to and include any documents filed after the effective
date of the Registration Statement or the date of such Preliminary
Prospectus or Prospectus, as the case may be, under the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by
reference in such Registration Statement, Preliminary Prospectus or
Prospectus, as the case may be);
(b) Each Preliminary Prospectus, at the time of circulation thereof by
the Underwriters, conformed in all material respects to the requirements of
the Act and the rules and regulations of the Commission
2
<PAGE>
thereunder, and as of the date thereof did not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statement or omission made in reliance upon and in conformity with
information regarding any Underwriter or the arrangements with respect to
the underwriting of the offering of the Securities contemplated hereby
furnished in writing to the Issuer or the Company by an Underwriter through
you expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects, to the requirements of
the Act, the Exchange Act, the Trust Indenture Act of 1939 (the "Trust
Indenture Act") and the respective rules and regulations of the Commission
thereunder; the Registration Statement does not and will not, as of the
applicable effective date as to the Registration Statement and any
amendment thereto, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading; the Indenture complies in all
material respects with the requirements of the Trust Indenture Act and the
rules thereunder; and the Prospectus does not and will not, as of the
applicable filing date as to the Prospectus and any amendment or supplement
thereto, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information regarding any Underwriter or the arrangements with respect to
the underwriting of the offering of the Securities contemplated hereby
furnished in writing to the Issuer or the Company by an Underwriter through
you expressly for use therein;
(d) The documents incorporated by reference in the Registration
Statement and the Prospectus, when they became effective or were filed (or,
if an amendment with respect to any such document was filed or became
effective, when such amendment was filed or became effective) with the
Commission, as the case may be, conformed in all material respects to the
requirements of the Act, the Exchange Act, the Trust Indenture Act and the
rules and regulations thereunder,
3
<PAGE>
and any further documents so filed and incorporated by reference will, when
they become effective or are filed with the Commission, as the case may be,
conform in all material respects to the requirements of the Act, the
Exchange Act, the Trust Indenture Act and the rules and regulations
thereunder; none of such documents, when it became effective or was filed
(or, if an amendment with respect to any such documents was filed or became
effective, when such amendment was filed or became effective) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(e) PricewaterhouseCoopers LLP are independent certified public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(f) The Issuer has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, has the
trust power and authority to conduct its business as presently conducted
and as described in the Prospectus, will not be required to be authorized
to do business in any other jurisdiction; and the Issuer has all requisite
business trust power and authority to issue the Securities and purchase the
Intangible Transition Property as described in the Prospectus;
(g) The Company is a validly existing and subsisting corporation under
the laws of the Commonwealth of Pennsylvania; each of the Company's
subsidiaries ("Subsidiaries") which constitutes a "gas utility company" or
an "electric utility company," as defined in the Public Utility Holding
Company Act of 1935, as amended (a "Utility Subsidiary"), is a validly
existing corporation under the laws of its jurisdiction of incorporation;
the Company and each Utility Subsidiary have all requisite power and
authority to own and occupy their respective properties and carry on their
respective businesses as presently conducted and as described in the
Prospectus and are duly qualified as foreign corporations to do business
and in good standing in every jurisdiction in which the nature of the
business conducted or property owned by them makes such qualification
necessary and in which the failure to so qualify would have a materially
adverse effect on the Company; and the Company has all requisite power and
authority to sell the Intangible Transition Property to the Issuer as
described in the Prospectus;
(h) Each of the Basic Documents to which the Company or the Issuer is
a party has been duly
4
<PAGE>
authorized by the Company or the Issuer, as applicable, and when executed
and delivered by the Issuer or the Company, as applicable, will constitute
a legal, valid and binding obligation of the Company or the Issuer, as
applicable, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditor's
rights and to general equity principles;
(i) The Securities have been duly authorized by the Issuer and will
conform to the description thereof in the Prospectus; and when the
Securities are authenticated by the Bond Trustee and executed and delivered
to the Underwriters and are paid for by the Underwriters in accordance with
the terms of this Agreement, the Securities will constitute the legal,
valid and binding obligations of the Issuer, enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditor's rights and to general equity
principles;
(j) The issue and sale of the Securities by the Issuer, the sale of
the Intangible Transition Property by the Company to the Issuer, the
execution, delivery and compliance by the Company and the Issuer with all
of the provisions of each of this Agreement and the Basic Documents to
which the Company or the Issuer, as applicable, is a party, and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any trust agreement,
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Issuer or the Company is a party or by which the
Issuer or the Company is bound or to which any of the property or assets of
the Issuer or the Company is subject, which conflict, breach, violation or
default would be material to the issue and sale of the Securities or would
have a material adverse effect on the general affairs, management,
prospects, financial position or results of operations of the Issuer or the
Company or on the stockholders' equity of the Company, nor will such action
result in any violation of the provisions of the Articles of Incorporation
or Bylaws of the Company or the Issuer's Certificate of Trust or the Trust
Agreement or any statute, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Issuer or the
Company or any of their properties;
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(k) Except (i) for the order of the Commission making the Registration
Statement effective, (ii) for permits and similar authorizations required
under the securities or "Blue Sky" laws of any jurisdiction, and to the
extent, if any, required pursuant to the undertakings set forth under Item
17 of Part II of the Registration Statement, and (iii) the Qualified Rate
Orders, no consent, approval, authorization or other order of any
governmental authority is legally required for the execution, delivery and
performance of this Agreement by the Issuer and the Company and the
consummation of the transactions contemplated hereby; and
(l) This Agreement has been duly authorized, executed and delivered by
the Company and the Issuer.
2. Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Issuer agrees to sell to
each of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Issuer, at the purchase price set forth in
Schedule I hereto the principal amount of the Securities set forth opposite the
name of such Underwriter in Schedule II hereto.
3. Upon the authorization by you of the release of the Securities, the
several Underwriters propose to offer the Securities for sale upon the terms and
conditions set forth in the Prospectus.
4. The Securities, on original issuance, will be issued in the form of one
or more global bonds registered in the name of The Depository Trust Company or
its nominee for the accounts of the Underwriters representing the Securities.
The time and date of delivery and payment for the Securities shall be 9:30 a.m.,
Philadelphia time on [ ], 2000, or at such other time and date as you
and the Issuer may agree upon in writing. The time and date for such
delivery is herein called the "Time of Delivery." The Securities shall be
delivered by or on behalf of the Issuer to The Depository Trust Company for the
account of each Underwriter, against payment by such Underwriter or on its
behalf of the purchase price therefor by wire transfer of immediately available
funds to an account specified by the Issuer. The Securities will be made
available to the Representative for checking and packaging at least twenty-four
hours prior to the Time of Delivery at the office of The Depository Trust
Company, 55 Water Street, New York, New York, 10004.
6
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5. The Issuer agrees with each of the Underwriters, and the Company agrees
with each of the Underwriters to cause the Issuer:
(a) To use its best efforts to cause the Registration Statement, if
not effective at the Execution Time, and any amendment thereto, to become
effective; to complete the Prospectus in a form approved by you, to file
the Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement and to provide evidence
satisfactory to you of such timely filing; and to furnish you, without
charge, three signed copies of the Registration Statement (or copies
thereof), including exhibits, and, during the period mentioned in paragraph
(d) below, as many copies of the Prospectus and any supplements and
amendments thereto as you may reasonably request and to furnish to the
Representative copies of all reports on Form SR required by Rule 463 under
the Act.
(b) Other than pursuant to filings under the Exchange Act incorporated
in the Registration Statement and the Prospectus by reference, before
amending or supplementing the Registration Statement or the Prospectus, to
furnish to you a copy of each such proposed amendment or supplement prior
to filing and not to file any such proposed amendment or supplement to
which you reasonably object.
(c) As soon as the Company or the Issuer is advised thereof, to
promptly advise you orally, and (if requested by you) to confirm such
advice in writing, (i) when the Registration Statement, if not effective at
the Execution Time, and any amendment thereto, has become effective, (ii)
when the Prospectus, and any Supplement thereto, has been filed with the
Commission pursuant to Rule 424(b), (iii) when any amendment to the
Registration Statement has been filed or become effective, (iv) of any
request by the Commission for any amendment of the Registration Statement
or supplement to the Prospectus or for any additional information, (v) when
any stop order has been issued under the Act with respect to the
Registration Statement or any proceedings therefor have been instituted or
are threatened; and to make every reasonable effort to secure the prompt
removal of any stop order, if issued, (vi) of the receipt by the Company or
the Issuer of any notification with respect to the suspension of the
qualification of the Securities for offering or sale in any jurisdiction,
or the initiation or threatening of any proceeding for that purpose and
(vii) of the happening of any event
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during the period mentioned in subparagraph (d) below which in the judgment
of the Company or the Issuer makes any statement made in the Registration
Statement or the Prospectus untrue and which requires the making of any
changes in the Registration Statement or the Prospectus in order to make
the statements therein not misleading.
(d) If, at any time when a prospectus is required to be delivered
under the Act, any event shall occur as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered
to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with law, forthwith to prepare and duly
file with the Commission an appropriate supplement or amendment thereto,
and furnish, at its own expense, to you such reasonable number of copies
thereof as you shall reasonably request.
(e) To cooperate with you and counsel for the Underwriters to qualify
the Securities for offer and sale under the securities or Blue Sky laws of
such jurisdictions as you shall reasonably request, to maintain such
qualifications in effect so long as required for the distribution of the
Securities and to arrange for the determination of the legality of the
Securities for purchase by institutional investors; provided that neither
the Company nor the Issuer shall be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action
that would subject it to general service of process in any jurisdiction
where it is not now so subject, other than in suits arising out of the
offering or sale of the Securities, and to pay all expenses (including fees
and disbursements of counsel) in connection therewith.
(f) As soon as practicable, to make generally available to holders of
the Securities and to the Representative an earnings statement or
statements of the Issuer which will satisfy the provisions of Section 11(a)
of the Act and Rule 158 under the Act.
(g) During the period beginning from the date hereof and continuing to
and including the earlier of (i) the date, after the last Time of Delivery,
on which the distribution of the Securities ceases, as determined by the
Representative or (ii) the date which is 30 days after the last Time of
Delivery, not to offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce the offering
8
<PAGE>
of, any "transition bonds" (as defined in the Statute) issued by a trust or
other special purpose vehicle without the prior written consent of the
Representative.
(h) During a period from the date of this Agreement until the
retirement of the Securities, or until such time as the Underwriters shall
cease to maintain a secondary market in the Securities, whichever occurs
first, to deliver to the Representative the annual statements of compliance
and the annual independent auditor's servicing reports of the Company or
the Servicer furnished to the Issuer or the Bond Trustee pursuant to the
Servicing Agreement or the Indenture, as applicable, as soon as such
statements and reports are furnished to the Issuer or the Bond Trustee.
(i) So long as any of the Securities are outstanding, to furnish to
the Representative (i) as soon as available, a copy of each report of the
Issuer filed with the Commission under the Exchange Act, or mailed to
holders of the Securities, (ii) a copy of any filings of the Company or the
Servicer with the Pennsylvania Public Utility Commission pursuant to the
Qualified Rate Orders, including, but not limited to, any Adjustment
Requests and (iii) from time to time, any information concerning the
Company or the Issuer as the Representative may reasonably request.
(j) To the extent, if any, that any rating necessary to satisfy the
condition set forth in Section 6(i) of this Agreement is conditioned upon
the furnishing of documents or the taking of other actions by the Company
or the Issuer on or after the Time of Delivery, to furnish such documents
and take such other actions.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Issuer's and the Company's counsel and accountants in
connection with the registration of the Securities under the Act and other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among the Underwriters, this Agreement, the Blue Sky and Legal
Investment Memoranda, if any, and any other documents in connection with the
offering, purchase, sale and delivery of the Securities; (iii) all expenses in
connection with the qualification of the Securities for
9
<PAGE>
offering and sale under state securities and insurance securities laws as
provided in Section 5(e) hereof, including the fees and disbursements of counsel
for the Underwriters in connection with such qualification and in connection
with the Blue Sky and Legal Investment Memoranda; (iv) any fees charged by
securities rating services for rating the Securities; (v) the cost of preparing
certificates for the Securities; (vi) the cost and charges of any transfer agent
or registrar; (vii) the cost of qualifying the Securities with The Depository
Trust Company; (viii) all other costs and expenses incident to the performance
of its obligations hereunder which are not otherwise specifically provided for
in this Section; and (ix) all fees, costs and expenses of the Underwriters,
including the reasonable fees and disbursements of their counsel and transfer
taxes on resale of any of the Securities by them.
7. The several obligations of the Underwriters hereunder are subject to the
accuracy of the representations and warranties on the part of each of the
Company and the Issuer contained herein as of the Execution Time and the Time of
Delivery, in the latter case, on and as of the Time of Delivery with the same
effect as if made at the Time of Delivery, and in the Sale Agreement and the
Servicing Agreement as of the Time of Delivery, to the accuracy of the
statements of each of the Company and the Issuer made in any certificates
pursuant to the provisions hereof, to the performance by each of the Company and
the Issuer of its obligations hereunder and to the following conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representative agrees in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date, or (ii) 9:30 AM on the business day following
the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if
filing of the Prospectus, or any supplement thereto, is required pursuant
to Rule 424(b), the Prospectus, and any such supplement, shall have been
filed in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Representative and the Issuer shall have received opinions of
counsel for the Company, portions of which may be delivered by (i) Ballard
Spahr
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Andrews & Ingersoll, LLP, outside counsel for the Company and (ii)
Richards, Layton & Finger, P.A., special Delaware counsel for the Company,
each dated the Time of Delivery, in form and substance reasonably
satisfactory to the Representative, to the effect that:
(i) the Company (a) has been duly incorporated and is validly
existing and subsisting as a corporation under the laws of the
jurisdiction in which it is chartered or organized, (b) has all
requisite corporate power and authority to own its properties, conduct
its business as presently conducted and execute, deliver and perform
its obligations under this Agreement, the Trust Agreement, the Sale
Agreement and the Servicing Agreement, and (c) is duly qualified to do
business in all jurisdictions (and is in good standing under the laws
of all such jurisdictions) to the extent that such qualification and
good standing is or shall be necessary to protect the validity and
enforceability of this Agreement, the Basic Documents to which the
Company is a party and each other instrument or agreement necessary or
appropriate to the proper administration of this Agreement and the
transactions contemplated hereby;
(ii) the Trust Agreement, the Sale Agreement and the Servicing
Agreement have been duly authorized, executed and delivered by the
Company, and constitute legal, valid and binding agreements
enforceable against the Company in accordance with their terms
(subject to applicable bankruptcy, reorganization, fraudulent
transfer, insolvency, moratorium or other similar laws or equitable
principles affecting creditors' rights generally from time to time in
effect);
(iii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Company or
any of its subsidiaries of a character required to be disclosed in the
Registration Statement which is not adequately disclosed in the
Prospectus, and there is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit, which is not described or
filed as required;
11
<PAGE>
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) no consent, approval, authorization, filing with or order of
any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Statute and the Qualified Rate Orders and such as
may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters and such other approvals (specified in such opinion) as
have been obtained;
(vi) neither the execution and delivery of this Agreement, the
Trust Agreement, the Sale Agreement or the Servicing Agreement, nor
the issue and sale of the Securities, nor the consummation of the
transactions contemplated by this Agreement, the Trust Agreement, the
Sale Agreement or the Servicing Agreement, nor the fulfillment of the
terms of this Agreement, the Trust Agreement, the Sale Agreement or
the Servicing Agreement by the Company, will (A) conflict with, result
in any breach of any of the terms or provisions of, or constitute
(with or without notice or lapse of time) a default under the articles
of incorporation, bylaws or other organizational documents of the
Company, or conflict with or breach any of the material terms or
provisions of, or constitute (with or without notice or lapse of time)
a default under, any indenture, agreement or other instrument known to
such counsel after reasonable inquiry to which the Company or the
Issuer is a party or by which the Company or the Issuer is bound, (B)
result in the creation or imposition of any lien upon any properties
of the Company or the Issuer, pursuant to the terms of any such
indenture, agreement or other instrument (other than as contemplated
by the Basic Documents), or (C) violate any law, rule or regulation
or, to the knowledge of such counsel, any order, promulgated by the
United States, the State of Delaware or the Commonwealth of
Pennsylvania applicable to the Company or the Issuer, of any court or
of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the
Company or the Issuer or any of their respective properties; and
(vii) (A) each of the Qualified Rate Orders has been duly
authorized and adopted by the
12
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Pennsylvania Public Utility Commission and is in full force and
effect, (B) the Securities constitute "transition bonds" under Section
2812 of the Statute, and (C) upon the issuance of the Securities, the
Securities are entitled to the protections provided in the first
sentence of Section 2812(c)(2) of the Statute.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the States
of Pennsylvania, New York and Delaware or the United States, to the extent
deemed proper and specified in such opinion, upon the opinion of other
counsel of good standing believed to be reliable and who are satisfactory
to counsel for the Underwriters and (B) as to matters of fact, to the
extent deemed proper, on certificates of responsible officers of the
Company, the Issuer Trustee and public officials. References to the
Prospectus in this paragraph (b) include any supplements thereto at the
Time of Delivery.
(c) The Representative shall have received the opinions of counsel for
the Issuer, portions of which may be delivered by (i) Ballard Spahr Andrews
& Ingersoll, LLP, outside counsel for the Issuer and (ii) Richards, Layton
& Finger, P.A., special Delaware counsel for the Issuer, each dated as of
the Time of Delivery, in form and substance reasonably satisfactory to the
Representative, to the effect that:
(i) the Securities, the Indenture, the Sale Agreement, the
Servicing Agreement and the Trust Agreement conform to the
descriptions thereof contained in the Prospectus;
(ii) the Issuer has been duly formed and is validly existing as a
statutory business Trust and is in good standing under the laws of the
State of Delaware, with full power and authority to execute, deliver
and perform its obligations under this Agreement and the Securities;
(iii) the Indenture, the Sale Agreement and the Servicing
Agreement have been duly authorized, executed and delivered, and
constitute legal, valid and binding agreements enforceable against the
Issuer in accordance with their terms (subject to applicable
bankruptcy, reorganization, insolvency, fraudulent transfer,
moratorium or other similar laws or equitable principles affecting
creditors' rights generally from time to time in effect); and the
Securities have been duly
13
<PAGE>
authorized and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the
Underwriters pursuant to this Agreement will constitute legal, valid
and binding obligations of the Issuer entitled to the benefits of the
Indenture and any related Series Supplement (subject to applicable
bankruptcy, reorganization, insolvency, fraudulent transfer,
moratorium or other similar laws or equitable principles affecting
creditors' rights generally from time to time in effect);
(iv) the Sale Agreement, the Servicing Agreement and the Trust
Agreement are not required to be qualified under the Trust Indenture
Act;
(v) the Indenture has been duly qualified under the Trust
Indenture Act;
(vi) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Issuer or
relating to the Securities, the Qualified Rate Orders or the
collection of Intangible Transition Charges or the use and enjoyment
of Intangible Transition Property under the Statute, of a character
required to be disclosed in the Registration Statement which is not
adequately disclosed in the Prospectus, and there is no franchise,
contract or other document of a character required to be described in
the Registration Statement or Prospectus, or to be filed as an
exhibit, which is not described or filed as required; and the
statements included or incorporated in the Prospectus under the
headings "The Pennsylvania Competition Act," "The Qualified Rate
Orders And The Intangible Transition Charges," "The Indenture," "The
Sale Agreement," "The Master Servicing Agreement," "The Transition
Bonds," "United States Taxation," "Material Commonwealth of
Pennsylvania Tax Matters" and "ERISA Considerations" fairly summarize
the matters described therein;
(vii) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, any Preliminary
Prospectus, and any supplements thereto, pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule
424(b); to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has
14
<PAGE>
been issued, no proceedings for that purpose have been instituted or
threatened, and the Registration Statement and the Prospectus (other
than the financial statements and the notes and schedules thereto and
other financial and statistical information contained therein and the
Form T-1 as to which such counsel need express no opinion) comply as
to form in all material respects with the applicable requirements of
the Act, the Exchange Act and the Trust Indenture Act and the
respective rules thereunder; and such counsel has no reason to believe
that at the Effective Date the Registration Statement contained any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading or that the Prospectus as of its date and at the Time
of Delivery included or includes any untrue statement of a material
fact or omitted or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading (in each case, other than the financial
statements and the notes and schedules thereto and other financial and
statistical information contained therein as to which such counsel
need express no opinion);
(viii) this Agreement has been duly authorized, executed and
delivered by the Issuer;
(ix) no consent, approval, authorization, filing with or order of
any court or governmental agency or body is required for the issuance
of the Securities except such as have been obtained under the Statute
and the Qualified Rate Orders and such as may be required under the
blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such other
approvals (specified in such opinion) as have been obtained;
(x) neither the execution and delivery of this Agreement, the
Sale Agreement, the Servicing Agreement or the Indenture, nor the
issue and sale of the Securities, nor the consummation of the
transactions contemplated by this Agreement, the Sale Agreement, the
Servicing Agreement or the Indenture, nor the fulfillment of the terms
of this Agreement, the Sale Agreement, the Servicing Agreement or the
Indenture, by the Issuer will (A) conflict with, result in any breach
of any of the terms or provisions of, or constitute (with or
15
<PAGE>
without notice or lapse of time) a default under the Trust Agreement,
or conflict with or breach any of the material terms or provisions of,
or constitute (with or without notice or lapse of time) a default
under, any indenture, agreement or other instrument known to such
counsel and to which the Issuer is a party or by which the Issuer, is
bound, (B) result in the creation or imposition of any lien upon any
properties of the Issuer, pursuant to the terms of any such indenture,
agreement or other instrument (other than as contemplated by the Basic
Documents), or (C) violate any law or any order, rule or regulation
promulgated by the United States, the State of Delaware or the
Commonwealth of Pennsylvania applicable to the Issuer, of any court or
of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Issuer
or any of its properties;
(xi) (A) to the extent that the provisions of Section 2812 of the
Statute apply to the grant of a security interest by the Issuer in the
Collateral pursuant to the Indenture, then upon the giving of value by
the Bond Trustee to the Issuer with respect to the Collateral, (I) the
Indenture creates in favor of the Bond Trustee a security interest in
the rights of the Issuer in the Collateral, (II) such security
interest is valid and enforceable against the Issuer and third parties
(subject to the rights of any third parties holding security interests
in such Collateral perfected in the manner described in Section 2812
of the Statute), and has attached, (III) such security interest is
perfected, and (IV) such perfected security interest ranks prior to
any other security interest created under Section 2812 of the Statute.
(B) To the extent that the provisions of Section 2812 of the Statute
do not apply to the grant of a security interest by the Issuer in the
Collateral pursuant to the Indenture, then upon the giving of value by
the Bond Trustee to the Issuer with respect to the Collateral, (I) the
Indenture creates in favor of the Bond Trustee a security interest in
the rights of the Issuer in the Collateral, and such security interest
is enforceable against the Issuer with respect to such Collateral,
(II) insofar as perfection of such security interest can be
accomplished only by filing financing statements under the Uniform
Commercial Code in [list filing offices and jurisdictions], upon the
filing of such financing statements in such filing offices,
16
<PAGE>
the Bond Trustee will have a perfected security interest in such
Collateral, and (III) when so perfected, the Bond Trustee's security
interest in such Collateral as to which perfection of such security
interest can be accomplished only by filing a financing statement will
have priority over any other security interest in such Collateral if
such other security interest, in order to achieve priority over the
Bond Trustee's security interest by the filing of one or more
financing statements, was required by law to have been perfected by
making such filings in the filing offices prior to the effective date
of [describe search reports and effective date]; and
(xii) the Issuer is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" or
under the "control" of an "investment company" as such terms are
defined under the Investment Company Act of 1940, as amended.
(d) The Representative shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the
Time of Delivery, with respect to the issuance and sale of the Securities,
the Indenture, the Registration Statement, the Prospectus (together with
any supplement thereto) and other related matters as the Representative may
reasonably require, and each of the Company and the Issuer shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(e) The Representative shall have received a certificate of the
Company, signed by any Vice President of the Company, dated the Time of
Delivery, in form and substance reasonably satisfactory to the
Representative, to the effect that the signer of such certificate has
reviewed the Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that:
(i) the representations and warranties of the Company and the
Issuer in this Agreement, the Sale Agreement and the Servicing
Agreement are true and correct in all material respects on and as of
the Time of Delivery with the same effect as if made at the Time of
Delivery, and the Company and the Issuer have complied with all the
agreements and satisfied all the conditions on their respective
17
<PAGE>
parts to be performed or satisfied at or prior to the Time of
Delivery;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the dates as of which information is given in the
Prospectus (exclusive of any supplement thereto), there has been no
material adverse change in the condition (financial or other),
earnings, business or properties of the Company and its Subsidiaries
taken as a whole (if such a change would impair the investment quality
of the Securities or make it impractical or inadvisable to market the
Securities) or the Issuer, whether or not arising from transactions in
the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(f) At the Time of Delivery, the Representative shall have received
from PricewaterhouseCoopers LLP (i) a letter or letters (which may refer to
letters previously delivered to one or more of the Representative), dated
as of the Time of Delivery, in form and substance satisfactory to the
Representative, confirming that they are independent accountants within the
meaning of the Act and the Exchange Act and the respective applicable
published rules and regulations thereunder and stating in effect that they
have performed certain specified procedures as a result of which they
determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or
statistical information derived from the general accounting records of the
Company and its Subsidiaries) set forth in the Registration Statement and
the Prospectus, including information specified by the Underwriters and set
forth under the captions "Prospectus Summary," "PECO Energy's Restructuring
Plan," "The Qualified Rate Orders And The Intangible Transition Charges,"
"The Seller and Servicer," and "The Transition Bonds" in the Prospectus,
agrees with the accounting records of the Company and its Subsidiaries,
excluding any questions of legal interpretation, and (ii) the opinion or
certificate, dated as of the Time of Delivery, in form and substance
satisfactory to the Representative, satisfying the requirements of Section
2.10(7) of the Indenture.
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References to the Prospectus in this clause (f) include any supplement
thereto at the date of the letter.
In addition, except as provided in Schedule I hereto, at the Execution
Time, the Representative shall have received from PricewaterhouseCoopers
LLP a letter or letters, dated as of the Execution Time, in form and
substance satisfactory to the Representative, to the effect set forth
above.
(g) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), and at or prior to the Time of Delivery, there shall not have
been any change, or any development involving a prospective change, in or
affecting either (i) the business or properties or financial condition of
the Company or the Issuer, or (ii) the Intangible Transition Property, the
Securities, the Qualified Rate Orders or the Statute, the effect of which
is, in the judgment of the Representative, so material and adverse as to
make it impractical or inadvisable to proceed with the offering or delivery
of the Securities as contemplated by the Registration Statement (exclusive
of any amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(h) The Representative, the Company and the Issuer shall have received
on the Closing Date an opinion letter or letters of Ballard Spahr Andrews &
Ingersoll, counsel to the Company and the Issuer, dated the Time of
Delivery, in form and substance reasonably satisfactory to the
Representative, (i) with respect to the characterization of the transfer of
the Intangible Transition Property by the Company to the Issuer as a "true
sale" for bankruptcy purposes, (ii) to the effect that a court would not
order the substantive consolidation of the assets and liabilities of the
Issuer with those of the Company in the event of a bankruptcy,
reorganization or other insolvency proceeding involving the Company and
(iii) to the effect that upon the delivery of the fully executed Sale
Agreement to the Issuer and the payment of the purchase price of the
Intangible Transition Property by the Issuer to the Seller pursuant to the
Sale Agreement, then (A) the transfer of the Intangible Transition Property
by the Seller to the Issuer pursuant to the Sale Agreement conveys the
Seller's right, title and interest in the Intangible Transition Property to
the Issuer and will be treated as an absolute transfer of all the Seller's
right, title and
19
<PAGE>
interest in the Intangible Transition Property, other than for federal and
state tax purposes, (B) such transfer of the Intangible Transition Property
is perfected, (C) such transfer has priority over any other assignment of
the Intangible Transition Property, and (D) the Intangible Transition
Property is free and clear of all liens created prior to its transfer to
the Issuer pursuant to the Sale Agreement.
(i) At or prior to the Time of Delivery, the Representative shall have
received evidence, in form and substance reasonably satisfactory to the
Representative, that the Company has obtained a release of the Intangible
Transition Property from the lien of that certain mortgage, dated May 1,
1923, as supplemented and amended to the date hereof, between the Company
and First Union Trust Company, National Association (as successor to
Fidelity Trust Company), as trustee.
(j) The Securities shall have been rated in the highest long-term
rating category by each of the Rating Agencies or in such other rating
category as was specified in the Preliminary Prospectus.
(k) At or prior to the Time of Delivery, the Representative shall have
received evidence, in form and substance reasonably satisfactory to the
Representative, that appropriate filings have been or are being made in
accordance with the Statute and other applicable law reflecting the grant
of a security interest by the Issuer in the Collateral to the Bond Trustee.
(l) At or prior to the Time of Delivery, the Representative shall have
received evidence of the Pennsylvania Public Utility Commission's approval
of the Qualified Rate Orders.
(m) Prior to the Time of Delivery, each of the Company and the Issuer
shall have furnished to the Representative such further information,
certificates, opinions and documents as the Representative may reasonably
request and as are customary for transactions of this type.
(n) The Representative shall have received an opinion of counsel to
the Bond Trustee, dated the Time of Delivery, in form and substance
reasonably satisfactory to the Representative, to the effect that:
(i) the Bond Trustee is a New York banking association in good
standing under the laws of the State of New York;
20
<PAGE>
(ii) the Indenture has been duly authorized, executed and
delivered, and constitutes a legal, valid and binding instrument
enforceable against the Bond Trustee in accordance with its terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or
equitable principles affecting creditors' rights generally from time
to time in effect); and
(iii) the Securities have been duly authenticated by the Bond
Trustee.
(o) The Representative shall have received an opinion of counsel to
the Issuer Trustee, dated the Time of Delivery, in form and substance
reasonably satisfactory to the Representative, to the effect that:
(i) the Issuer Trustee has been duly incorporated and is validly
existing as a national banking association in good standing under the
federal laws of the United States of America, with full corporate
trust power and authority to enter into and perform its obligations
under the Trust Agreement; and
(ii) the Trust Agreement has been duly authorized, executed and
delivered by the Issuer, and constitutes a legal, valid and binding
instrument enforceable against the Issuer in accordance with its terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting
creditors' rights generally from time to time in effect).
This Agreement and all obligations of the Underwriters hereunder may be
canceled at, or at any time prior to, the Time of Delivery by the Representative
if any of the conditions specified in this Section 7 shall not have been
fulfilled in all material respects when and as provided in this Agreement.
Notice of such cancelation shall be given to the Company in writing or by
telephone or telegraph confirmed in writing.
The documents required to be delivered by this Section 7 shall
be delivered at the office of Ballard Spahr Andrews & Ingersoll, LLP, counsel
for the Company, at 1735 Market Street, 51st Floor, Philadelphia, PA 19103-7599,
at the Time of Delivery.
8. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each
21
<PAGE>
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person who controls any Underwriter within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act from and against any and
all losses, claims, damages, liabilities and expenses, based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus contained therein and including
any amendment or supplement to any thereof) or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company will not be liable in
any such case to the extent that any such losses, claims, damages, liabilities
or expenses are caused by (i) any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company or the Issuer by or
on behalf of any Underwriter through the Representative specifically for
inclusion therein, or (ii) the failure of any Underwriter to send to any
purchaser to whom it had sent a Preliminary Prospectus an amended Prospectus as
shall have been furnished by the Company within the time periods required by the
Act and in such quantities are required by each Underwriter for such purpose
(excluding documents incorporated therein by reference), if required by the Act,
to the extent that the amended prospectus would have cured the defect in the
Preliminary Prospectus giving rise to such losses, claims, damages or
liabilities, or (iii) any use of the Prospectus by any Underwriter after the
expiration of that period, if any, during which the Underwriter is required by
law to deliver a prospectus, unless the Company shall have been advised in
writing of such intended use. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, the Issuer and each of its
controlling persons and trustees to the same extent as the foregoing indemnity
from the Company to each Underwriter, but only with reference to written
information relating to such Underwriter furnished to the Company by or on
behalf of such Underwriter through the Representative specifically for inclusion
in the documents referred to in the foregoing indemnity. This indemnity
agreement will be in addition to any liability which any Underwriter may
otherwise have. The Company acknowledges that the statements set forth in the
last paragraph of the cover page of the Prospectus Supplement and the Prospectus
and the information set forth under the
22
<PAGE>
heading "Underwriting the Series __ Bonds" in the Prospectus Supplement and
"Plan of Distribution" in the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in the documents referred to in the foregoing indemnity.
(c) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to any such fees and expenses, (ii)
the Company has failed, within 30 days after the Company has been so notified,
to assume the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both such
Underwriter or such controlling person and the Company and such Underwriter or
such controlling person shall have been advised by its counsel that
representation of such indemnified party and the Company by the same counsel
would be inappropriate under applicable standards of professional conduct
(whether or not such representation by the same counsel has been proposed) due
to actual or potential differing interests or defenses among them (in which case
the Company shall not have the right to assume the defense of such action, suit
or proceeding on behalf of such Underwriter or such controlling person). It is
understood, however, that the Company shall, in connection with any one such
action, suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests or defenses with you or among
themselves, which firm shall be designated in writing by the Representative, and
that all such fees and expenses shall be reimbursed as they become due. The
Company shall not be liable for any settlement of any such action, suit or
proceeding effected without their written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the Company agrees to indemnify and hold harmless
any Underwriter, to the extent provided in the preceding paragraph, and any such
controlling person
23
<PAGE>
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8 is for any reason
held to be unenforceable by an indemnified party although applicable in
accordance with its terms (including the terms of subsection (b) of this Section
8), an indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is equitable and as shall reflect both the relative benefit received by the
Issuer and the Company on the one hand and the Underwriter or Underwriters, as
the case may be, on the other hand, from the offering of the Securities, and the
relative fault, if any, of the Issuer and the Company on the one hand and of the
Underwriter or Underwriters, as the case may be, on the other hand in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations. The relative benefit received by the Issuer and the Company on
the one hand and the Underwriters or Underwriters, as the case may be, on the
other hand, in connection with the offering of the Securities shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) received by the Issuer and the Company
bear to the total commissions, concessions and discounts received by the
Underwriter or Underwriters, as the case may be. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuer and the Company on
the one hand, or the Underwriter or Underwriters, as the case may be, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by a pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, liabilities, claims, damages and expenses
referred to above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Securities underwritten by it and distributed to the
24
<PAGE>
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8 are several in proportion to the respective principal amounts of
Securities set forth opposite their names in Schedule I hereto and not joint.
(e) No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses become due. A successor to
any Underwriter or any person controlling any Underwriter, or to the Issuer or
the Company, their directors or officers, or any person controlling the Issuer
or the Company, shall be entitled to the benefits of the indemnity, contribution
and reimbursement agreements contained in this Section 8.
9. If any one or more Underwriters shall fail to purchase and pay for any
of the Securities agreed to be purchased by such Underwriter or Underwriters
hereunder and such failure to purchase shall constitute a default in the
performance of its or their obligations under this Agreement, the nondefaulting
Underwriters shall be obligated severally to take up and pay for (in the
respective proportions which the amount of Securities set forth opposite their
names in Schedule II hereto bears to the aggregate amount of Securities set
forth opposite the names of all the remaining Underwriters) the Securities which
the defaulting Underwriter or Underwriters agreed but failed to purchase;
provided, however, that in the event that the aggregate amount of Securities
which the defaulting Underwriter or Underwrites agreed but failed to purchase
shall exceed 10% of the aggregate amount of Securities set forth in Schedule II
hereto, the nondefaulting Underwriters shall have the right to purchase all, but
shall not be under any obligation to purchase any, of the Securities, and if
such nondefaulting Underwriters do not purchase all the
25
<PAGE>
Securities, this Agreement will terminate without liability to any nondefaulting
Underwriter, the Issuer or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Time of Delivery shall be
postponed for such period, not exceeding seven days, as the Representative shall
determine in order that the required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company, the Issuer and any nondefaulting
Underwriter for damages occasioned by its default hereunder.
10. This Agreement shall be subject to termination in the absolute
discretion of the Representative, by notice given to the Company prior to
delivery of and payment for the Securities, if at any time prior to such time
(i) there shall have occurred any change, or any development involving a
prospective change, in or affecting either (A) the business, properties or
financial condition of the Company (if such a change or development would, in
the judgment of the Representative, impair the investment quality of the
Securities or make it impractical or inadvisable to market the Securities) or
the Issuer or (B) the Intangible Transition Property, the Securities, the
Qualified Rate Orders or the Statute, the effect of which, in the judgment of
the Representative, materially impairs the investment quality of the Securities
or makes it impractical or inadvisable to market the Securities, (ii) trading in
the Company's Common Stock shall have been suspended by the Commission or the
New York Stock Exchange (if such a suspension would, in the judgment of the
Representative, impair the investment quality of the Securities or make it
impractical or inadvisable to market the Securities) or trading in securities
generally on the New York Stock Exchange shall have been suspended or limited or
minimum prices shall have been established on such Exchange, (iii) a banking
moratorium shall have been declared by Federal, New York State or Pennsylvania
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities, declaration by the United States of a national emergency or war
or other calamity or crisis the effect of which on financial markets is such as
to make it, in the judgment of the Representative, impracticable or inadvisable
to proceed with the offering or delivery of the Securities as contemplated by
the Final Prospectus (exclusive of any supplement thereto).
11. If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 7 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Company to perform any agreement
26
<PAGE>
herein or comply with any provision hereof other than by reason of a default by
any of the Underwriters, the Company will reimburse the Underwriters severally
upon demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities.
12. The respective agreements, representations, warranties, indemnities and
other statements of the Company, the Issuer and the several Underwriters set
forth in this Agreement or made by or on behalf of them, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter or the Company
or any officer, director or controlling person of the Company, and shall survive
delivery of and payment for the Securities. The provisions of Sections 8 and 12
hereof shall survive the termination or cancelation of this Agreement.
13. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely on any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you on behalf of the Underwriters.
All communications hereunder will be in writing and effective only on
receipt, and, if sent to the Representative, will be mailed, delivered or
telegraphed and confirmed to them, at the address specified in Schedule I
hereto; and if sent to the Company or the Issuer, will be mailed, delivered or
telegraphed and confirmed to the address of the Company set forth in the
Registration Statement, Attention: Secretary.
14. This Agreement shall be binding on and inure solely to the benefit of
the Underwriters, the Issuer, the Company and, to the extent provided in Section
8 and Section 12 hereof, the officers and directors of the Company and each
person who controls the Issuer, the Company or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Securities from any Underwriter shall be
deemed a successor or assign merely by reason of such purchase.
15. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business and the term "Execution Time"
27
<PAGE>
shall mean the date and time that this Agreement is executed and delivered by
the parties hereto.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
17. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such respective counterparties shall together constitute one and the
same instrument.
28
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us 10 counterparts hereof, whereupon this letter and your acceptance
shall constitute a binding agreement between each of the Underwriters, on the
one hand, and the Company and the Issuer on the other. It is understood that
your acceptance of this letter on behalf of each of the Underwriters is pursuant
to the authority set forth in a form of Agreement among Underwriters, the form
of which shall be submitted to the Company for examination upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
PECO Energy Company
By:
-------------------------------
Name:
Title:
PECO Energy Transition Trust
By:
-------------------------------
Name:
Title:
Accepted, [ ], 2000
Salomon Smith Barney Inc.
By: Salomon Smith Barney Inc.
By:
-------------------------------
Name:
Title:
For itself and the other several
Underwriters, if any, named in
Schedule II to the foregoing
Agreement.
29
<PAGE>
SCHEDULE I
Underwriting Agreement dated [ ], 2000
Registration Statement No. 333-[ ]
Representative:
Salomon Smith Barney Inc.
7 World Trade Center
New York, NY 10048
Title, Purchase Price and Description of Securities:
Title: PECO Energy Transition Trust
$1,000,000,000 Transition Bonds
Series [ ]
Principal amount, Price to Public, Underwriting
Discounts and Commissions and Proceeds to Trust:
<TABLE>
<CAPTION>
Total
Principal Underwriting
Amount of Price to Discounts and Proceeds to
Class Public Commissions Trust
------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Per Class $[ ] $[ ] $[ ] $[ ]
A-1 Bond
Per Class $[ ] $[ ] $[ ] $[ ]
A-2 Bond
Per Class $[ ] $[ ] $[ ] $[ ]
A-3 Bond
Per Class $[ ] $[ ] $[ ] $[ ]
A-4 Bond
-------------- -------------- -------------- --------------
Total $1,000,000,000 $[ ] $[ ] $[ ]
============== ============== ============== ==============
</TABLE>
<PAGE>
Original Issue Discount: None
Redemption provisions: Optional Redemption and Mandatory
Redemption as set forth in
Article X of the Indenture
Other provisions:
Closing Date, Time and Location: [ ], 2000
9:30 a.m., Philadelphia
time, Philadelphia, PA
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Principal Amount of Transition Bonds to be Purchased
- ------------------------------------------------------------------------------------------------------------------------------
Class A-1 Class A-2 Class A-3
Underwriters Bonds Bonds Bonds Class A-4 Bonds Total
- --------------- ---------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Salomon Smith $[ ] $[ ] $[ ] $[ ] $[ ]
Barney
[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
---------------- ---------------- ---------------- ---------------- --------------
Total........... $[ ] $[ ] $[ ] $[ ] $1,000,000,000
================ ================ ================ ================ ==============
</TABLE>
Exhibit 4.1
================================================================================
PECO ENERGY TRANSITION TRUST
SECOND AMENDED AND RESTATED
TRUST AGREEMENT
as of __________, 2000
AMONG
GEORGE SHICORA and THOMAS R. MILLER, as BENEFICIARY TRUSTEES,
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, as ISSUER TRUSTEE,
DELAWARE TRUSTEE AND INDEPENDENT TRUSTEE
and
PECO ENERGY COMPANY,
as GRANTOR and OWNER
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
1.01. Capitalized Terms...............................................................................1
ARTICLE II
ORGANIZATION
2.01. Name............................................................................................5
2.02. Office..........................................................................................5
2.03. Purposes and Powers.............................................................................5
2.04. Appointment of the Trustees; Initial Trust Property.............................................6
2.05. Declaration of Trust............................................................................6
2.06. Other Expenses, Liabilities of Trust............................................................7
2.07. Situs of Trust..................................................................................7
2.08. Additional Capital Contributions................................................................7
2.09. Assignment of Right to Distributions or Payments; Transfers.....................................7
ARTICLE III
COMPLIANCE WITH THE CODE
3.01. Trust to be Treated as a Division For Tax Purposes..............................................8
ARTICLE IV
SEPARATE EXISTENCE OF TRUST
4.01. Maintenance of Separate Existence...............................................................8
4.02. Merger and Other Transactions..................................................................12
4.03. Transactions with Affiliates...................................................................13
4.04. Insolvency.....................................................................................13
4.05. Rating Confirmation............................................................................13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V
INVESTMENT AND APPLICATION OF TRUST FUNDS
5.01. Investment of Trust Funds......................................................................13
5.02. Application of Funds...........................................................................14
ARTICLE VI
AUTHORITY AND DUTIES OF THE TRUSTEES
6.01. General Authority..............................................................................14
6.02. Specific Authority; Special Authority of Beneficiary Trustees..................................14
6.03. Accounting and Reports to the Grantor, any Owner,
the Internal Revenue Service and Others........................................................15
6.04. Signature of Returns...........................................................................16
6.05. Right to Receive Instructions..................................................................16
6.06. No Duties Except as Specified in this Agreement or in Instructions.............................16
6.07. No Action Except Under Specified Documents or Instructions.....................................17
6.08. No Action Contrary to Agreement, Trust Related Agreements or Applicable Law....................17
ARTICLE VII
CONCERNING THE TRUSTEES
7.01. Acceptance of Trusts and Duties................................................................17
7.02. Furnishing of Documents........................................................................18
7.03. Reliance; Advice of Counsel....................................................................18
7.04. Not Acting in Individual Capacity..............................................................18
ARTICLE VIII
COMPENSATION OF TRUSTEES
8.01. Issuer Trustee's Fees and Expenses.............................................................19
8.02. Beneficiary Trustees' Fees and Expenses........................................................19
8.03. Fees of Separate Independent Trustee and Delaware Trustee......................................19
ARTICLE IX
INDEMNIFICATION OF TRUSTEES
9.01. Scope of Indemnification.......................................................................19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE X
TERMINATION OF TRUST
10.01. Dissolution of Trust..........................................................................20
10.02. No Termination by Grantor or Owner............................................................20
10.03. Cancellation of Certificate of Trust..........................................................20
ARTICLE XI
SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES
11.01. Resignation of Trustee; Appointment of Successor..............................................20
ARTICLE XII
MISCELLANEOUS
12.01. Supplements and Amendments....................................................................21
12.02. No Legal Title to Trust Property in Grantor and Owner.........................................22
12.03. Limitations on Rights of Others...............................................................22
12.04. Notices.......................................................................................22
12.05. Severability..................................................................................23
12.06. Separate Counterparts.........................................................................23
12.07. Successors and Assigns........................................................................23
12.08. Headings......................................................................................23
12.09. Governing Law.................................................................................24
</TABLE>
Exhibit 1 Issuer Trustee Fee Schedule
Exhibit 2 Certificate of Trust
iii
<PAGE>
SECOND AMENDED AND RESTATED TRUST AGREEMENT dated as of
________, 2000 among PECO Energy Company, a Pennsylvania corporation, as Grantor
and Owner, First Union Trust Company, National Association, a national banking
corporation, as Issuer Trustee, Delaware Trustee and Independent Trustee, and
George Shicora, an individual, and Thomas R. Miller, an individual, as
Beneficiary Trustees.
A Certificate of Trust of the Trust was filed with the
Secretary of State of the State of Delaware on June 23, 1998.
The Grantor, the Beneficiary Trustees and the Issuer Trustee
are parties to that certain Amended and Restated Trust Agreement dated as of
February 19, 1999 (the "Prior Trust Agreement") and now desire to amend and
restate the Prior Trust Agreement as set forth below.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree to amend and restate the Prior Trust Agreement in its
entirety as follows.
ARTICLE I
DEFINITIONS
1.01. Capitalized Terms. For all purposes of this Agreement,
the following terms shall have the meanings set forth below:
"Agreement" means this Second Amended and Restated Trust
Agreement, as it may be amended from time to time.
"Affiliate" shall mean, with reference to any specified
Person, any other Person controlling or controlled by or under common control
with such specified Person; provided, that, for purposes of this Agreement when
used with respect to the Grantor's or any Owner's direct or indirect
subsidiaries, any limited partners thereof shall also be deemed "Affiliates."
For the purposes of this definition, "control," when used with reference to any
specified Person, shall mean the power to direct the management and policies of
such specified Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Affiliated Entity" means the Grantor, any Owner, any of their
respective direct or indirect subsidiaries or any Affiliate of any of the
foregoing other than the Trust.
"Beneficiary Trustee" means any Trustee other than the Issuer
Trustee, the Independent Trustee or the Delaware Trustee.
<PAGE>
"Bond Trustee" means The Bank of New York, as Bond Trustee
under the Indenture, and its successors.
"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, the City of Charlotte or the State of Delaware are required by law or
executive order to remain closed.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. ss. 3801, et seq., and any successor statute, as
amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Competition Act" means the Pennsylvania Electricity
Generation Customer Choice and Competition Act, Chapter 28 of Title 66 of the
Pennsylvania Consolidated Statutes, 66 Pa.C.S. ss. 2801, et seq.
"Delaware Trustee" means a Trustee who is a natural person and
who is a resident of the State of Delaware, or, in all other cases, a trustee
which has its principal place of business in the State of Delaware.
"Eligible Investments" shall be the investments so designated
from time to time by any Beneficiary Trustee.
"Fiscal Year" means the calendar year from each January 1 to
the following December 31.
"GAAP" means generally accepted accounting principles in
effect from time to time.
"Grantor" means PECO Energy Company.
"Indenture" means the Indenture, dated as of March 1, 1999,
between the Trust and the Bond Trustee as the same may be amended, supplemented
or otherwise modified from time to time.
"Independent Trustee" means a Trustee that is not and has not
been for at least three years from the date of his or her or its appointment (i)
a direct or indirect legal or beneficial owner of the Trust or PECO Energy or
any of their respective Affiliates, (ii) a relative, supplier, employee,
officer, director, manager, contractor or material creditor of the Trust or PECO
Energy or any of their respective Affiliates or (iii) a Person who controls PECO
Energy or its Affiliates.
"Insolvency Event" means the Significant Events described in
(a)(i) and (a)(ii) of that definition.
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"Issuer Trustee" means First Union Trust Company, National
Association or any other Issuer Trustee designated by the Grantor or any Owner
from time to time.
"Liability" means any claim, damage, judgment, amount paid in
settlement, fine, penalty, punitive damages, or cost or expense of any nature
(including, without limitation, attorneys' fees and disbursements).
"Moody's" means Moody's Investor Service.
"Owner" means the Grantor and its successors and permitted
assigns as a beneficial owner (within the meaning of the Business Trust Act) of
the Trust. All references in this Agreement to "any Owner" means each of the
Grantor's successors and permitted assigns as a beneficial owner of the Trust,
and not the Grantor itself.
"PECO Energy" means PECO Energy Company, a Pennsylvania
corporation, its successors and permitted assigns.
"Periodic Filings" means any filings or submissions that the
Trust is required to make with any state or federal regulatory agency or under
the Code.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or any other entity of
similar nature.
"Proceeding" means any threatened, pending or completed
action, suit, appeal or other proceeding of any nature, whether civil, criminal,
administrative or investigative, whether formal or informal, and whether brought
by or in the right of the Trust, the Grantor, any Owner or otherwise.
"Series" has the meaning assigned to that term in the
Indenture.
"Significant Event" means (a) with respect to the Trust, that
the Trust (i) shall fail to or admit in writing its inability to pay its debts
generally as they become due, or shall commence a voluntary case or other
Proceeding under any applicable bankruptcy, insolvency, reorganization, debt
arrangement, dissolution or other similar law now or hereafter in effect, or
shall consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) for the Trust or for any substantial part of its property, or shall
make any general assignment for the benefit of creditors, or shall take any
trust, corporate or partnership action authorizing the taking of any of the
foregoing actions or (ii) a case or other Proceeding shall be commenced without
the application or consent of the Trust, in any court, seeking the liquidation,
reorganization, debt arrangement, dissolution, winding up, or compensation or
readjustment of debts of the Trust, the appointment of a trustee, receiver,
custodian, liquidator, assignee, sequestrator, or the like for the Trust or any
substantial part of its assets, or any similar action with respect to the Trust
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under any law (foreign or domestic) relating to bankruptcy, insolvency,
reorganization, winding up or composition or adjustment of debts and such case
or Proceeding shall continue undismissed or unstayed and in effect for a period
of 90 days; or any of the actions sought in such petition or Proceeding,
including the entering of an order for relief in respect of the Trust or the
appointment of any trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for the Trust or any substantial portion of the Trust's
property shall be granted or otherwise occur (each of (i) and (ii) an
"Insolvency Event");
(b) The Trust shall become subject to the registration
requirements of the Investment Company Act; or
(c) Any Event of Default as set forth in the Indenture
shall have occurred.
"Supplemental Indenture" means any Supplemental Indenture with
respect to a Series of Transition Bonds as defined in such Supplemental
Indenture or that amends the Indenture.
"Transition Bonds" means the transition bonds issued from time
to time by the Trust pursuant to the Indenture and any Supplemental Indenture.
"Transfer" means the sale, transfer or other assignment of all
of the Grantor's right, title and interest in all or a portion of its beneficial
interest in the Trust.
"Trust" means the Delaware statutory business trust continued
under this Agreement.
"Trustees" means the trustees of the Trust, which, as provided
herein, shall mean the Beneficiary Trustees, the Independent Trustee, the
Delaware Trustee and the Issuer Trustee collectively, not in their respective
individual capacities but solely as trustees under this Agreement, and any
successor trustees hereunder whether designated as Issuer Trustee, Independent
Trustee, Delaware Trustee or a Beneficiary Trustee.
"Trust Property" means all right, title and interest in and to
any property contributed to the Trust by the Grantor or any Owner or otherwise
acquired by the Trust, including, without limitation, all distributions or
payments thereon or proceeds thereof.
"Trust Related Agreements" means any instrument or agreement
executed in connection with or relating to the Trust or the Transition Bonds,
including, but not limited to, the Amended and Restated Master Servicing
Agreement between the Trust and PECO Energy, as Servicer thereunder (the "Master
Servicing Agreement"), the Amended and Restated Intangible Transition Property
Sale Agreement between the Trust and PECO Energy, as Seller thereunder (the
"Sale Agreement"), the Indenture and any supplemental indentures, any bill of
sale and a Custody Agreement for a short-term money management account between
the Trust
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and The Bank of New York, as custodian, as each may be supplemented or amended
from time to time.
Each of the terms used herein and not defined herein shall
have the meanings given to such terms in the Trust Related Agreements, even
after the termination of such agreements.
ARTICLE II
ORGANIZATION
2.01. Name. The Trust continued hereby shall be known as "PECO
Energy Transition Trust," in which name the Trustees shall conduct the business
of the Trust, make and execute contracts, and sue and be sued.
2.02. Office. The initial office of the Trust shall be in care
of the Issuer Trustee, One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801 (telephone number 302-888-7532) or at such other
address as the Trustees may designate by notice to the Grantor, any Owner and
the Bond Trustee, provided that any other office will comply with the provisions
of 4.01(c) and (e).
2.03. Purposes and Powers; Intent. (a) The Trust has been
created for the purpose of purchasing and owning Intangible Transition Property,
issuing Transition Bonds from time to time, pledging its interest in Intangible
Transition Property and other 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 these purposes, including, but
not limited to, entering into any hedge or swap arrangement with respect to the
Transition Bonds.
(b) The Grantor has determined that each of (i) the
creation and ownership of the Trust by the Grantor and (ii) the limited purposes
of the Trust is in the best interests of the Grantor and its creditors and
represents a prudent and advisable course of action that does not impair the
rights and interests of the Grantor's creditors. The Grantor has determined that
the transactions contemplated by this Agreement and the Trust Related Agreements
are in the best interests of the Grantor and its creditors and represent a
prudent and advisable course of action that does not impair the rights and
interests of the Grantor's creditors. Such determinations are memorialized in
the corporate records of the Grantor. The Grantor did not create the Trust with
the intent to hinder, delay, or defraud the Grantor's creditors, and any
transfer to the Trust will not render the Grantor insolvent or incapable of
conducting its business in the manner and to the extent presently conducted.
(c) The Trust shall not have the power to (i) incur any
debt other than the Transition Bonds and certain costs and expenses associated
therewith (including day-
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to-day expenses incurred by the Trust) and debt in connection with any credit
enhancement required for any Series of Transition Bonds or (ii) engage in any
business or activity other than the business and activities enumerated in
Section 2.03 (other than in accordance with Section 6.02(a)).
(d) The Trust's existence is not dependent on its being a
subsidiary of the Grantor or being affiliated with any Affiliated Entity, and
the Trust's business operations could be maintained even if it were not a
subsidiary of the Grantor or affiliated with any other Affiliated Entity. The
Grantor will not transfer additional Intangible Transition Property to the Trust
for the purpose of mitigating losses on the Intangible Transition Property that
has previously been transferred to the Trust.
(e) The Trust has determined that the transactions
contemplated by the Trust Related Agreements are in the best interests of the
Trust and its creditors and represent a prudent and advisable course of action
that does not impair the rights and interests of the Trust's creditors.
2.04. Appointment of the Trustees; Initial Trust Property. (a)
The Trust shall have no fewer than one and no more than three trustees (if the
Delaware Trustee, Issuer Trustee and Independent Trustee are the same entity) or
five trustees (if the Delaware Trustee, Issuer Trustee and Independent Trustee
are different entities) appointed from time to time by the Grantor or, in the
event of a Transfer, by the Owner or Owners. The Grantor or, in the event of a
Transfer, the Owners may at any time increase the number of Trustees, subject to
the provisions of Sections 2.04(b), 3.01, 4.01 and 4.03. The Grantor has
appointed First Union Trust Company, National Association as Issuer Trustee,
Delaware Trustee and Independent Trustee, and George Shicora and Thomas R.
Miller as Beneficiary Trustees of the Trust, which Trustees shall have all the
rights, powers and duties set forth herein.
(b) The Trust shall at all times have an Issuer Trustee
which shall be a Person meeting the qualifications of Section 11.01(c) of this
Agreement. In addition, the Trust shall at all times have at least one Trustee
which qualifies as a Delaware Trustee and at least one Trustee which qualifies
as an Independent Trustee. The Issuer Trustee, the Delaware Trustee and the
Independent Trustee may, and will initially, be the same entity.
(c) The Trustees acknowledge receipt in trust from the
Grantor, as of June 23, 1998, of the sum of $5,000, constituting the initial
Trust Property.
2.05. Declaration of Trust. The Trustees hereby declare that
they will hold the Trust Property in trust upon and subject to the conditions
set forth herein for the use and benefit of the Grantor or, in the event of a
Transfer, any Owner, subject to the obligations of the Trust under the Trust
Related Agreements. It is the intention of the parties hereto that the Trust
constitutes a business trust under the Business Trust Act and that this
Agreement constitutes the governing instrument of the Trust. On June 23, 1998,
the Trustees filed a
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Certificate of Trust with the Delaware Secretary of State in accordance with the
provisions of the Business Trust Act in substantially the form attached hereto
as Exhibit 2.
2.06. Other Expenses, Liabilities of Trust. None of the
Grantor, the Trustees or any Owner shall be liable for any liabilities or
obligations of the Trust, including but not limited to, the indemnification
obligations under Article IX.
2.07. Situs of Trust. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the
Trustees on behalf of the Trust shall be located in the State of Delaware. The
Trust shall not have any employees in any state other than in the State of
Delaware; provided, however, that nothing shall restrict or prohibit the Issuer
Trustee from having employees within or without the State of Delaware. Payments
will be received by the Trust only in the State of Delaware and payments will be
made by the Trust only from the State of Delaware.
2.08. Additional Capital Contributions. The assets of the
Trust are expected to generate a return sufficient to satisfy all obligations of
the Trust under this Agreement and the Trust Related Agreements and any other
obligations of the Trust. It is expected that no capital contributions to the
Trust will be necessary after the purchase of the initial Intangible
Transitional Property, except for capital contributions in connection with the
issuance of additional Series of Transition Bonds. In accordance with the
private letter ruling received by the Grantor from the Internal Revenue Service
dated December 19, 1997 (the "Private Letter Ruling"), on or prior to the date
of issuance of each Series of Transition Bonds, the Grantor or, in the event of
a Transfer, any Owner, shall make an additional contribution to the Trust in an
amount equal to at least 0.50% of the initial principal amount of such Series or
such greater amount as agreed to by the Grantor in connection with the issuance
by the Trust of any Series of Transition Bonds. No capital contribution by the
Grantor or any Owner, as the case may be, to the Trust will be made for the
purpose of mitigating losses on Transition Property that has previously been
transferred to the Trust, and all capital contributions shall be made in
accordance with all applicable corporate business trust procedures and
requirements, including proper record keeping by the Grantor and the Trust. Each
capital contribution will be acknowledged by a written receipt signed by any of
the Trustees. The Trustees acknowledge and agree that, notwithstanding anything
in this Agreement to the contrary, such additional contribution will be managed
by an investment manager selected by the Grantor or, in the event of a Transfer,
the Owner or Owners who shall invest such amounts only in Eligible Investments
(as defined in the Indenture), and all income earned thereon shall be allocated
or paid by the Bond Trustee in accordance with the provisions of the Indenture.
2.09. Assignment of Right to Distributions or Payments;
Transfers. The Grantor and any Owner may assign all or any part of their
respective rights to receive distributions or payments hereunder, but such
assignment shall effect no change in the ownership of the Trust. No Transfer of
a beneficial interest in the Trust shall be made by the Grantor, except to an
Affiliate or in connection with the sale or disposition of all or
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substantially all of the Grantor's electric generating business, whether by
operation of law or otherwise, and only if prior notice of such assignment is
provided to Moody's.
ARTICLE III
COMPLIANCE WITH THE CODE
3.01. Trust to be Treated as a Division For Tax Purposes. The
Trust shall comply with the applicable provisions of the Code and the applicable
Treasury regulations thereunder in the manner necessary to effect the intention
of the parties that the Trust be treated as a division of PECO Energy for
federal income tax purposes pursuant to Treasury regulation ss. 301.7701-1 et
seq. and that the Trust be accorded such treatment until its termination
pursuant to Section 10.01 hereof and shall take, or refrain from taking, any
action required by the Code or Treasury regulations thereunder in order to
maintain such status of the Trust. In addition, the Trust may not claim any
credit on, or make any deduction from the principal and interest payable in
respect of, the Transition Bonds (other than amounts properly withheld under the
Code), or assert any claim against any present or former Transition Bondholder
because of the payment of taxes levied or assessed upon the Trust.
ARTICLE IV
SEPARATE EXISTENCE OF TRUST
4.01. Maintenance of Separate Existence. The Trust shall take
all steps necessary to continue the identity of the Trust as a separate legal
entity and to make it apparent to third Persons that the Trust is an entity with
assets and liabilities distinct from those of the Grantor, any Owner, the
Trustees, Affiliates of the Grantor or any Owner or any other Person, and that,
except for financial reporting purposes (to the extent required by generally
accepted accounting principles) and for state and federal income and franchise
tax purposes, it is not a division of any of the Affiliated Entities or any
other Person. In that regard, and without limiting the foregoing in any manner,
the Trust shall:
(a) be managed by the Trustees who shall independently
manage the daily operations and business affairs of the Trust in accordance with
the terms of this Agreement and, except as otherwise provided herein, neither
the Trustees nor the Trust shall be controlled in making such decisions by the
Grantor, any Owner, any Affiliated Entity or any other Person;
(b) maintain at least one Independent Trustee, one Issuer
Trustee and one Delaware Trustee (who may be the same Person);
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(c) if the office of the Trust is not in the care of the
Issuer Trustee, as provided by 2.02, maintain office space separate and clearly
delineated from the office space of any Affiliated Entity, owned by the Trust or
evidenced by a written lease or sublease (even if located in an office owned or
leased by, or shared with, an Affiliated Entity);
(d) maintain the assets of the Trust in such a manner
that it is not costly or difficult to segregate, identify or ascertain its
individual assets from those of any other Person, including any Affiliated
Entity;
(e) if the office of the Trust is not in the care of the
Issuer Trustee, as provided by 2.02, maintain a separate telephone number which
will be answered only in its own name;
(f) conduct all intercompany transactions with Affiliated
Entities on an arm's-length basis and in accordance with Section 4.03;
(g) not guarantee, become obligated for or pay the debts
of any Affiliated Entity or hold the credit of the Trust out as being available
to satisfy the obligations of any Affiliated Entity or other Person (nor
indemnify any Person for losses resulting therefrom), nor have any of the
Trust's obligations guaranteed by any Affiliated Entity or hold the Trust out as
responsible for the debts of any Affiliated Entity or other Person or for the
decisions or actions with respect to the business and affairs of any Affiliated
Entity, nor seek or obtain credit or incur any obligation to any third-party
based upon the creditworthiness or assets of any Affiliated Entity or any other
Person (i.e. other than based on the assets of the Trust) nor allow any
Affiliated Entity to do such things based on the credit of the Trust;
(h) except as expressly otherwise permitted hereunder or
under any of the Trust Related Agreements, not permit the commingling or pooling
of the Trust's funds or other assets with the funds or other assets of any
Affiliated Entity;
(i) maintain separate deposit and other bank accounts and
funds to which no Affiliated Entity has any access, which accounts shall be
maintained in the name and tax identification number of the Trust;
(j) maintain full books of accounts and records
(financial or other) and financial statements separate from those of the
Affiliated Entities or any other Person, prepared and maintained in accordance
with GAAP (including, but not limited to, all resolutions, records, agreements
or instruments underlying or regarding the transactions contemplated by the
Trust Related Agreements or otherwise) and will be audited annually by an
independent accounting firm which shall provide such audit to the Bond Trustee;
(k) compensate (either directly or through reimbursement
of the Trust's allocable share of any shared expenses) all employees,
consultants and agents and Affiliated Entities, to the extent applicable, for
services provided to the Trust by such
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employees, consultants and agents or Affiliated Entities, in each case, from the
Trust's own funds and maintain a sufficient number of employees in light of its
contemplated operations;
(l) pay from its own bank accounts for accounting and
payroll services, rent, lease and other expenses (or the Trust's allocable share
of any such amounts provided by one or more other Affiliated Entity) and not
have such operating expenses (or the Trust's allocable share thereof) paid by
any Affiliated Entities, provided, that the Grantor shall be permitted to pay
the initial organization expenses of the Trust and certain of the expenses
related to the transactions contemplated by the Trust Related Agreements
incurred on or prior to the closing date for such transactions;
(m) maintain adequate capitalization to conduct its
business and affairs considering the Trust's size and the nature of its business
and intended purposes and, after giving effect to the transactions contemplated
by the Related Trust Agreements, refrain from engaging in a business for which
its remaining property represents an unreasonably small capital;
(n) conduct all of the Trust's business (whether in
writing or orally) solely in the name of the Trust through its Trustees,
employees and agents and hold the Trust out as an entity separate from any
Affiliated Entity;
(o) not make or declare any distributions of cash or
property to the Grantor or any Owner except in accordance with appropriate trust
formalities and only consistent with sound business judgment to the extent that
it is permitted pursuant to the Trust Related Agreements and not violative of
any applicable law and only if no Significant Event or potential Significant
Event then exists or would result therefrom;
(p) otherwise practice and adhere to all trust procedures
and formalities, such as the holding of regularly scheduled meetings of the
Trustees, to the extent required by such formalities and by this Agreement, the
State of Delaware and all other appropriate constituent documents;
(q) not appoint an Affiliated Entity or any employee of
an Affiliated Entity as an agent of the Trust, except as otherwise permitted in
the Trust Related Agreements (although such Persons can qualify as Beneficiary
Trustees);
(r) not acquire obligations or securities of or make
loans or advances to or pledge its assets for the benefit of the Grantor, any
Owner or any Affiliate of such parties;
(s) not permit the Grantor, any Owner or any Affiliated
Entity to acquire obligations of or make loans or advances to the Trust;
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(t) not permit the Grantor, any Owner or any Affiliated
Entity to guarantee, pay or become liable for the debts of the Trust or permit
any such entity to hold out its creditworthiness as being available to pay the
liabilities and expenses of the Trust nor, except for the indemnities in this
Agreement and the Trust Related Agreements, indemnify any Person for losses
resulting therefrom;
(u) maintain separate minutes of the actions of the
Trustees, including of the transactions contemplated by the Trust Related
Agreements;
(v) cause (i) all written and oral communications,
including, without limitation, letters, invoices, purchase orders, and
contracts, of the Trust to be made solely in the name of the Trust, (ii) the
Trust to have its own tax identification number, stationery, checks and business
forms, separate from those of any Affiliated Entity, (iii) all Affiliated
Entities not to use the stationery or business forms of the Trust, and for the
Trust not to use the stationery or business forms of any Affiliated Entity, and
(iv) all Affiliated Entities not to conduct business in the name of the Trust,
and the Trust not to conduct business in the name of any Affiliated Entity;
(w) direct creditors of the Trust to send invoices and
other statements of account of the Trust directly to the Trust and not to any
Affiliated Entity and to cause the Affiliated Entities not to direct their
creditors to send invoices and other statements of accounts to the Trust;
(x) cause the Grantor or, in the event of a Transfer, any
Owner to maintain as official records all resolutions, agreements, and other
instruments underlying or regarding the transactions contemplated by the Trust
Related Agreements;
(y) disclose, and cause the Grantor to disclose, in its
financial statements the effects of all transactions between the Grantor and the
Trust in accordance with generally accepted accounting principles, and in a
manner which makes it clear that the assets of the Trust (including the
Transition Property) are not assets of any Affiliated Entity and are not
available to pay creditors of any Affiliated Entity;
(z) treat and cause the Grantor to treat the transfer of
Intangible Transition Property from the Grantor to the Trust as a sale under the
Competition Act;
(aa) if in accordance with GAAP, the assets and
liabilities of the Trust are included in the consolidated financial statements
of the Grantor, including if the Trust is treated as a division of PECO Energy,
cause the Grantor to prominently and clearly disclose, whether in a footnote or
in the notes to such financial statements, that (i) the Trust is a separate
legal entity, (ii) the assets of the Trust are not available to pay the debts of
the Grantor or any other Affiliated Entity and (iii) neither the Grantor nor any
other Affiliated Entity is liable or responsible for the debts of the Trust;
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(bb) except as described herein with respect to tax
reporting and financial reporting, describe and cause each Affiliated Entity to
describe the Trust, and hold the Trust out as a separate legal entity and not as
a division or department of any Affiliated Entity, and promptly correct any
known misunderstandings regarding its identity separate from any Affiliated
Entity or any Person;
(cc) treat the Transition Bonds as debt obligations of
the Trust;
(dd) maintain its valid existence in good standing under
the laws of the State of Delaware and maintain its qualification to do business
under the laws of such other jurisdictions as its operations require;
(ee) comply with all laws applicable to the transactions
contemplated by this Agreement and the Trust Related Agreements; and
(ff) cause PECO Energy to observe in all material
respects all corporate procedures and formalities required by its constituent
documents and the laws of its state of formation and all other appropriate
jurisdictions.
4.02. Merger and Other Transactions. As long as the Transition
Bonds are outstanding and subject to Section 4.05, the Trust may not consolidate
with, merge or convert into another entity or sell all or substantially all of
its assets to another entity and dissolve, unless: (i) the entity formed by or
surviving such consolidation, merger or conversion or to whom substantially all
of such assets are sold is organized under the laws of the United States, any
state thereof or the District of Columbia, (ii) such entity expressly assumes
all obligations and succeeds to all rights of the Trust under the Sale Agreement
and the Master Servicing Agreement pursuant to an assignment and assumption
agreement executed and delivered to the Bond Trustee, in form satisfactory to
the Bond Trustee, (iii) no Default or Event of Default will have occurred and be
continuing immediately after such consolidation, merger, conversion or sale of
assets, (iv) the Rating Agency Condition (as defined in the Indenture) will have
been satisfied with respect to such transaction by each Rating Agency (as
defined in the Indenture), except Moody's (to which notice will be sent), (v)
the Trust has received an opinion of counsel to the effect that such
consolidation, merger, conversion or sale of assets would have no material
adverse tax consequence to the Trust or any Transition Bondholder and such
consolidation, merger, conversion or sale of assets complies with the Indenture
and all conditions precedent therein provided relating to such transaction, (vi)
none of the Intangible Transition Property, any qualified rate orders or PECO
Energy's or the Trust's rights under the Competition Act or any qualified rate
orders are impaired and (vii) any action that is necessary to maintain the lien
and security interest created by the Indenture will have been taken. Further,
the Trust may not sell, transfer, exchange or otherwise dispose of any of its
assets, except as expressly permitted by the Indenture, any Supplemental
Indenture, the Master Servicing Agreement or the Sale Agreement.
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4.03. Transactions with Affiliates. The Trust will not enter
into, or be a party to, any transaction with any of its Affiliates, except (i)
the transactions contemplated by the Trust Related Agreements and (ii) any other
transactions (including, without limitation, the lease of office space or
computer equipment or software by the Trust from an Affiliate of the Trust and
the sharing of employees and employee resources and benefits) (A) in the
ordinary course of business or as otherwise permitted hereunder, (B) pursuant to
the reasonable requirements and purposes of the Trust's business, (C) upon fair
and reasonable terms (and, to the extent material, pursuant to written
agreements) that are on terms and conditions available at the time to the Trust
for comparable transactions with unaffiliated Persons and (D) not inconsistent
with the terms of Section 4.01. Unless such transactions are in the ordinary
course of business in which case any of the Trustees, acting singly or
collectively, may take all actions necessary to effectuate such transactions,
they will require the approval of a majority of the Trustees, which majority
must include the Independent Trustee.
4.04. Insolvency. As of the date hereof, neither the Grantor nor
the Trust intends to file a voluntary petition for relief under the Bankruptcy
Code or any similar law. None of the Grantor nor any Owner will cause the Trust
to file a voluntary petition for relief under the Bankruptcy Code or similar
law. The Trustees shall not file a bankruptcy or insolvency petition or
otherwise institute insolvency or bankruptcy proceedings without the prior
written consent of all of the Trustees, including the Independent Trustee.
Further, as of the date hereof, after giving effect to the transactions
contemplated by the Trust Related Agreements, the Issuer is solvent and expects
to remain solvent, believes it will be able to pay its debts as they become due
and such belief is reasonable, 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 maturity.
4.05. Rating Confirmation. Notwithstanding anything to the
contrary contained in this Agreement, as long as the Transition Bonds are
outstanding, the Trust may not engage in any dissolution, liquidation,
consolidation, merger or sale of all or substantially all of its assets without
having first obtained confirmation from Moody's Investor Service, Inc. and
Standard & Poor's Rating Services that such event will not result in either a
downgrade or withdrawal of the then current rating of the Transition Bonds.
ARTICLE V
INVESTMENT AND APPLICATION OF TRUST FUNDS
5.01. Investment of Trust Funds. The provisions of this Article
V apply only to funds or Trust Property that have been released from the lien of
the Indenture and are permitted to be held or applied by the Trust. Unless
otherwise directed in writing by the Beneficiary Trustees, funds or Trust
Property released by the Bond Trustee to the Trust or funds in the possession of
the Trust shall be invested and reinvested by the Trustees (or by an
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independent investment manager appointed in writing by the Beneficiary Trustees)
in Eligible Investments.
5.02. Application of Funds. Income with respect to and
proceeds of any funds or Trust Property held by the Trustees shall be
transferred as determined by the Beneficiary Trustees from time to time.
ARTICLE VI
AUTHORITY AND DUTIES OF THE TRUSTEES
6.01. General Authority. The Trustees are authorized to take all
actions required to be taken by them pursuant to the terms of this Agreement and
the Trust Related Agreements. The Trustees are further authorized, but shall not
be obligated, to take such further actions as are permitted but not required
under the terms of this Agreement and the Trust Related Agreements.
6.02. Specific Authority; Special Authority of Beneficiary
Trustees. (a) Notwithstanding any other provision in this Agreement to the
contrary and without the need for any additional consent of any Person, the
Trustees, acting singly or collectively, are hereby authorized and directed to
take the following action on behalf of the Trust: (i) execute, deliver and
perform any agreements related to the issuance and sale of Transition Bonds,
including the Trust Related Agreements, as necessary, (ii) execute and deliver
all certificates and other documents required by any such agreements and (iii)
issue and deliver one or more series of Transition Bonds in accordance with the
provisions of such agreements and any qualified rate orders and qualify and
register the Transition Bonds for sale in various states. The Trustees, acting
singly or collectively, are authorized to take all actions necessary or
incidental to the day-to-day operations of the Trust. Except as otherwise
specifically provided, all non-day-to-day matters shall be determined by a
majority of the then current Trustees; provided that, such majority must include
the Independent Trustee (which may also be the Issuer Trustee) for all actions
specified in Sections 4.02 and 4.03 and any matter that would, if approved by
the Trustees, cause the Trust to deviate from the provisions of Sections
2.03(a), 2.03(c), 2.04(b), 4.01 and 12.01 of this Agreement (or any provisions
that by the terms hereof require the consent of the Independent Trustee),
subject to the provisions of Section 6.05. For purposes of determining a
majority under this Agreement, each Person that is serving as a Trustee shall be
counted as a single Trustee, even if such Person holds multiple Trustee
positions (i.e., the vote of one Person that acts as Delaware Trustee, Issuer
Trustee and Independent Trustee shall be counted only once).
(b) The Grantor and the Trustees hereby authorize and
direct the Beneficiary Trustees, acting singly or collectively, (i) to file with
the Securities and Exchange Commission (the "Commission") and execute, in each
case on behalf of the Trust, one or more Registration Statements on either Form
S-3 or Form S-1 (collectively, the "1933 Act Registration
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<PAGE>
Statements"), including any pre-effective or post-effective amendments to such
1933 Act Registration Statements (including the prospectus supplement, the
prospectus and the exhibits contained therein), relating to the registration
under the Securities Act of 1933, as amended, of each Series of Transition
Bonds, (ii) to file and execute on behalf of the Trust such applications,
reports, surety bonds, irrevocable consents, appointments of attorney for
service of process and other papers and documents as shall be necessary or
desirable to register each Series of Transition Bonds under the securities or
"Blue Sky" laws of such jurisdictions as the Trust may deem necessary or
desirable and (iii) to do or cause to be done all such other acts or things and
to execute and deliver all such instruments and documents that any such
Beneficiary Trustee shall deem necessary or appropriate to carry out the intent
of the foregoing. In the event that any filing referred to above is required by
the rules and regulations of the Commission or state securities or "Blue Sky"
laws, to be executed on behalf of the Trust by the Issuer Trustee, then the
Issuer Trustee, not in its individual capacity, but solely in its capacity as
trustee of the Trust, is hereby authorized and directed to join in any such
filing and to execute on behalf of the Trust any and all of the foregoing. In
connection with all of the foregoing, the Trust hereby constitutes and appoints
each of the Beneficiary Trustees as its true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for the Trust or in
the Trust's name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to the 1933 Act
Registration Statements and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as the Trust might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his
respective substitute or substitutes, shall do or cause to be done by virtue
hereof.
(c) Meetings of the Trustees for the purpose of
establishing a majority under this Article VI or otherwise may be called at any
time by any of the Trustees upon two days written or oral notice, stating the
time, place and purpose of the meeting, to all Trustees prior to the time of the
meeting. In addition, any action required or permitted to be taken at a meeting
of the Trustees may be taken without a meeting upon the written consent of the
Trustees who would be necessary to authorize the action at a meeting at which
all Trustees were present and voting or upon the unanimous written consent of
the Trustees. The Issuer Trustee shall maintain the minutes of all meetings of
the Trustees. Any meeting may be held by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear one another. Attendance, whether by telephone or in person, at
any meeting of the Trustees shall constitute a waiver of notice of such meeting.
6.03. Accounting and Reports to the Grantor, any Owner, the
Internal Revenue Service and Others. The Grantor shall designate, from time to
time, a Trustee which shall, on behalf of the Trust, (i) maintain or cause to be
maintained the books of the Trust on a calendar year basis on the accrual method
of accounting, (ii) deliver to the Grantor and any Owner, within 90 days of the
end of each Fiscal Year, or more often, as may be required by the Code and the
regulations thereunder, a copy of the annual financial statement
15
<PAGE>
of the Trust for such Fiscal Year and a statement in such form and containing
such information as may be required by such regulations, and as is necessary and
appropriate to enable the Grantor and any Owner to prepare its federal and state
income tax returns, (iii) file such tax returns relating to the Trust, cause the
Trust to pay all taxes incurred by it pursuant to the terms of any tax sharing
agreement entered into by the Trust and the Grantor and take all actions
necessary for the Trust to qualify or continue to qualify as a division of PECO
Energy or its designated affiliate for federal income tax purposes, (iv) cause
such tax returns to be signed by the Trust in the manner required by law, and
(v) cause to be mailed to the Grantor and any Owner copies of all such reports
and tax returns of the Trust.
6.04. Signature of Returns. The Trustee designated in Section
6.03 shall sign on behalf of the Trust the tax returns and other periodic
filings of the Trust, unless applicable law requires the Owner to sign such
documents, in which case, so long as the Grantor is the Owner and applicable law
allows the Grantor to sign any such document, the Grantor shall sign such
document. At any time that the Grantor is not the Owner, or is otherwise not
allowed by law to sign any such document, then the party required by law to sign
such document shall sign.
6.05. Right to Receive Instructions. In the event that the
Trustees are unable to decide between alternative courses of action for whatever
reason, or are unsure as to the application of any provision of this Agreement
or any Trust Related Agreement, or such provision is ambiguous as to its
application, or is, or appears to be, in conflict with any other applicable
provision, or in the event that this Agreement or any Trust Related Agreement
permits any determination by the Trustees or is silent or is incomplete as to
the course of action which the Trustees are required to take with respect to a
particular set of facts, any one or more of the Trustees may give notice of such
circumstances (in such form as shall be appropriate under the circumstances) to
the Grantor or, in the event of a Transfer, to the Owner and request
instructions from independent, appropriate legal or other counsel to the
Trustees in accordance with Section 7.03 of this Agreement.
6.06. No Duties Except as Specified in this Agreement or in
Instructions. The Trustees shall not have any duty or obligation to manage, make
any payment in respect of, register, record, sell, dispose of or otherwise deal
with the Trust Property, or to otherwise take or refrain from taking any action
under, or in connection with, any document contemplated hereby to which the
Trustees are a party, except as expressly provided by the terms of this
Agreement or the Trust Related Agreements and no implied duties or obligations
shall be read into this Agreement or the Trust Related Agreements against the
Trustees. The Trustees nevertheless agree that, in the event that claims are
made against any of the Trustees in their individual capacities that are not
related to the ownership or the administration of the Trust Property or the
transactions contemplated by the Trust Related Agreements, the Trustee against
whom such claims were made shall, at its own cost and expense, promptly take all
action as may be necessary to discharge any liens on any part of the Trust
Property resulting from those claims.
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6.07. No Action Except Under Specified Documents or
Instructions. The Trustees shall not manage, control, use, sell, dispose of or
otherwise deal with any part of the Trust Property except in accordance with the
powers granted to and the authority conferred upon the Trustees pursuant to this
Agreement and the Trust Related Agreements.
6.08 No Action Contrary to Agreement, Trust Related Agreements
or Applicable Law. The Trustees shall not be required to take or refrain from
taking any action under this Agreement or the Trust Related Agreements if the
Trustees shall reasonably determine or shall have been advised by counsel that
such action (i) is contrary to the terms of this Agreement or the Trust Related
Agreements or is otherwise contrary to applicable law or (ii) is likely to
result in liability on the part of the Trustees to risk or advance their own
funds.
ARTICLE VII
CONCERNING THE TRUSTEES
7.01. Acceptance of Trusts and Duties. The Trustees accept the
trusts hereby created and agree to perform their respective duties hereunder
with respect to the same but only upon the terms of this Agreement. The Trustees
shall not be personally liable under any circumstances except (i) for their own
willful misconduct or gross negligence, (ii) for liabilities arising from the
failure by any of the Trustees to perform obligations expressly undertaken by
them in Article VI, or (iii) for taxes, fees or other charges on, based on or
measured by any fees, commissions or compensation received by the Trustees in
connection with any of the transactions contemplated by this Agreement or the
Trust Related Agreements. In particular, but not by way of limitation:
(a) The Trustees shall not be personally liable for any
error of judgment made in good faith by any of the Trustees;
(b) The Trustees shall not be personally liable with
respect to any action taken or omitted to be taken by the Trustees in good faith
in accordance with the instructions delivered pursuant to Section 6.05;
(c) No provision of this Agreement shall require the
Trustees to expend or risk their personal funds or otherwise incur any financial
Liability in the performance of any of their rights or powers hereunder, if the
Trustees shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or Liability is not reasonably
assured or provided to them;
(d) Under no circumstance shall the Trustees be
personally liable for any indebtedness of the Trust under any Trust Related
Agreement; and
17
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(e) The Trustees shall not be personally responsible for
or in respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Grantor, or for the form, character, genuineness,
sufficiency, value or validity of any Collateral, or for or in respect of the
validity or sufficiency of the Trust Related Agreements.
7.02. Furnishing of Documents. The Trustees shall furnish to
the Grantor and any Owner, promptly upon receipt thereof, duplicates or copies
of all material reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Trustees by any party
pursuant to the Trust Related Agreements (other than documents originated by or
otherwise furnished by the Grantor or any Owner).
7.03. Reliance; Advice of Counsel. (a) The Trustees shall
incur no Liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
document or paper believed by them to be genuine and believed by them to be
signed by the proper party or parties. The Trustees may accept a certified copy
of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the manner of ascertainment of which is not specifically
prescribed herein, the Trustees may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or any assistant treasurer or the secretary or any assistant secretary of the
relevant party, as to such fact or matter, and such certificate shall constitute
full protection to the Trustees for any action taken or omitted to be taken by
them in good faith in reliance thereon.
(b) In the exercise or administration of the trusts
hereunder and in the performance of their respective duties and obligations
under any of the Trust Related Agreements, the Trustees (i) may act directly or,
at the expense of the Trust in the case of the Issuer Trustee, through agents or
attorneys pursuant to agreements entered into with any of them, and the Trustees
shall not be liable for the default or misconduct of such agents or attorneys if
such agents or attorneys shall have been selected by the Trustees with
reasonable care and (ii) may, at the expense of the Trust in the case of the
Issuer Trustee, consult with counsel, accountants and other skilled persons to
be selected with reasonable care and employed by them, and the Trustees shall
not be liable for anything done, suffered or omitted in good faith by it in
accordance with the advice or opinion of any such counsel, accountants or other
skilled persons.
7.04. Not Acting in Individual Capacity. Except as expressly
provided in this Article VII, in accepting the trusts hereby created the
Trustees each act solely as trustees hereunder and not in their respective
individual capacities, and all Persons having any claim against the Trustees by
reason of the transactions contemplated by this Agreement or the Trust Related
Agreements shall look only to the Trust Property for payment or satisfaction
thereof.
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ARTICLE VIII
COMPENSATION OF TRUSTEES
8.01. Issuer Trustee's Fees and Expenses. The Issuer Trustee
shall receive compensation for its services hereunder as set forth on the fee
schedule attached hereto as Exhibit 1. The Issuer Trustee shall be entitled to
be reimbursed from the Trust Property for its reasonable expenses hereunder,
including, without limitation, its travel, telephone, facsimile, postage,
overnight courier and other related expenses, as well as the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Issuer Trustee may employ in connection with the
exercise and performance of its rights and duties under this Agreement and the
Trust Related Agreements.
8.02. Beneficiary Trustees' Fees and Expenses. The Beneficiary
Trustees shall not be compensated by the Trust for their services performed for
or on behalf of the Trust.
8.03. Fees of Separate Independent Trustee and Delaware
Trustee. At such time as the Issuer Trustee, the Independent Trustee and the
Delaware Trustee are not the same Person, the Trust shall pay such fees to each
of the Independent Trustee and Delaware Trustee as the majority of the Trustees
shall approve.
ARTICLE IX
INDEMNIFICATION OF TRUSTEES
9.01. Scope of Indemnification. To the fullest extent
permitted by law, the Trust shall indemnify the Trustees and their agents,
employees and directors against any Liability incurred in connection with any
Proceeding in which the Trustees may be involved as a party or otherwise by
reason of the fact that such Trustee is or was serving in its capacity as a
Trustee, unless such Liability is based on or arises in connection with the
Trustee's or such other indemnified parties' own wilful misconduct or gross
negligence, the failure to perform the obligations expressly undertaken by them
in Article VI, or taxes, fees or other charges on, based on or measured by any
fees, commissions or compensation received by the Trustees in connection with
any of the transactions contemplated by this Agreement or the Trust Related
Agreements. This indemnification clause shall survive the termination of this
Agreement.
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ARTICLE X
TERMINATION OF TRUST
10.01. Dissolution of Trust. (a) The Trust shall dissolve and,
after satisfaction of the creditors of the Trust as required by applicable law,
property held by the Trust will be distributed to the Grantor or, in the event
of a Transfer, to any Owner thirty years from the date of its creation or
sooner, at the option and expense, and upon written instruction of the Grantor,
but in no event before payment in full of all Series of Transition Bonds.
(b) The bankruptcy of either the Grantor or any Owner or
both shall not operate to terminate this Agreement, to dissolve, terminate or
annul the Trust, to entitle the Grantor's or any Owner's legal representatives
to claim an accounting or to take any action or Proceeding in any court for a
partition or winding up of the Trust Property, nor otherwise affect the rights,
obligations and liabilities of the parties hereto.
10.02. No Termination by Grantor or Owner. Except as provided
in Section 10.01, neither the Grantor nor any Owner shall be entitled to
dissolve or terminate or revoke the Trust established hereunder.
10.03. Cancellation of Certificate of Trust. Upon completion
of the winding up of the affairs of the Trust after dissolution of the Trust in
accordance with Section 10.01 or otherwise, the Certificate of Trust shall be
canceled by a Beneficiary Trustee's executing and filing a Certificate of
Cancellation with the Secretary of State of Delaware.
ARTICLE XI
SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES
11.01. Resignation of Trustee; Appointment of Successor. (a)
The Trustees may resign at any time without cause by giving at least 90 days'
prior written notice to the Grantor and any Owner, such resignation to be
effective upon the acceptance of appointment by a successor Trustee under
Section 11.01(b). In addition, the Grantor or, in the event of a Transfer, any
Owner may at any time remove any of the Trustees with or without cause by an
instrument in writing delivered to the Trustee, such removal to be effective
upon the acceptance of appointment by a successor Trustee under Section
11.01(b); except that, neither the Grantor nor any Owner may remove the
Independent Trustee (i) without cause, (ii) after an Event of Default under the
Indenture or (iii) if the removal of one or more Trustees would cause the breach
of Section 2.04(b). In case of the resignation or removal of a Trustee, the
Grantor or, in the event of a Transfer, any Owner may appoint a successor
Trustee by an instrument signed by the Grantor or any Owner, as applicable,
subject to Section 2.04(b). If the last remaining Trustee of the Trust resigns
or is removed or the Issuer Trustee, the
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Independent Trustee or the Delaware Trustee resigns or is removed and a
successor Trustee shall not have been appointed within 30 days after the giving
of written notice of such resignation or the delivery of the written instrument
with respect to such removal, such Trustee, the Grantor or any Owner may apply
to any court of competent jurisdiction to appoint a successor Trustee in
compliance with Section 2.04(b) to act until such time, if any, as a successor
Trustee shall have been appointed as provided above. Any successor Trustee so
appointed by such court shall immediately and without further act be superseded
by any successor Trustee appointed as above provided. In the event of removal of
a Trustee, the Trustee so removed shall be entitled to compensation and
reimbursement for expenses incurred through the date of such removal.
(b) Any successor Trustee, however appointed, shall
execute and deliver to the predecessor Trustee and the Trust an instrument
accepting such appointment, and thereupon such successor Trustee, without
further acts, shall become vested with all the estates, properties, rights,
powers, duties and trusts of the predecessor Trustee in the trusts hereunder
with like effect as if originally named as a Trustee herein; but nevertheless,
upon the written request of such successor Trustee, such predecessor Trustee
shall execute and deliver an instrument transferring to such successor Trustee,
upon the trusts herein expressed, all the estates, properties, rights, powers,
duties and trusts of such predecessor Trustee, and such predecessor Trustee
shall duly assign, transfer, deliver and pay over to such successor Trustee all
moneys or other property then held or subsequently received by such predecessor
Trustee upon the trusts herein expressed.
(c) Any successor Issuer Trustee, however appointed,
shall be a bank or trust company incorporated and doing business within the
United States of America and having a combined capital and surplus of at least
$50,000,000. Any corporation into which the Issuer Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Issuer Trustee shall
be a party, or any corporation to which substantially all the corporate trust
business of the Issuer Trustee may be transferred, shall, subject to the terms
of this Agreement, be the Issuer Trustee of the Trust under this Agreement
without further act or consent of any Person.
ARTICLE XII
MISCELLANEOUS
12.01. Supplements and Amendments. This Agreement may be
amended only by a written instrument signed by the Grantor, any Owner and a
majority of the Trustees (which majority shall include the Independent Trustee)
at the time of such amendment. No such amendment may be made unless the Rating
Agency Condition is satisfied with respect to each of the Rating Agencies other
than Moody's (to which notice will be sent) in connection herewith.
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12.02. No Legal Title to Trust Property in Grantor and Owner.
Neither the Grantor nor any Owner shall have legal title to or ownership of any
part of the Trust Property. No transfer, by operation of law or otherwise, of
any right, title and interest of the Grantor or any Owner in and to their
undivided beneficial interest in the Trust Property hereunder shall operate to
terminate this Agreement or the trusts hereunder, to dissolve, terminate or
annul the Trust or to entitle any successor transferee to an accounting or to
the transfer to it of legal title to any part of the Trust Property.
12.03. Limitations on Rights of Others. Nothing in this
Agreement, whether express or implied, shall be construed to give to any Person
other than the Trust, the Grantor and any Owner any legal or equitable right,
remedy or claim in the Trust Property or except for the Grantor and any Owner,
under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.
12.04. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and delivered by
hand or mailed by certified mail, postage prepaid, if to the Trustees, addressed
to:
First Union Trust Company, One Rodney Square
National Association 920 King Street, 1st Floor
Wilmington, DE 19801
George Shicora c/o First Union Trust Company,
National Association
One Rodney Square
920 King Street, 1st Floor
Wilmington, DE 19801
Thomas R. Miller c/o First Union Trust Company,
National Association
One Rodney Square
920 King Street, 1st Floor
Wilmington, DE 19801
or to such other addresses as the Trustees may have set forth in a written
notice to the Grantor, any Owner and the Bond Trustee; and if to the Grantor,
addressed to: PECO Energy Company, 2301 Market Street, S21-1, Philadelphia, PA
19101 or to such other address as the Grantor may have set forth in a written
notice to the Trustees and the Bond Trustee; and if to Moody's, addressed to:
ABS Monitoring Department, 99 Church Street, New York, NY 10007. All notices to
any Owner shall be sent care of the Grantor to the Grantor's address set forth
above or to such other address as such Owner may have set forth in a written
notice to the Grantor, the Trustees and the Bond Trustee. Whenever any notice in
writing is required to be given by the Trustees hereunder, such notice shall be
deemed given and such requirement satisfied 72 hours after such notice is mailed
by certified mail, postage prepaid, addressed as
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provided above; any notice given by the Grantor or any Owner to the Trustees
shall be effective upon receipt. All notices required under this Agreement to be
delivered to Moody's shall be given by one or both of the Beneficiary Trustees.
12.05. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12.06. Separate Counterparts. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
12.07. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Trustees and their respective successors and assigns and the Grantor, any Owner
and their respective successors and permitted assigns, all as herein provided;
provided, that Moody's receives prior notice of any such succession or
assignment. Any request, notice, direction, consent, waiver or other instrument
or action by the Grantor and any Owner shall bind its successors and permitted
assigns.
12.08. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof. Any reference to any Article or
Section contained in this Agreement shall refer to such Article or Section as
set forth in this Agreement, notwithstanding failure to use the term "hereof,"
"hereto" or "herein" in connection with such reference.
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12.09. Governing Law. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the State of Delaware
(without regard to conflict of laws principles), including all matters of
construction, validity and performance.
IN WITNESS WHEREOF, the parties hereto have duly executed or
caused this Agreement to be duly executed by their respective officers hereunto
duly authorized, as of the day and year first above written.
PECO ENERGY COMPANY,
as Grantor and Owner
By:__________________________
Name:________________________
Title:_________________________
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual
capacity but solely as Issuer
Trustee, Delaware Trustee and
Independent Trustee
By:___________________________
Name:________________________
Title:_________________________
GEORGE SHICORA, not in his individual
capacity but solely as
a Beneficiary Trustee
-------------------------------
THOMAS R. MILLER, not in his
individual capacity but solely
as a Beneficiary Trustee
-------------------------------
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EXHIBIT 1
ISSUER TRUSTEE FEE SCHEDULE
For services performed pursuant to the Second Amended and Restated Trust
Agreement to which this Exhibit 1 is attached, the Issuer Trustee shall be
entitled to the following fees:
-- $1,500.00 upon the Trust's issuance of each series of Transition
Bonds (calculated on a per series basis), other than the initial
series of Transition Bonds for which no fee shall be paid; and
-- $8,500.00 at the end of each calendar year as an annual
administrative maintenance fee.
In addition to the foregoing fees and the out-of-pocket expenses described in
Section 8.01 of the Second Amended and Restated Trust Agreement, the Issuer
Trustee may receive a special administrative maintenance fee from time to time
in such amounts as the Grantor, any Owner and the Trustees shall mutually agree
upon in writing in the event the Issuer Trustee determines, in good faith, that
the Trust requires special administrative attention due to extraordinary
circumstances.
This Issuer Trustee Fee Schedule may be revised or amended only by a written
instrument signed by the Grantor, any Owner and the Trustees.
Exhibit 1
<PAGE>
EXHIBIT 2
CERTIFICATE OF TRUST
OF PECO ENERGY TRANSITION TRUST
THIS Certificate of Trust of PECO Energy Transition Trust (the
"Trust"), dated as of June 23, 1998, is being fully executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 Del. C. ss. 3801, et seq.).
1. Name. The name of the business trust formed hereby is PECO
Energy Transition Trust.
2. Delaware Trustee. The name and business address of the
trustee of the Trust with its principal place of business in the State of
Delaware are First Union Trust Company, National Association, One Rodney Square,
920 King Street, First Floor, Wilmington, Delaware 19801, Attention: Corporate
Trust Administration.
3. Effective Date. This Certificate of Trust shall be
effective as of its filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first-above
written.
DIANA MOY KELLY, not in her FIRST UNION TRUST COMPANY,
individual capacity, but solely as NATIONAL ASSOCIATION, not in its
trustee of the Trust individual capacity, but solely
as trustee of the Trust
/s/ Diana Moy Kelly By: /s/ Edward L. Truitt, Jr.
- --------------------- --------------------------
Name: Edward L. Truitt, Jr.
Title: Assistant Vice President
GEORGE SHICORA, not in his
individual capacity, but solely as
trustee of the Trust
/s/ George Shicora
- --------------------
Exhibit 2
EXHIBIT 4.2
CERTIFICATE OF TRUST
OF PECO ENERGY TRANSITION TRUST
THIS Certificate of Trust of PECO Energy Transition Trust (the "Trust"),
dated as of June 23, 1998, is being fully executed and filed by the undersigned,
as trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. ss. 3801, et seq.).
1. Name. The name of the business trust formed hereby is PECO Energy
Transition Trust.
2. Delaware Trustee. The name and business address of the trustee of the
Trust with its principal place of business in the State of Delaware are First
Union Trust Company, National Association, One Rodney Square, 920 King Street,
First Floor, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration.
3. Effective Date. This Certificate of Trust shall be effective as of its
filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first-above written.
DIANA MOY KELLY, not in her FIRST UNION TRUST COMPANY,
individual capacity, but solely as NATIONAL ASSOCIATION, not in its
trustee of the Trust individual capacity, but solely as
trustee of the Trust
/s/ Diana Moy Kelly
- ---------------------------------------
By: /s/ Edward L. Truitt, Jr.
----------------------------
Name: Edward L. Truitt, Jr.
Title: Assistant Vice President
GEORGE SHICORA, not in his
individual capacity, but solely as
trustee of the Trust
/s/ George R. Shicora
- ---------------------------------------
================================================================================
PECO ENERGY TRANSITION TRUST,
Issuer
and
THE BANK OF NEW YORK,
Bond Trustee
------------------------------
INDENTURE
Dated as of March 1, 1999
------------------------------
Securing Transition Bonds
Issuable in Series
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions and Incorporation by Reference
<TABLE>
Page
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<S> <C> <C>
SECTION 1.01. Definitions...............................................................................2
SECTION 1.02. Incorporation by Reference of Trust Indenture Act........................................13
SECTION 1.03. Rules of Construction....................................................................14
ARTICLE II
The Transition Bonds
SECTION 2.01. Form.....................................................................................14
SECTION 2.02. Execution, Authentication and Delivery...................................................15
SECTION 2.03. Denominations; Transition Bonds Issuable in Series.......................................15
SECTION 2.04. Temporary Transition Bonds...............................................................16
SECTION 2.05. Registration; Registration of Transfer and Exchange......................................17
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Transition Bonds....................................18
SECTION 2.07. Persons Deemed Owner.....................................................................19
SECTION 2.08. Payment of Principal, Premium, if any, and Interest; Interest on Overdue
Principal and Premium, if any; Principal, Premium and Interest
Rights Preserved...................................................................19
SECTION 2.09. Cancelation..............................................................................20
SECTION 2.10. Authentication and Delivery of Transition Bonds..........................................20
SECTION 2.11. Book-Entry Transition Bonds..............................................................24
SECTION 2.12. Notices to Clearing Agency...............................................................25
SECTION 2.13. Definitive Transition Bonds..............................................................25
ARTICLE III
Covenants
SECTION 3.01. Payment of Principal, Premium, if any, and Interest......................................26
SECTION 3.02. Maintenance of Office or Agency..........................................................26
SECTION 3.03. Money for Payments To Be Held in Trust...................................................26
SECTION 3.04. Existence................................................................................27
SECTION 3.05. Protection of Collateral.................................................................28
SECTION 3.06. Opinions as to Collateral................................................................28
SECTION 3.07. Performance of Obligations...............................................................29
SECTION 3.08. Negative Covenants.......................................................................29
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SECTION 3.09. Annual Statement as to Compliance........................................................30
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms......................................30
SECTION 3.11. Successor or Transferee..................................................................31
SECTION 3.12. No Other Business........................................................................31
SECTION 3.13. No Borrowing.............................................................................31
SECTION 3.14. Guarantees, Loans, Advances and Other Liabilities........................................31
SECTION 3.15. Capital Expenditures.....................................................................32
SECTION 3.16. Restricted Payments......................................................................32
SECTION 3.17. Notice of Events of Default..............................................................32
SECTION 3.18. Inspection...............................................................................32
SECTION 3.19. Adjusted Overcollateralization Schedules.................................................33
SECTION 3.20. Sale Agreement and Servicing Agreement Covenants.........................................33
SECTION 3.21. Taxes....................................................................................35
SECTION 3.22. Termination of Swap Agreements...........................................................35
ARTICLE IV
Satisfaction and Discharge; Defeasance
SECTION 4.01. Satisfaction and Discharge of Indenture; Defeasance......................................35
SECTION 4.02. Conditions to Defeasance.................................................................37
SECTION 4.03. Application of Trust Money...............................................................38
SECTION 4.04. Repayment of Moneys Held by Paying Agent.................................................38
ARTICLE V
Remedies
SECTION 5.01. Events of Default........................................................................39
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.......................................39
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Bond Trustee.....................40
SECTION 5.04. Remedies; Priorities.....................................................................42
SECTION 5.05. Optional Preservation of the Collateral..................................................43
SECTION 5.06. Limitation of Proceedings................................................................43
SECTION 5.07. Unconditional Rights of Transition Bondholders To Receive Principal,
Premium, if any, and Interest......................................................44
SECTION 5.08. Restoration of Rights and Remedies.......................................................44
SECTION 5.09. Rights and Remedies Cumulative...........................................................45
SECTION 5.10. Delay or Omission Not a Waiver...........................................................45
SECTION 5.11. Control by Transition Bondholders........................................................45
SECTION 5.12. Waiver of Past Defaults..................................................................45
SECTION 5.13. Undertaking for Costs....................................................................46
SECTION 5.14. Waiver of Stay or Extension Laws.........................................................46
SECTION 5.15. Action on Transition Bonds...............................................................46
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ARTICLE VI
The Bond Trustee
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SECTION 6.01. Duties and Liabilities of Bond Trustee...................................................47
SECTION 6.02. Rights of Bond Trustee...................................................................48
SECTION 6.03. Individual Rights of Bond Trustee........................................................48
SECTION 6.04. Bond Trustee's Disclaimer................................................................48
SECTION 6.05. Notice of Defaults.......................................................................49
SECTION 6.06. Reports by Bond Trustee to Holders.......................................................49
SECTION 6.07. Compensation and Indemnity...............................................................50
SECTION 6.08. Replacement of Bond Trustee..............................................................50
SECTION 6.09. Successor Bond Trustee by Merger.........................................................51
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee............................................51
SECTION 6.11. Eligibility; Disqualification............................................................52
SECTION 6.12. Preferential Collection of Claims Against Issuer.........................................53
ARTICLE VII
Transition Bondholders' Lists and Reports
SECTION 7.01. Issuer To Furnish Bond Trustee Names and Addresses of Transition
Bondholders........................................................................53
SECTION 7.02. Preservation of Information; Communications to Transition
Bondholders........................................................................53
SECTION 7.03. Reports by Issuer........................................................................53
SECTION 7.04. Reports by Bond Trustee..................................................................54
SECTION 7.05. Provision of Servicer Reports............................................................54
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.01. Collection of Money......................................................................54
SECTION 8.02. Collection Account.......................................................................55
SECTION 8.03. Release of Collateral....................................................................59
SECTION 8.04. Opinion of Counsel.......................................................................60
SECTION 8.05. Reports by Independent Accountants.......................................................60
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Transition Bondholders........................61
SECTION 9.02. Supplemental Indentures with Consent of Transition Bondholders...........................62
SECTION 9.03. Execution of Supplemental Indentures.....................................................64
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SECTION 9.04. Effect of Supplemental Indenture.........................................................64
SECTION 9.05. Conformity with Trust Indenture Act......................................................64
SECTION 9.06. Reference in Transition Bonds to Supplemental Indentures.................................64
ARTICLE X
Redemption of Transition Bonds
SECTION 10.01. Optional Redemption by Issuer...........................................................65
SECTION 10.02. Mandatory Redemption by Issuer..........................................................65
SECTION 10.03. Form of Redemption Notice...............................................................65
SECTION 10.04. Payment of Redemption Price.............................................................66
ARTICLE XI
Miscellaneous
SECTION 11.01. Compliance Certificates and Opinions, etc...............................................66
SECTION 11.02. Form of Documents Delivered to Bond Trustee.............................................67
SECTION 11.03. Acts of Transition Bondholders..........................................................67
SECTION 11.04. Notices, etc., to Bond Trustee, Issuer, Counterparties and Rating
Agencies..........................................................................68
SECTION 11.05. Notices to Transition Bondholders; Waiver...............................................69
SECTION 11.06. Alternate Payment and Notice Provisions.................................................69
SECTION 11.07. Conflict with Trust Indenture Act.......................................................69
SECTION 11.08. Effect of Headings and Table of Contents................................................70
SECTION 11.09. Successors and Assigns..................................................................70
SECTION 11.10. Separability............................................................................70
SECTION 11.11. Benefits of Indenture...................................................................70
SECTION 11.12. Legal Holidays..........................................................................70
SECTION 11.13. GOVERNING LAW...........................................................................70
SECTION 11.14. Counterparts............................................................................70
SECTION 11.15. Issuer Obligation.......................................................................70
SECTION 11.16. No Petition.............................................................................71
Schedule 1 Calculated Overcollateralization Level
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INDENTURE dated as of March 1, 1999, between PECO
ENERGY TRANSITION TRUST, a Delaware statutory business trust
(the "Issuer"), and THE BANK OF NEW YORK, a New York banking
corporation, as trustee (the "Bond Trustee").
The Issuer has duly authorized the execution and delivery of this Indenture
to provide for one or more Series of Transition Bonds, issuable as provided in
this Indenture. Each such Series of Transition Bonds will be issued only under a
separate Series Supplement to this Indenture duly executed and delivered by the
Issuer and the Bond Trustee. The Issuer is entering into this Indenture, and the
Bond Trustee is accepting the trusts created hereby, each for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
each intending to be legally bound hereby.
GRANTING CLAUSE
The Issuer hereby Grants to the Bond Trustee as trustee for the benefit of
the Holders of the Transition Bonds from time to time issued and outstanding,
all of the Issuer's right, title and interest in and to (a) the Intangible
Transition Property transferred by the Seller to the Issuer from time to time
pursuant to the Sale Agreement and all proceeds thereof, (b) the Sale Agreement
except for Section 5.01 thereof solely to the extent such Section provides for
indemnification of the Issuer, (c) all Bills of Sale delivered by the Seller
pursuant to the Sale Agreement, (d) the Servicing Agreement except for Section
5.02(b) thereof solely to the extent such Section provides for indemnification
of the Issuer, (e) the Collection Account and all amounts on deposit therein
from time to time, (f) any Swap Agreements to which the Issuer is a party, (g)
all other property of whatever kind owned from time to time by the Issuer
including all accounts, accounts receivable and chattel paper, (h) all present
and future claims, demands, causes and choses in action in respect of any or all
of the foregoing and (i) all payments on or under and all proceeds of every kind
and nature whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, general intangibles,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind, and
other forms of obligations and receivables,
<PAGE>
2
instruments and other property which at any time constitute all or part of or
are included in the proceeds of any of the foregoing (collectively, the
"Collateral").
To have and to hold in trust to secure the payment of principal of and
premium, if any, and interest on, and any other amounts (including all fees,
expenses, counsel fees and other amounts due and owing to the Bond Trustee)
owing in respect of, the Transition Bonds equally and ratably without prejudice,
preference, priority or distinction, except as expressly provided in this
Indenture and to secure performance by the Issuer of all of the Issuer's
obligations under this Indenture with respect to the Transition Bonds, all as
provided in this Indenture.
The Bond Trustee, as trustee on behalf of the Holders of the Transition
Bonds, acknowledges such Grant, accepts the trusts hereunder in accordance with
the provisions hereof and agrees to perform its duties herein required.
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions. (a) Except as otherwise specified herein or as
the context may otherwise require, each of the following terms has the
respective meaning set forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.03(a).
"Adjustment Date" means, with respect to any Series of Transition Bonds,
the date or dates specified as such in the Series Supplement therefor.
"Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Authorized Initial Denominations" means, with respect to any Series of
Transition Bonds, $1,000 and
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3
integral multiples thereof, or such other denominations as may be specified in
the Series Supplement therefor.
"Authorized Officer" means, with respect to the Issuer, any trustee of the
Issuer and, with respect to the Issuer Trustee or other corporate trustee of the
Issuer, any officer who is authorized to act for such trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by such trustee to the Bond Trustee as of the date hereof (as such
list may be modified or supplemented from time to time thereafter).
"Basic Documents" means the Certificate of Trust, the Trust Agreement, the
Sale Agreement, the Servicing Agreement and any Bills of Sale.
"Bond Rate" means, with respect to any Series or Class, the rate at which
interest accrues on the principal balance of Transition Bonds of such Series or
Class, as specified in the Series Supplement therefor.
"Bond Trustee" means The Bank of New York, a New York banking corporation
or any successor bond trustee under this Indenture, not in its individual
capacity but solely as bond trustee under this Indenture.
"Book-Entry Transition Bonds" means beneficial interests in the Transition
Bonds, ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.11.
"Business Day" has the meaning specified in the Servicing Agreement.
"Calculated Overcollateralization Level" means, with respect to any Payment
Date, the amount set forth as such in Schedule 1 hereto, as such Schedule has
been adjusted in accordance with Section 3.19.
"Calculation Date" means, with respect to any Series of Transition Bonds,
such date or dates specified as such in the Series Supplement therefor.
"Capital Subaccount" has the meaning specified in Section 8.02(a).
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit 2 to the Trust Agreement.
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4
"Class" means, with respect to any Series, any one of the classes of
Transition Bonds of that Series.
"Class Subaccount" has the meaning specified in Section 8.02(a).
"Class Termination Date" means, with respect to any Class, the termination
date therefor, as specified in the Series Supplement therefor.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the granting clause of this
Indenture.
"Collection Account" has the meaning specified in Section 8.02(a).
"Collection Period" has the meaning specified in the Servicing Agreement.
"Corporate Trust Office" means the principal office of the Bond Trustee at
which at any particular time its corporate trust business shall be administered,
which office at date of the execution of this Indenture is located at 101
Barclay Street, Floor 12 East, New York, NY 10019, Attention: Asset Backed
Finance Unit or at such other address as the Bond Trustee may designate from
time to time by notice to the Transition Bondholders and the Issuer, or the
principal corporate trust office of any successor Bond Trustee (the address of
which the successor Bond Trustee will notify the Transition Bondholders and the
Issuer).
"Covenant Defeasance Option" has the meaning specified in Section 4.01(b).
"Counterparty" means the counterparty with respect to any Swap Agreement.
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5
"Default" means any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Defeasance Subaccount" has the meaning specified in Section 8.02(a).
"Definitive Transition Bonds" has the meaning specified in Section 2.11.
"DTC Agreement" means the agreement between the Issuer, the Bond Trustee
and The Depository Trust Company, as the initial Clearing Agency, dated as of
the Closing Date, relating to the Transition Bonds, substantially in the form of
Exhibit C hereto, as the same may be amended and supplemented from time to time.
"Duff" has the meaning specified in the Servicing Agreement.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any State (or any domestic branch of a foreign bank),
having corporate trust powers and acting as trustee for funds deposited in such
account, so long as any of the securities of such depository institution shall
have a credit rating from each Rating Agency in one of its generic rating
categories which signifies investment grade.
"Eligible Guarantor Institution" means a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a securities transfer association.
"Eligible Institution" means (a) the corporate trust department of the Bond
Trustee or (b) 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
(i) 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
<PAGE>
6
certificate of deposit rating acceptable to the Rating Agencies and (ii) whose
deposits are insured by the FDIC.
"Eligible Investments" mean book-entry securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence:
(a) direct obligations of, or obligations fully and unconditionally
guaranteed as to timely payment by, the United States of America;
(b) demand deposits, time deposits, certificates of deposit or
bankers' acceptances of any Eligible Institution; provided, however, that
at the time of the investment or contractual commitment to invest therein
such Eligible Institution shall have the credit ratings set forth in clause
(i) of the Definition of Eligible Institution.
(c) commercial paper (other than commercial paper of the Seller or the
Servicer or any of their affiliates) having, at the time of the investment
or contractual commitment to invest therein, a rating from each of the
Rating Agencies in the highest rating category granted thereby;
(d) investments in money market funds having a rating from each of the
Rating Agencies in the highest rating category granted thereby (including
funds for which the Bond Trustee or any of its Affiliates is investment
manager or advisor);
(e) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States of America, in
either case entered into with an Eligible Institution; and
(f) any other investment permitted by each of the Rating Agencies;
provided, however, that (i) any book-entry security, instrument or security
having a maturity of one month or less that would be an Eligible Investment but
for its failure (or the failure of the obligor thereon) to have the rating
specified above shall be an Eligible Investment if such book-entry security,
instrument or security (or the obligor thereon) has a long-term unsecured debt
rating of at least "A2" by Moody's (or the equivalent thereof by the
<PAGE>
7
other Rating Agencies) or a short-term rating of at least "P-1" by Moody's (or
the equivalent thereof by the other Rating Agencies), and (ii) any book-entry
security, instrument or security having a maturity of greater than one month
that would be an Eligible Investment but for its failure (or the failure of the
obligor thereon) to have the rating specified above shall be an Eligible
Investment if such book-entry security, instrument or security (or the obligor
thereon) has a long-term unsecured debt rating of at least "A1" by Moody's (or
the equivalent thereof by the other Rating Agencies) and a short-term rating of
at least "P-1" by Moody's (or the equivalent thereof by the other Rating
Agencies).
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"Expected Amortization Schedule" means, with respect to any Series of
Transition Bonds, the expected amortization schedule for principal thereof, as
specified in the Series Supplement therefor.
"Expected Final Payment Date" means, with respect to any Series or Class of
Transition Bonds, the expected final payment date therefor, as specified in the
Series Supplement therefor.
"FDIC" means the Federal Deposit Insurance Corporation or any successor.
"Financing Issuance" means an issuance of a new Series of Transition Bonds
hereunder to provide funds to finance the purchase by the Issuer of Intangible
Transition Property.
"Fitch IBCA" has the meaning specified in the Servicing Agreement.
"General Subaccount" has the meaning specified in Section 8.02(a).
<PAGE>
8
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal,
interest and other payments in respect of the Collateral and all other moneys
payable thereunder, to give and receive notices and other communications, to
make waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Transition Bondholder" means the Person in whose name a
Transition Bond is registered on the Transition Bond Register.
"Indemnity Amounts" means any amounts paid by the Seller or the Servicer to
the Bond Trustee, for itself or on behalf of the Transition Bondholders,
pursuant to Section 5.01(b), 5.0l(c)(ii) and 5.01(e) of the Sale Agreement or
Section 5.02(b) of the Servicing Agreement or by the Issuer to the Bond Trustee
pursuant to Section 5.07 of this Indenture; provided, however, that Indemnity
Amounts shall exclude Liquidated Damages paid pursuant to Section 5.01(c)(ii) of
the Sale Agreement.
"Indenture" or "this Indenture" means this instrument as originally
executed and, as from time to time supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof, as so supplemented or amended, or both, and shall include the
forms and terms of the Transition Bonds established hereunder.
"Independent" means, when used with respect to any specified Person, that
the Person (a) is in fact independent of the Issuer, any other obligor upon the
Transition Bonds, the Seller and any Affiliate of any of the foregoing Persons,
(b) does not have any direct financial interest or any material indirect
financial interest in the Issuer, any such other obligor, the Seller or any
Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons as an officer, employee,
<PAGE>
9
promoter, underwriter, trustee, partner, director or person performing similar
functions.
"Independent Certificate" means a certificate or opinion to be delivered to
the Bond Trustee under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.01, made by an Independent
appraiser or other expert appointed by an Issuer Order and approved by the Bond
Trustee in the exercise of reasonable care, and such opinion or certificate
shall state that the signer has read the definition of "Independent" in this
Indenture and that the signer is Independent within the meaning thereof.
"Intangible Transition Charges Adjustment Process" means the process by
which Intangible Transition Charges are adjusted pursuant to the Servicing
Agreement and the Statute.
"Interest" means, with respect to any Monthly Allocation Date for any
Series of Transition Bonds, the sum of, without duplication, (i) an amount that
if deposited to the Series Subaccount therefor would cause the amount on deposit
in such Series Subaccount, without regard to investment income, in respect of
interest to equal the Monthly Allocated Interest Balance for such Series and
such Monthly Allocation Date, (ii) if the maturities of the Transition Bonds
have been accelerated in accordance with Section 5.02, the accrued and unpaid
interest on such Series through the date of acceleration, (iii) with respect to
a Series to be redeemed prior to the next Monthly Allocation Date, the amount of
interest that will be payable as interest on such Series on the Redemption Date
therefor and (iv) any interest due on such Series on a Payment Date therefor or
other date for the payment of interest thereon and not paid and, to the extent
permitted by law, interest thereon.
"Interest Deposit Amounts" means any amounts remitted by the Seller to the
Bond Trustee in respect of interest payments (which shall mean in the case of
any Series or Class for which a Swap Agreement is in effect and any payments due
thereunder from the applicable Counterparty are being received by the Issuer,
the regular fixed payment to a Counterparty determined without regard to
netting, but not payments in respect of breakage or termination of a Swap
Agreement) pursuant to (i) a binding agreement with the Issuer entered into by
the Seller pursuant to Section 5.01(d)(i)(B)(i) of the Sale Agreement or (ii) an
escrow arrangement pursuant to Section 5.01(d)(i)(B)(ii) of the Sale Agreement .
"Interest Deposit Subaccount" has the meaning specified in Section 8.02(a).
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"Issuer" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Transition Bonds.
"Issuer Order" and "Issuer Request" means a written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Bond Trustee.
"Issuer Trustee" means First Union Trust Company, National Association, not
in its individual capacity but solely as Issuer Trustee under the Trust
Agreement, or any successor Issuer Trustee under the Trust Agreement.
"Legal Defeasance Option" has the meaning specified in Section 4.01(b).
"Lien" has the meaning specified in the Servicing Agreement.
"Liquidated Damages" means the Liquidated Damages Amount paid by the Seller
to the Bond Trustee, on behalf of the Transition Bondholders, pursuant to
Section 5.01(c)(ii) or 5.01(d)(i) of the Sale Agreement.
"Liquidated Damages Redemption Date" means the date, not more than 5 days
after receipt of Liquidated Damages by the Issuer, specified by the Issuer for
the redemption of the Transition Bonds as a result of receiving Liquidated
Damages.
"Loss Amounts" means any amounts remitted by the Seller to the Bond Trustee
pursuant to Section 5.01(c)(iii) of the Sale Agreement.
"Loss Subaccount" has the meaning specified in Section 8.02(a).
"Monthly Allocated Interest Balance" means, for any Monthly Allocation Date
for a Series, the balance set forth as such for such Monthly Allocation Date in
Schedule B to the Series Supplement for such Series.
"Monthly Allocated Overcollateralization Balance" means, for any Monthly
Allocation Date, the balance set forth as such in Schedule 1 hereto , as such
Schedule has been adjusted in accordance with Section 3.19.
"Monthly Allocated Principal Balance" means, for any Monthly Allocation
Date for a Series, the balance set forth as such for such Monthly Allocation
Date in Schedule B to the Series Supplement for such Series.
"Monthly Allocation Date" has the meaning specified in the Servicing
Agreement.
"Monthly Servicing Fee" means, with respect to any Series of Transition
Bonds, the fee payable to the Servicer on each Monthly Allocation Date for
services rendered, determined pursuant to Section 5.07 of the Servicing
Agreement.
"Moody's" has the meaning specified in the Servicing Agreement.
<PAGE>
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"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, and delivered to
the Bond Trustee. Unless otherwise specified, any reference in this Indenture to
an Officer's Certificate shall be to an Officer's Certificate of any Authorized
Officer of the Issuer.
"Operating Expenses" means all fees, costs, expenses and indemnity payments
owed by the Issuer, including all amounts owed by the Issuer to the Bond
Trustee, the Monthly Servicing Fee, and legal and accounting fees, costs and
expenses of the Issuer and the Issuer Trustee.
"Opinion of Counsel" means one or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and who shall be reasonably satisfactory to the Bond
Trustee, and which opinion or opinions shall be addressed to the Bond Trustee,
as Bond Trustee, and shall comply with any applicable requirements of Section
11.01, and shall be in a form reasonably satisfactory to the Bond Trustee.
"Outstanding" means, as of the date of determination, all Transition Bonds
theretofore authenticated and delivered under this Indenture except:
(i) Transition Bonds theretofore canceled by the Transition Bond
Registrar or delivered to the Transition Bond Registrar for cancelation;
(ii) Transition Bonds or portions thereof the payment for which money
in the necessary amount has been theretofore deposited with the Bond
Trustee or any Paying Agent in trust for the Holders of such Transition
Bonds; (provided, however, that if such Transition Bonds are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor, satisfactory to the Bond Trustee, made);
and
(iii) Transition Bonds in exchange for or in lieu of other Transition
Bonds which have been authenticated and delivered pursuant to this
Indenture unless proof satisfactory to the Bond Trustee is presented that
any such Transition Bonds are held by a bona fide purchaser;
provided that in determining whether the Holders of the requisite Outstanding
Amount of the Transition Bonds or any Series or Class thereof have given any
request, demand, authorization, direction, notice, consent or waiver hereunder
or under any Basic Document, Transition Bonds owned by the Issuer, any other
obligor upon the Transition Bonds, the Seller or any Affiliate of any of the
foregoing Persons shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Bond Trustee shall be protected in relying upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Transition Bonds that the Bond Trustee knows to be so owned shall be so
disregarded. Transition Bonds so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Bond Trustee the pledgee's right so to act with respect to such Transition Bonds
and that the pledgee is not the Issuer, any other obligor upon the Transition
Bonds, the Seller or any Affiliate of any of the foregoing Persons.
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12
"Outstanding Amount" means the aggregate principal amount of all Transition
Bonds or, if the context requires, all Transition Bonds of a Series or Class
Outstanding at the date of determination.
"Overcollateralization" means, with respect to any Monthly Allocation Date,
an amount that, if deposited to the Overcollateralization Subaccount, would
cause the balance in such subaccount to equal the Monthly Allocated
Overcollateralization Balance for such Monthly Allocation Date, without regard
to investment earnings.
"Overcollateralization Amount" means, with respect to any Series of
Transition Bonds, the amount specified as such in the Series Supplement
therefor.
"Overcollateralization Subaccount" has the meaning specified in Section
8.02(a).
"Paying Agent" means the Bond Trustee or any other Person that meets the
eligibility standards for the Bond Trustee specified in Section 6.11 and is
authorized by the Issuer to make the payments of principal of or premium, if
any, or interest on the Transition Bonds on behalf of the Issuer.
"Payment Date" means, with respect to any Series or Class, each date or
dates specified as Payment Dates for such Series or Class in the Series
Supplement therefor.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), business trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Predecessor Transition Bond" means, with respect to any particular
Transition Bond, every previous Transition Bond evidencing all or a portion of
the same debt as that evidenced by such particular Transition Bond; and, for the
purpose of this definition, any Transition Bond authenticated and delivered
under Section 2.06 in lieu of a mutilated, lost, destroyed or stolen Transition
Bond shall be deemed to evidence the same debt as the mutilated, lost, destroyed
or stolen Transition Bond.
"Principal" means, with respect to any Monthly Allocation Date for any
Series of Transition Bonds, the sum of, without duplication, (i) an amount that,
if deposited to the Series Subaccount therefor, would cause the amount on
deposit in such Series Subaccount, without regard to investment income, in
respect of principal to equal the Monthly Allocated Principal Balance for such
Series and such Monthly Allocation Date, (ii) if the maturities of the
Transition Bonds have been accelerated in accordance with Section 5.02, the
aggregate outstanding principal amount of such Series of Transition Bonds, (iii)
with respect to a Series to be redeemed prior to the next Monthly Allocation
Date, the amount of principal that will be payable as principal on the
Redemption Date therefor and (iv) any principal due on a Series on a Payment
Date therefor or other date for the payment of principal thereof and not paid.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
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13
"Projected Transition Bond Balance" means, as of any date, the sum of the
amounts provided for in the Expected Amortization Schedules for each outstanding
Series of Transition Bonds and such date.
"Pro Rata" has the meaning specified in Section 8.02(d).
"Rating Agency" means any rating agency rating the Transition Bonds of any
Class or Series at the time of issuance thereof at the request of the Issuer .
If no such organization or successor is any longer in existence, "Rating Agency"
shall be a nationally recognized statistical rating organization or other
comparable Person designated by the Issuer, notice of which designation shall be
given to the Bond Trustee, the Issuer Trustee and the Servicer.
"Rating Agency Condition" means, with respect to any action, the
notification in writing by each Rating Agency to the Seller, the Servicer, the
Bond Trustee and the Issuer that such action will not result in a reduction or
withdrawal of the then current rating by such Rating Agency of any outstanding
Series or Class of Transition Bonds.
"Record Date" means, with respect to any Payment Date for a Series, the
date set forth as such in the Series Supplement therefor.
"Redemption Date" means, with respect to any Series or Class, the date for
the redemption of the Transition Bonds of such Series or Class pursuant to
Sections 10.01 or 10.02 or the Series Supplement for such Series or Class,
including the Liquidated Damages Redemption Date.
"Redemption Price" has the meaning specified in Section 10.01.
"Refunding Issuance" means issuance of a new Series of Transition Bonds
hereunder to pay the cost of refunding, through redemption or payment on the
Expected Final Payment Date for a Series or Class of Transition Bonds, all or
part of the Transition Bonds of such Series or Class to the extent permitted by
the terms thereof.
"Registered Holder" means, as of any date, the Person in whose name a
Transition Bond is registered on the Transition Bond Register on such date.
"Required Capital Amount" means the sum of, for each Outstanding Series of
Transition Bonds, 0.50% of the initial principal amount thereof.
"Reserve Subaccount" has the meaning specified in Section 8.02(a).
"Responsible Officer" means, with respect to the Bond Trustee, any officer
within the Corporate Trust Office of the Bond Trustee, including any Vice
President, Assistant Vice President, Secretary, Assistant Secretary, or any
other officer of the Bond Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Retiring Bond Trustee" has the meaning specified in Section 6.08.
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"Sale Agreement" means the Intangible Transition Property Sale Agreement
dated as of March 25, 1999, between the Issuer and the Seller, as amended and
supplemented from time to time.
"Schedule Revision Date" means (i) the date on which a new Series of
Transition Bonds is issued or any outstanding Series of Transition Bonds is
redeemed or defeased, (ii) any Adjustment Date on which the Intangible
Transition Charges are changed or revised and (iii) any Payment Date on which
payments are not made in accordance with the Expected Amortization Schedule.
"Series" means any series of Transition Bonds issued and authenticated
pursuant to this Indenture.
"Series Issuance Date" means, with respect to any Series, the date on which
the Transition Bonds of such Series are to be originally issued in accordance
with Section 2.10 and the Series Supplement for such Series.
"Series Subaccount" has the meaning specified in Section 8.02(a).
"Series Supplement" means an indenture supplemental to this Indenture that
authorizes a particular Series of Transition Bonds.
"Series Termination Date" means, with respect to any Series, the
termination date therefor, as specified in the Series Supplement for such
Series.
"Servicing Agreement" means the Master Servicing Agreement dated as of
March 25, 1999, between the Issuer, the Servicer and such other Persons as may
become parties thereto, as amended and supplemented from time to time.
"Standard & Poor's" has the meaning specified in the Servicing Agreement.
"State" means any one of the 50 states of the United States of America or
the District of Columbia.
"Successor Servicer" has the meaning specified in Section 3.20(h).
"Swap Agreement" means any ISDA Master Agreement, interest rate swap
agreement or agreement with respect to any hedge or similar transaction entered
into by the Issuer.
"Transition Bond" means any of the transition bonds (as defined in the
Statute) issued and authenticated pursuant to this Indenture.
"Transition Bond Balance" means, as of any date, the aggregate outstanding
principal amount of all Series of Transition Bonds on such date.
"Transition Bond Owner" means, with respect to a Book-Entry Transition
Bond, the Person who is the beneficial owner of such Book-Entry Transition Bond,
as reflected on the books of the Clearing Agency, or on the books of a Person
maintaining
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15
an account with such Clearing Agency (directly as a Clearing Agency Participant
or as an indirect participant, in each case in accordance with the rules of such
Clearing Agency).
"Transition Bond Register" and "Transition Bond Registrar" have the
respective meanings specified in Section 2.05.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force on the date hereof, unless otherwise specifically provided.
"UCC" has the meaning specified in the Servicing Agreement.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) 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.
(b) Except as otherwise specified herein or as the context may otherwise
require, each of the following terms has the meaning set forth in the Sale
Agreement for all purposes of this Indenture, and the definitions of such terms
are equally applicable both to the singular and plural forms of such terms:
Term Section of Sale Agreement
---- -------------------------
Bill of Sale......................................... Section 1.01(a)
Initial Intangible Transition Property............... Section 1.01(a)
Intangible Transition Charges........................ Section 1.01(a)
Intangible Transition Property....................... Section 1.01(a)
ITC Collections...................................... Section 1.01(a)
Liquidated Damages Amount ........................... Section 1.01(a)
PUC ................................................. Section 1.01(a)
Qualified Rate Order ................................ Section 1.01(a)
Seller .............................................. Section 1.01(a)
Servicer ............................................ Section 1.01(a)
Servicer Default .................................... Section 1.01(a)
Statute ............................................. Section 1.01(a)
Subsequent Intangible Transition Property............ Section 1.01(a)
Transferred Intangible Transition Property........... Section 1.01(a)
Trust Agreement...................................... Section 1.01(a)
SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. Each of the following TIA
terms used in this Indenture has the following meaning:
"Commission" means the Securities and Exchange Commission.
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16
"indenture securities" means the Transition Bonds.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Bond Trustee.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.03. Rules of Construction. Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in
effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the plural
include the singular; and
(vi) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
ARTICLE II
The Transition Bonds
SECTION 2.01. Form. The Transition Bonds and the Bond Trustee's certificate
of authentication shall be in substantially the forms set forth in Exhibit A
hereto, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture or by the related
Series Supplement and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the Authorized Officers of the Issuer
Trustee executing such Transition Bonds, as evidenced by their execution of such
Transition Bonds. Any portion of the text of any Transition Bond may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Transition Bond. Each Transition Bond shall be dated the date of its
authentication.
The Transition Bonds shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the Authorized Officers of the Issuer
Trustee
<PAGE>
17
executing such Transition Bonds, as evidenced by their execution of such
Transition Bonds.
Each Transition Bond shall bear upon its face the designation so selected
for the Series or Class to which it belongs. The terms of all Transition Bonds
of the same Series shall be the same, unless such Series is comprised of one or
more Classes, in which case the terms of all Transition Bonds of the same Class
shall be the same.
All Definitive Transition Bonds shall bear the legend set forth in Exhibit
A hereto.
SECTION 2.02. Execution, Authentication and Delivery. The Transition Bonds
shall be executed on behalf of the Issuer by an Authorized Officer of the Issuer
Trustee. The signature of any such Authorized Officer on the Transition Bonds
may be manual or facsimile.
Transition Bonds bearing the manual or facsimile signature of individuals
who were at any time Authorized Officers of the Issuer Trustee shall bind the
Issuer, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Transition Bonds
or did not hold such offices at the date of such Transition Bonds.
At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Transition Bonds executed on behalf of the
Issuer to the Bond Trustee pursuant to an Issuer Order for authentication; and
the Bond Trustee shall authenticate and deliver such Transition Bond as in this
Indenture provided and not otherwise.
No Transition Bond shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears on such Transition
Bond a certificate of authentication substantially in the form provided for
herein executed by the Bond Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Transition Bond shall be
conclusive evidence, and the only evidence, that such Transition Bond has been
duly authenticated and delivered hereunder.
SECTION 2.03. Denominations; Transition Bonds Issuable in Series. The
Transition Bonds of each Series shall be issuable as registered Transition Bonds
in the Authorized Initial Denominations specified in the Series Supplement
therefor.
The Transition Bonds may, at the election of and as authorized by an
Authorized Officer of the Issuer, and set forth in a Series Supplement, be
issued in one or more Series (each comprised of one or more Classes), and shall
be designated generally as the "Transition Bonds" of the Issuer, with such
further particular designations added or incorporated in such title for the
Transition Bonds of any particular Series or Class as an Authorized Officer of
the Issuer may determine and be set forth in the Series Supplement therefor.
Each Series of Transition Bonds shall be created by a Series Supplement
authorized by an Authorized Officer of the Issuer and establishing the terms and
provisions of such Series. The several Series and Classes thereof may differ as
between Series and Classes, in respect of any of the following matters:
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(i) designation of the Series and, if applicable, the Classes thereof;
(ii) the aggregate principal amount of the Transition Bonds of the
Series and, if applicable, each Class thereof;
(iii) the Bond Rate of the Series and, if applicable, each Class
thereof or the formula, if any, used to calculate the applicable Bond Rate
or Bond Rates for the Series;
(iv) the Payment Dates for the Series;
(v) the Monthly Allocated Interest Balances for the Series;
(vi) the Monthly Allocated Principal Balances for the Series;
(vii) the Expected Final Payment Date of the Series, and, if
applicable, each Class thereof;
(viii) the Series Termination Date for the Series and, if applicable,
the Class Termination Dates for each Class thereof;
(ix) the Series Issuance Date for the Series;
(x) the place or places for payments with respect to the Series;
(xi) the Authorized Initial Denominations for the Series;
(xii) the provisions, if any, for redemption of the Series by the
Issuer;
(xiii) the Expected Amortization Schedule for the Series;
(xiv) the Overcollateralization Amount with respect to the Series, the
Calculated Overcollateralization Level and the Monthly Allocated
Overcollateralization Balance for each Monthly Allocation Date;
(xv) the Calculation Dates and Adjustment Dates for the Series;
(xvi) the credit enhancement applicable to the Series; and
(xvii) any other terms of the Series or Class that are not
inconsistent with the provisions of this Indenture.
SECTION 2.04. Temporary Transition Bonds. Pending the preparation of
definitive Transition Bonds, or by agreement of the purchasers of all Transition
Bonds or, in the case of Transition Bonds held in a book-entry only system by a
Clearing Agency, the Issuer Trustee on behalf of the Issuer may execute, and
upon receipt of an Issuer Order the Bond Trustee shall authenticate and deliver,
temporary Transition Bonds which are printed, lithographed, typewritten,
mimeographed or otherwise produced, of the tenor of the definitive Transition
Bonds in lieu of which they are issued and with such variations not inconsistent
with the terms of this Indenture as the Authorized Officers of
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19
the Issuer Trustee executing such Transition Bonds may determine, as evidenced
by their execution of such Transition Bonds.
If temporary Transition Bonds are issued, the Issuer will cause definitive
Transition Bonds to be prepared without unreasonable delay except where
temporary Transition Bonds are held by a Clearing Agency. After the preparation
of definitive Transition Bonds, the temporary Transition Bonds shall be
exchangeable for definitive Transition Bonds upon surrender of the temporary
Transition Bonds at the office or agency of the Issuer to be maintained as
provided in Section 3.02, without charge to the Holder. Upon surrender for
cancelation of any one or more temporary Transition Bonds, the Issuer Trustee on
behalf of the Issuer shall execute and the Bond Trustee shall authenticate and
deliver in exchange therefor a like initial principal amount of definitive
Transition Bonds in Authorized Initial Denominations. Until so exchanged, the
temporary Transition Bonds shall in all respects be entitled to the same
benefits under this Indenture as definitive Transition Bonds.
SECTION 2.05. Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Transition Bond Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Transition Bonds and the registration of
transfers of Transition Bonds. The Bond Trustee shall be "Transition Bond
Registrar" for the purpose of registering Transition Bonds and transfers of
Transition Bonds as herein provided. Upon any resignation of any Transition Bond
Registrar, the Issuer shall promptly appoint a successor or, if it elects not to
make such an appointment, assume the duties of Transition Bond Registrar.
If a Person other than the Bond Trustee is appointed by the Issuer as
Transition Bond Registrar, the Issuer will give the Bond Trustee prompt written
notice of the appointment of such Transition Bond Registrar and of the location,
and any change in the location, of the Transition Bond Register, and the Bond
Trustee shall have the right to inspect the Transition Bond Register at all
reasonable times and to obtain copies thereof, and the Bond Trustee shall have
the right to rely upon a certificate executed on behalf of the Transition Bond
Registrar by an Authorized Officer thereof as to the names and addresses of the
Holders of the Transition Bonds and the principal amounts and number of such
Transition Bonds.
Upon surrender for registration of transfer of any Transition Bond at the
office or agency of the Issuer to be maintained as provided in Section 3.02, the
Issuer Trustee on behalf of the Issuer shall execute, and the Bond Trustee shall
authenticate and the Transition Bondholder shall obtain from the Bond Trustee,
in the name of the designated transferee or transferees, one or more new
Transition Bonds in any Authorized Initial Denominations, of a like Series (and,
if applicable, Class) and aggregate initial principal amount.
At the option of the Holder, Transition Bonds may be exchanged for other
Transition Bonds of a like Series (and, if applicable, Class) and aggregate
initial principal amount in Authorized Initial Denominations, upon surrender of
the Transition Bonds to be exchanged at such office or agency. Whenever any
Transition Bonds are so surrendered for exchange, the Issuer Trustee on behalf
of the Issuer shall execute, and the Bond Trustee shall authenticate and the
Transition Bondholder shall obtain from the
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20
Bond Trustee, the Transition Bonds which the Transition Bondholder making the
exchange is entitled to receive.
All Transition Bonds issued upon any registration of transfer or exchange
of Transition Bonds shall be the valid obligations of the Issuer, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Transition Bonds surrendered upon such registration of transfer or exchange.
Every Transition Bond presented or surrendered for registration of transfer
or exchange shall be duly endorsed by, or be accompanied by a written instrument
of transfer in the form set forth in Exhibit A hereto or such other form as is
satisfactory to the Bond Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing, with such signature guaranteed by
an Eligible Guarantor Institution in the form set forth in such Transition Bond.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Transition Bonds, but, other than in respect of
exchanges pursuant to Section 2.04 or 9.06 not involving any transfer, the
Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Transition Bonds.
The preceding provisions of this Section notwithstanding, the Issuer shall
not be required to make, and the Transition Bond Registrar need not register,
transfers or exchanges of Transition Bonds selected for redemption or transfers
or exchanges of any Transition Bond for a period of 15 days preceding the date
on which final payment of principal is to be made with respect to such
Transition Bond.
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Transition Bonds. If (i)
any mutilated Transition Bond is surrendered to the Bond Trustee, or the Bond
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Transition Bond, and (ii) there is delivered to the Bond Trustee such
security or indemnity as may be required by it to hold the Issuer and the Bond
Trustee harmless, then, in the absence of notice to the Issuer, the Transition
Bond Registrar or the Bond Trustee that such Transition Bond has been acquired
by a bona fide purchaser, the Issuer Trustee on behalf of the Issuer shall
execute, and upon the Issuer Trustee's request the Bond Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Transition Bond, a replacement Transition Bond of like
Series (and, if applicable, Class), tenor and initial principal amount in
Authorized Initial Denominations, bearing a number not contemporaneously
outstanding; provided, however, that if any such destroyed, lost or stolen
Transition Bond, but not a mutilated Transition Bond, shall have become or
within seven days shall be due and payable, or shall have been called for
redemption, instead of issuing a replacement Transition Bond, the Issuer may pay
such destroyed, lost or stolen Transition Bond when so due or payable or upon
the Redemption Date without surrender thereof. If, after the delivery of such
replacement Transition Bond or payment of a destroyed, lost or stolen Transition
Bond pursuant to the proviso to the preceding sentence, a bona fide purchaser of
the original Transition Bond in lieu of which such replacement Transition Bond
was issued presents for payment such original Transition Bond, the Issuer and
the Bond Trustee shall be entitled to recover such replacement Transition Bond
(or such payment) from the Person to whom it was delivered or any Person taking
such replacement Transition Bond from such Person to whom such replacement
Transition Bond was delivered or any assignee of
<PAGE>
21
such Person, except a bona fide purchaser, and shall be entitled to recover upon
the security or indemnity provided therefor to the extent of any loss, damage,
cost or expense incurred by the Issuer or the Bond Trustee in connection
therewith.
Upon the issuance of any replacement Transition Bond under this Section,
the Issuer may require the payment by the Holder of such Transition Bond of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other reasonable expenses (including the fees and
expenses of the Bond Trustee) connected therewith.
Every replacement Transition Bond issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Transition Bond shall
constitute an original additional contractual obligation of the Issuer, whether
or not the mutilated, destroyed, lost or stolen Transition Bond shall be at any
time enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Transition Bonds
duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Transition Bonds.
SECTION 2.07. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Transition Bond, the Issuer, the Bond Trustee
and any agent of the Issuer or the Bond Trustee may treat the Person in whose
name any Transition Bond is registered (as of the day of determination) as the
owner of such Transition Bond for the purpose of receiving payments of principal
of and premium, if any, and interest on such Transition Bond and for all other
purposes whatsoever, whether or not such Transition Bond be overdue, and neither
the Issuer, the Bond Trustee nor any agent of the Issuer or the Bond Trustee
shall be affected by notice to the contrary.
SECTION 2.08. Payment of Principal, Premium, if any, and Interest; Interest
on Overdue Principal and Premium, if any; Principal, Premium and Interest Rights
Preserved. (a) The Transition Bonds shall accrue interest as provided in the
form of Transition Bond attached to the Series Supplement for such Transition
Bonds, at the applicable Bond Rate specified therein, and such interest shall be
payable on each Payment Date as specified therein. Any instalment of interest,
principal or premium, if any, payable on any Transition Bond which is punctually
paid or duly provided for by the Issuer on the applicable Payment Date shall be
paid to the Person in whose name such Transition Bond (or one or more
Predecessor Transition Bonds) is registered on the Record Date for such Payment
Date, by check mailed first-class, postage prepaid to such Person's address as
it appears on the Transition Bond Register on such Record Date or in such other
manner as may be provided in the related Series Supplement, except that with
respect to Transition Bonds registered on a Record Date in the name of the
nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee and except for the final instalment of
principal and premium, if any, payable with respect to such Transition Bond on a
Payment Date which shall be payable as provided in clause (b) below. The funds
represented by any such checks returned undelivered shall be held in accordance
with Section 3.03 hereof.
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22
(b) The principal of each Transition Bond of each Series (and, if
applicable, Class) shall be payable in instalments on each Payment Date
specified in the Expected Amortization Schedule included in the form of
Transition Bond attached to the Series Supplement for such Transition Bonds, but
only to the extent that moneys are available for such payment pursuant to
Section 8.02. Failure to pay in accordance with such Expected Amortization
Schedule because moneys are not so available pursuant to Section 8.02 to make
such payments shall not constitute a Default or Event of Default under this
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of
the Transition Bonds of any Series or Class shall be due and payable, if not
previously paid (i) on the Series Termination Date (or, if applicable, Class
Termination Date) therefor, (ii) on the date on which the Transition Bonds of
all Series have been declared immediately due and payable in accordance with
Section 5.02 or (iii) on the Redemption Date, if any, therefor. The Bond Trustee
shall notify the Person in whose name a Transition Bond is registered at the
close of business on the Record Date second preceding the Payment Date on which
the Issuer expects that the final instalment of principal of and premium, if
any, and interest on such Transition Bond will be paid. Such notice shall be
mailed no later than five days prior to such final Payment Date and shall
specify that such final instalment of principal and premium, if any, will be
payable to the Person in whose name a Transition Bond is registered at the close
of business on the Record Date immediately preceding such final Payment Date and
only upon presentation and surrender of such Transition Bond and shall specify
the place where such Transition Bond may be presented and surrendered for
payment of such instalment. Notices in connection with redemptions of Transition
Bonds shall be mailed to Transition Bondholders as provided in Section 10.03.
(c) If the Issuer defaults in a payment of interest on the Transition Bonds
of any Series, the Issuer shall pay defaulted interest (plus interest on such
defaulted interest at the applicable Bond Rate to the extent lawful) in any
lawful manner. The Issuer may pay such defaulted interest to the Persons who are
Transition Bondholders on a subsequent special record date, which date shall be
at least five Business Days prior to the payment date. The Issuer shall fix or
cause to be fixed any such special record date and payment date, and, at least
15 days before any such special record date, the Issuer shall mail to each
affected Transition Bondholder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
SECTION 2.09. Cancelation. All Transition Bonds surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Bond Trustee, be delivered to the Bond Trustee and shall
be promptly canceled by the Bond Trustee. The Issuer may at any time deliver to
the Bond Trustee for cancelation any Transition Bonds previously authenticated
and delivered hereunder which the Issuer may have acquired in any manner
whatsoever, and all Transition Bonds so delivered shall be promptly canceled by
the Bond Trustee. No Transition Bonds shall be authenticated in lieu of or in
exchange for any Transition Bonds canceled as provided in this Section, except
as expressly permitted by this Indenture. All canceled Transition Bonds may be
held or disposed of by the Bond Trustee in accordance with its standard
retention or disposal policy as in effect at the time unless the Issuer shall
direct by an Issuer Order that they be destroyed or returned to it; provided
that such Issuer Order is timely and the Transition Bonds have not been
previously disposed of by the Bond Trustee.
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SECTION 2.10. Authentication and Delivery of Transition Bonds. The Issuer
may issue Transition Bonds of a new Series from time to time as a Financing
Issuance or a Refunding Issuance.
Transition Bonds of a new Series may from time to time be executed by the
Issuer Trustee on behalf of the Issuer and delivered to the Bond Trustee for
authentication and thereupon the same shall be authenticated and delivered by
the Bond Trustee upon Issuer Request and upon delivery by the Issuer, at the
Issuer's expense, to the Bond Trustee of the following:
(1) Trust Action. An Issuer Order authorizing and directing the
execution, authentication and delivery of the Transition Bonds by the Bond
Trustee and specifying the principal amount of Transition Bonds to be
authenticated.
(2) Authorizations. Either (i) a certificate of authentication or
other official document evidencing the due authorization, approval or
consent of any governmental body or bodies at the time having jurisdiction,
together with an Opinion of Counsel that the Bond Trustee is entitled to
rely on that the authorization, approval, or consent of no other
governmental body is required for the valid issuance, authentication and
delivery of such Transition Bonds, or (ii) an Opinion of Counsel that no
such authorization, approval, or consent of any governmental body is
required, except for, in the case of (i) and (ii), such registrations as
are required under the Blue Sky and securities laws of any State.
(3) Authorizing Certificate. A certified resolution of the Issuer
authorizing the execution and delivery of the Series Supplement for the
Transition Bonds applied for and the execution, authentication and delivery
of such Transition Bonds.
(4) A Series Supplement for the Series of Transition Bonds applied
for, which shall set forth the provisions and form of the Transition Bonds
of such Series (and, if applicable, each Class thereof).
(5) Certificates of the Issuer. (a) An Officer's Certificate from the
Issuer, dated as of the Series Issuance Date, stating: (i) that no Default
has occurred and is continuing under this Indenture and that the issuance
of the Transition Bonds applied for will not result in any Default; (ii)
that the Issuer has appointed the firm of independent certified public
accountants as contemplated in Section 8.05; (iii) that attached thereto
are duly executed, true and complete copies of the Sale Agreement and the
Servicing Agreement; (iv) that all filings with the PUC pursuant to the
Statute and all UCC financing statements with respect to the Collateral
which are required to be filed by the terms of the Sale Agreement, the
Servicing Agreement or this Indenture have been filed as required; and (v)
that all conditions precedent provided in the Indenture relating to the
authentication and delivery of the Transition Bonds have been complied
with.
(b) An Officer's Certificate from the Seller, dated as of the Series
Issuance Date, to the effect that, in the case of the Intangible Transition
Property to be transferred to the Issuer on such date immediately prior to
the conveyance thereof to the Issuer pursuant to the Sale Agreement:
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24
(i) the Seller is the sole owner of such Intangible Transition
Property; such 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 pursuant to this Indenture); the Seller has the
corporate power and authority to own, sell and assign such Intangible
Transition Property to the Issuer; and the Seller has duly authorized such
sale and assignment to the Issuer by all necessary corporate action; and
(ii) the attached copy of the Qualified Rate Order creating such
Intangible Transition Property is true and correct and is in full force and
effect.
(6) Opinion of Counsel. An Opinion of Counsel, portions of which may be
delivered by counsel for the Issuer and portions of which may be delivered by
counsel for the Seller and the Servicer, dated as of the Series Issuance Date,
to the collective effect that:
(a) the Issuer has the power and authority to execute and deliver the
Series Supplement and this Indenture and to issue the Transition Bonds
applied for, each of the Series Supplement and this Indenture, and the
Transition Bonds applied for have been duly authorized and executed, and
the Issuer is duly organized and in good standing under the laws of the
jurisdiction of its organization;
(b) the Transition Bonds applied for, when authenticated in accordance
with the provisions of the Indenture and delivered, will constitute valid
and binding obligations of the Issuer entitled to the benefits of the
Indenture and the related Series Supplement;
(c) the Indenture (including the related Series Supplement), the Sale
Agreement and the Servicing Agreement are valid and binding agreements of
the Issuer, enforceable in accordance with their respective terms except as
such enforceability may be subject to bankruptcy, insolvency,
reorganization and other similar laws affecting the rights of creditors
generally and general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
(d) the Sale Agreement is a valid and binding agreement of the Seller,
enforceable against the Seller in accordance with its terms except as such
enforceability may be subject to bankruptcy, insolvency, reorganization and
other similar laws affecting the rights of creditors generally and general
principles of equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(e) the Servicing Agreement is a valid and binding agreement of the
Servicer, enforceable against the Servicer in accordance with its terms
except as such enforceability may be subject to bankruptcy, insolvency,
reorganization and other similar laws affecting the rights of creditors
generally and general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
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25
(f) upon the delivery of a fully executed Bill of Sale delivered to
the Issuer pursuant to Section 2.03(i) of the Sale Agreement in connection
with the issuance of Transition Bonds applied for and the payment of the
purchase price of the related Intangible Transition Property by the Issuer
to the Seller pursuant to such Bill of Sale and the Sale Agreement, then
(I) the transfer of the Intangible Transition Property purported to be
conveyed thereby by the Seller to the Issuer pursuant to such Bill of Sale
and the Sale Agreement conveys all of the Seller's right, title and
interest in such Intangible Transition Property to the Issuer and will be
treated under state law as an absolute transfer of all of the Seller's
right, title, and interest in such Intangible Transition Property, other
than for federal and state income tax purposes, (II) such transfer of such
Intangible Transition Property is perfected, (III) such transfer has a
priority over any other assignment or transfer of such Intangible
Transition Property, and (IV) such Intangible Transition Property is free
and clear of all liens created prior to its transfer to the Issuer pursuant
to such Bill of Sale and the Sale Agreement;
(g)(I) to the extent that the provisions of Section 2812 of the
Statute apply to the grant of a security interest by the Issuer in the
Collateral pursuant to this Indenture, then upon the giving of value by the
Bond Trustee to the Issuer with respect to the Collateral, (A) this
Indenture creates in favor of the Bond Trustee a security interest in the
rights of the Issuer in the Collateral, (B) such security interest is valid
and enforceable against the Issuer and third parties (subject to the rights
of any third parties holding security interests in such Collateral
perfected in the manner described in Section 2812 of the Statute), and has
attached, (C) such security interest is perfected, and (D) such perfected
security interest is of first priority; and (II) to the extent that the
provisions of Section 2812 of the Statute do not apply to the grant of a
security interest by the Issuer in the Collateral pursuant to this
Indenture, then upon the giving of value by the Bond Trustee to the Issuer
with respect to the Collateral, (A) this Indenture creates in favor of the
Bond Trustee a security interest in the rights of the Issuer in the
Collateral, (B) such security interest is enforceable against the Issuer
and third parties with respect to such Collateral, (C) such security
interest is perfected, and (D) such perfected security interest is of first
priority;
(h) the Indenture has been duly qualified under the Trust Indenture
Act and either the Series Supplement for the Transition Bonds applied for
has been duly qualified under the Trust Indenture Act or no such
qualification of such Series Supplement is necessary;
(i) all instruments furnished to the Bond Trustee conform to the
requirements of this Indenture and constitute all the documents required to
be delivered hereunder for the Bond Trustee to authenticate and deliver the
Transition Bonds applied for, and all conditions precedent provided for in
this Indenture relating to the authentication and delivery of the
Transition Bonds have been complied with;
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26
(j) either (A) the registration statement covering the Transition
Bonds is effective under the Securities Act of 1933 and, to the best of
such counsel's knowledge and information, no stop order suspending the
effectiveness of such registration statement has been issued under the
Securities Act of 1933 nor have proceedings therefor been instituted or
threatened by the Commission or (B) the Transition Bonds are exempt from
the registration requirements under the Securities Act of 1933;
(k) the Indenture (including the related Series Supplement) has been
duly authorized, executed and delivered by the Issuer; and
(l) the Sale Agreement and the Servicing Agreement have been duly
authorized, executed and delivered by the Issuer, the Seller and the
Servicer as applicable.
(7) Accountant's Certificate or Opinion. A certificate or opinion,
addressed to the Issuer and the Bond Trustee complying with the requirements of
Section 11.01 hereof, of a firm of Independent certified public accountants of
recognized national reputation to the effect that (a) such accountants are
Independent with respect to the Issuer within the meaning of the Indenture, and
are independent public accountants within the meaning of the standards of The
American Institute of Certified Public Accountants, and (b) with respect to the
Collateral, they have made such calculations as they deemed necessary for the
purpose and determined 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, and taking into account amounts on deposit in the Reserve Subaccount,
as of the Series Issuance Date for such Series (after giving effect to the
issuance of such Series and the application of the proceeds therefrom) such
Intangible Transition Charges are sufficient to (a) pay Operating Expenses when
incurred, (b) pay interest on each Series of Transition Bonds at their
respective Bond Rates when due, or, with respect to Classes or Series for which
a Swap Agreement is in effect and any payments due thereunder from the
applicable Counterparty are being received by the Issuer, regular fixed payments
due to the related Counterparties (not including any breakage or termination
payments), (c) pay principal of the Transition Bonds of all Series in accordance
with their respective Expected Amortization Schedules and (d) fund the
Calculated Overcollateralization Level as of each Payment Date.
(8) Rating Agency Condition. The Bond Trustee shall receive written notice
from each Rating Agency that the Rating Agency Condition will be satisfied with
respect to the issuance of such new Series.
(9) Bill of Sale. If the issuance of an additional Series of Transition
Bonds is a Financing Issuance, the Bill of Sale delivered to the Issuer under
the Sale Agreement with respect to the Intangible Transition Property being
purchased with the proceeds of such Financing Issuance.
(10) Moneys for Refunding. If the issuance of a Series of Transition Bonds
is a Refunding Issuance, the amount of money necessary to pay the outstanding
principal balance of, and premium and interest on, the Transition Bonds being
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27
refunded to either the Redemption Date for Transition Bonds being refunded
upon redemption, such money to be deposited into a separate account with
the Bond Trustee.
SECTION 2.11. Book-Entry Transition Bonds. Unless otherwise specified in
the related Series Supplement, each Series of Transition Bonds, upon original
issuance, will be issued in the form of a typewritten Transition Bond or
Transition Bonds representing the Book-Entry Transition Bonds, to be delivered
to The Depository Trust Company, the initial Clearing Agency, by, or on behalf
of, the Issuer. Such Transition Bond shall initially be registered on the
Transition Bond Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Transition Bond Owner will receive a definitive
Transition Bond representing such Transition Bond Owner's interest in such
Transition Bond, except as provided in Section 2.13. Unless and until
definitive, fully registered Transition Bonds (the "Definitive Transition
Bonds") have been issued to Transition Bond Owners pursuant to Section 2.13:
(i) the provisions of this Section shall be in full force and effect;
(ii) the Transition Bond Registrar and the Bond Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and premium, if any, and
interest on the Transition Bonds and the giving of instructions or
directions hereunder) as the sole holder of the Transition Bonds, and shall
have no obligation to the Transition Bond Owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Indenture, the provisions of this Section
shall control;
(iv) the rights of Transition Bond Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by
law and agreements between such Transition Bond Owners and the Clearing
Agency or the Clearing Agency Participants. Pursuant to the DTC Agreement,
unless and until Definitive Transition Bonds are issued pursuant to Section
2.13, the initial Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit payments of principal
of and premium, if any, and interest on the Transition Bonds to such
Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Transition Bonds
evidencing a specified percentage of the Outstanding Amount of the
Transition Bonds or a Series or Class thereof, the Clearing Agency shall be
deemed to represent such percentage only to the extent that it has received
instructions to such effect from Transition Bond Owners or Clearing Agency
Participants owning or representing, respectively, such required percentage
of the beneficial interest in the Transition Bonds or such Series or Class
and has delivered such instructions to the Bond Trustee.
SECTION 2.12. Notices to Clearing Agency. Whenever a notice or other
communication to the Transition Bondholders is required under this Indenture,
unless and until Definitive Transition Bonds shall have been issued to
Transition Bond Owners pursuant to Section 2.13, the Bond Trustee shall give all
such notices and
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communications specified herein to be given to Transition Bondholders to the
Clearing Agency, and shall have no obligation to the Transition Bond Owners.
SECTION 2.13. Definitive Transition Bonds. If (i) the Issuer advises the
Bond Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities as depository with respect to any Series
or Class of Transition Bonds and the Issuer is unable to locate a qualified
successor, (ii) the Issuer, at its option, advises the Bond Trustee in writing
that it elects to terminate the book-entry system through the Clearing Agency
with respect to any Series or Class of Transition Bonds or (iii) after the
occurrence of an Event of Default, Transition Bond Owners representing
beneficial interests aggregating at least a majority of the Outstanding Amount
of the Transition Bonds of all Series advise the Bond Trustee through the
Clearing Agency in writing that the continuation of a book-entry system through
the Clearing Agency is no longer in the best interests of the Transition Bond
Owners, then the Clearing Agency shall notify all affected Transition Bond
Owners and the Bond Trustee of the occurrence of any such event and of the
availability of Definitive Transition Bonds to affected Transition Bond Owners
requesting the same. Upon surrender to the Bond Trustee of the typewritten
Transition Bond or Transition Bonds representing the Book-Entry Transition Bonds
by the Clearing Agency, accompanied by registration instructions, the Issuer
Trustee on behalf of the Issuer shall execute and the Bond Trustee shall
authenticate the Definitive Transition Bonds in accordance with the instructions
of the Clearing Agency. None of the Issuer, the Transition Bond Registrar or the
Bond Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Transition Bonds, the Bond Trustee
shall recognize the Holders of the Definitive Transition Bonds as Transition
Bondholders.
ARTICLE III
Covenants
SECTION 3.01. Payment of Principal, Premium, if any, and Interest. The
Issuer will duly and punctually pay the principal of and premium, if any, and
interest on the Transition Bonds in accordance with the terms of the Transition
Bonds and this Indenture; provided that except on the Series Termination Date,
the Class Termination Date, or the Redemption Date for a Series or Class of
Transition Bonds or upon the acceleration of the Transition Bonds following the
occurrence of an Event of Default, the Issuer shall only be obligated to pay the
principal of such Transition Bonds on each Payment Date therefor to the extent
moneys are available for such payment pursuant to Section 8.02. Amounts properly
withheld under the Code by any Person from a payment to any Transition
Bondholder of interest or principal or premium, if any, shall be considered as
having been paid by the Issuer to such Transition Bondholder for all purposes of
this Indenture.
SECTION 3.02. Maintenance of Office or Agency. The Issuer will maintain in
the Borough of Manhattan, the City of New York, an office or agency where
Transition Bonds may be surrendered for registration of transfer or exchange,
and where notices and demands to or upon the Issuer in respect of the Transition
Bonds and this Indenture may be served. The Issuer hereby initially appoints the
Bond Trustee to serve as its agent for the foregoing purposes. The Issuer will
give prompt written notice to the
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29
Bond Trustee of the location, and of any change in the location, of any such
office or agency. If at any time the Issuer shall fail to maintain any such
office or agency or shall fail to furnish the Bond Trustee with the address
thereof, such surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Issuer hereby appoints the Bond Trustee as its
agent to receive all such surrenders, notices and demands.
SECTION 3.03. Money for Payments To Be Held in Trust. As provided in
Section 8.02(a), all payments of principal of, or premium and interest on, the
Transition Bonds that are to be made from amounts withdrawn from the Collection
Account pursuant to Section 8.02(d), (e) or (f) or Section 4.03 shall be made on
behalf of the Issuer by the Bond Trustee or by another Paying Agent, and no
amounts so withdrawn from the Collection Account for payments of Transition
Bonds shall be paid over to the Issuer except as provided in this Section and in
Section 8.02.
The Issuer will cause each Paying Agent other than the Bond Trustee to
execute and deliver to the Bond Trustee an instrument in which such Paying Agent
shall agree with the Bond Trustee (and if the Bond Trustee acts as Paying Agent,
it hereby so agrees), subject to the provisions of this Section, that such
Paying Agent will:
(i) hold all sums held by it for the payment of principal of, or
premium or interest on, the Transition Bonds in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Bond Trustee notice of any Default by the Issuer (or any
other obligor upon the Transition Bonds) of which the Paying Agent has
actual knowledge in the making of any payment required to be made with
respect to the Transition Bonds;
(iii) at any time during the continuance of any such Default, upon the
written request of the Bond Trustee, forthwith pay to the Bond Trustee all
sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Bond Trustee all sums held by the Paying Agent in trust for the payment of
Transition Bonds if at any time the Paying Agent ceases to meet the
standards required to be met by a Paying Agent at the time of its
appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Transition Bonds of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Order direct
any Paying Agent to pay to the Bond Trustee all sums held in trust by such
Paying Agent, such sums to be held by the Bond Trustee upon the same trusts as
those upon which the sums were held by such Paying Agent; and upon such payment
by any Paying Agent to the Bond Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
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Subject to applicable laws with respect to escheat of funds, any money held
by the Bond Trustee or any Paying Agent in trust for the payment of any amount
of principal of, premium on, if any, or interest on any Transition Bond and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to the Issuer; and the Holder of
such Transition Bond shall thereafter, as an unsecured general creditor, look
only to the Issuer for payment thereof (but only to the extent of the amounts so
paid to the Issuer), and all liability of the Bond Trustee or such Paying Agent
with respect to such trust money shall thereupon cease; provided, however, that
the Bond Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Issuer cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in the City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Bond
Trustee may also adopt and employ, at the expense of the Issuer, any other
reasonable means of notification of such repayment (including mailing notice of
such repayment to Holders whose Transition Bonds have been called but have not
been surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Bond Trustee or
of any Paying Agent, at the last address of record for each such Holder).
SECTION 3.04. Existence. Subject to Section 3.10, the Issuer will keep in
full effect its existence, rights and franchises as a statutory business trust
under the laws of the State of Delaware (unless it becomes, or any successor
Issuer hereunder is or becomes, organized under the laws of any other State or
of the United States of America, in which case the Issuer will keep in full
effect its existence, rights and franchises under the laws of such other
jurisdiction) and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Indenture, the Transition Bonds,
the Collateral and each other instrument or agreement included therein.
SECTION 3.05. Protection of Collateral. The Issuer will from time to time
execute and deliver all such supplements and amendments hereto and all such
filings (including filings with the PUC pursuant to the Statute), financing
statements, continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i) maintain and preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iii) enforce any of the Collateral;
(iv) preserve and defend title to the Collateral and the rights of the
Bond Trustee and the Transition Bondholders in the Collateral against the
claims of all Persons and parties; or
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(v) pay any and all taxes levied or assessed up on all or any part of
the Collateral.
The Issuer hereby designates the Bond Trustee its agent and attorney-in-fact to
execute any filing with the PUC, financing statement, continuation statement or
other instrument required by the Bond Trustee pursuant to this Section.
SECTION 3.06. Opinions as to Collateral. (a) On or before July 1st in each
calendar year, beginning at least 3 months after the issuance of the first
Series of the Transition Bonds while any Series is outstanding, the Issuer shall
furnish to the Bond Trustee an Opinion of Counsel either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and, with respect to the
execution and filing of any filings with the PUC pursuant to the Statute,
financing statements and continuation statements as is necessary to maintain the
lien and security interest, and the first priority thereof, created by this
Indenture and reciting the details of such action or stating that in the opinion
of such counsel no such action is necessary to maintain such lien and security
interest, and the first priority thereof. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents, and the
execution and filing of any filings with the PUC, financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest of this Indenture until July 1 in the
following calendar year.
(b) Prior to the effectiveness of any amendment to the Sale Agreement or
the Servicing Agreement, the Issuer shall furnish to the Bond Trustee an Opinion
of Counsel either (A) stating that, in the opinion of such counsel, all filings,
including filings with the PUC pursuant to the Statute, have been executed and
filed that are necessary fully to preserve and protect the interest of the
Issuer and the Bond Trustee in the Transferred Intangible Transition Property
and the proceeds thereof, and reciting the details of such filings or referring
to prior Opinions of Counsel in which such details are given, or (B) stating
that, in the opinion of such counsel, no such action shall be necessary to
preserve and protect such interest.
SECTION 3.07. Performance of Obligations. (a) The Issuer (i) will
diligently pursue any and all actions to enforce its rights under each
instrument or agreement included in the Collateral and (ii) will not take any
action and will use its best efforts not to permit any action to be taken by
others that would release any Person from any of such Person's covenants or
obligations under any such instrument or agreement or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such instrument or agreement, except, in
each case, as expressly provided in this Indenture, the Sale Agreement or the
Servicing Agreement or such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in performing
its duties under this Indenture, and any performance of such duties by a Person
identified to the Bond Trustee in an Officer's Certificate of the Issuer shall
be deemed to be action taken by the Issuer. Initially, the Issuer has contracted
with the Servicer to assist the Issuer in performing its duties under this
Indenture.
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(c) The Issuer will punctually perform and observe all of its obligations
and agreements contained in the Sale Agreement, the Servicing Agreement and in
all other instruments and agreements included in the Collateral.
(d) Without derogating from the absolute nature of the assignment granted
to the Bond Trustee under this Indenture or the rights of the Bond Trustee
hereunder, but subject to Section 3.20, the Issuer agrees that it will not,
without the prior written consent of the Bond Trustee or the Holders of at least
a majority in Outstanding Amount of the Transition Bonds of all Series, amend,
modify, waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the terms of any
Collateral or the Basic Documents. If any such amendment, modification,
supplement or waiver shall be so consented to by the Bond Trustee or such
Holders, the Issuer agrees to execute and deliver, in its own name and at its
own expense, such agreements, instruments, consents and other documents as shall
be necessary or appropriate in the circumstances. The Issuer agrees that no such
amendment, modification, supplement or waiver shall adversely affect the rights
of the Holders of the Transition Bonds outstanding at the time of any such
amendment, modification, supplement or waiver.
SECTION 3.08. Negative Covenants. The Issuer shall not:
(i) except as expressly permitted by this Indenture or the Sale
Agreement or the 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 Article V;
(ii) 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 from such payments under the Code) or
assert any claim against any present or former Transition Bondholder by
reason of the payment of taxes levied or assessed upon the Issuer or any
part of the Collateral;
(iii)(A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien of this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be released
from any covenants or obligations with respect to the Transition Bonds
under this Indenture except as may be expressly permitted hereby, (B)
permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance (other than the lien and security interest created by
this Indenture) to be created on or extend to or otherwise arise upon or
burden the Collateral or any part thereof or any interest therein or the
proceeds thereof or (C) permit the lien of this Indenture not to constitute
a continuing valid first priority security interest in the Collateral.
SECTION 3.09. Annual Statement as to Compliance. The Issuer will deliver to
the Bond Trustee, within 120 days after the end of each fiscal year of the
Issuer (commencing with the fiscal year 1999), an Officer's Certificate stating,
as to the Authorized Officer signing such Officer's Certificate, that
(i) a review of the activities of the Issuer during such year (or
relevant portion thereof) and of performance under this Indenture has been
made under such Authorized Officer's supervision; and
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(ii) to the best of such Authorized Officer's knowledge, based on such
review, the Issuer has complied with all conditions and covenants under
this Indenture throughout such calendar year (or relevant portion thereof),
or, if there has been a default in complying with any such condition or
covenant, describing each such default and the nature and status thereof.
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms. The
Issuer shall not consolidate or merge with or into any other Person or sell
substantially all of its assets to any other Person, unless:
(i) the Person (if other than the Issuer) formed by or surviving such
consolidation or merger or to whom substantially all of such assets are
sold shall be a Person organized and existing under the laws of the United
States of America or any State and shall expressly assume by an indenture
supplemental hereto, executed and delivered to the Bond Trustee, in form
satisfactory to the Bond Trustee, the due and punctual payment of the
principal of and premium, if any, and interest on all Transition Bonds and
the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein and in the applicable Series Supplement or Series
Supplements;
(ii) the Person (if other than the Issuer) formed by or surviving such
consolidation or merger or to whom substantially all of such assets are
sold shall expressly assume all obligations and succeed to all rights of
the Issuer under the Sale Agreement and the Servicing Agreement pursuant to
an assignment and assumption agreement executed and delivered to the Bond
Trustee, in form satisfactory to the Bond Trustee;
(iii) immediately after giving effect to such consolidation or merger
or sale, no Default or Event of Default shall have occurred and be
continuing;
(iv) the Rating Agency Condition shall have been satisfied with
respect to such 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 such consolidation, merger or sale);
(v) the Issuer shall have received an Opinion of Counsel (and shall
have delivered copies thereof to the Bond Trustee) to the effect that such
consolidation or merger or sale (a) will not have any material adverse tax
consequence to the Issuer or any Transition Bondholder, (b) complies with
this Indenture and all of the conditions precedent herein relating to such
transaction and (c) will result in the Bond Trustee maintaining a
continuing valid first priority security interest in the Collateral;
(vi) none of the Intangible Transition Property, the Qualified Rate
Order, the Seller's, the Servicer's or the Issuer's rights under the
Statute or the Qualified Rate Order are impaired thereby; and
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(vii) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken.
SECTION 3.11. Successor or Transferee. (a) Upon any consolidation or merger
of the Issuer in accordance with Section 3.10, the Person formed by or surviving
such consolidation or merger (if other than the Issuer) shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under
this Indenture with the same effect as if such Person had been named as the
Issuer herein.
(b) Upon any sale by the Issuer of substantially all of its assets in a
sale which complies with Section 3.10, PECO Energy Transition Trust will be
released from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Transition Bonds and
from every covenant and agreement of the Sale Agreement and the Servicing
Agreement to be observed or performed on the part of the Issuer.
SECTION 3.12. No Other Business. The Issuer shall not engage in any
business other than purchasing and owning Intangible Transition Property,
issuing Transition Bonds from time to time, pledging its interest in the
Collateral to the Bond Trustee under this Indenture in order to secure the
Transition Bonds and performing activities that are necessary, suitable or
convenient to accomplish these purposes or are incidental thereto.
SECTION 3.13. No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Transition Bonds.
SECTION 3.14. Guarantees, Loans, Advances and Other Liabilities. Except as
contemplated by the Sale Agreement, the Servicing Agreement, this Indenture or
the Trust Agreement, the Issuer shall not make any loan or advance or credit to,
or guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, 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.
SECTION 3.15. Capital Expenditures. The Issuer shall 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 pursuant to, and in accordance with, the Sale
Agreement.
SECTION 3.16. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to any owner of a beneficial interest in the Issuer or otherwise with
respect to any ownership or equity interest in, or ownership security of, the
Issuer, (ii) redeem, purchase, retire or otherwise acquire for value any such
ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose; provided, however, that if no Event
of Default shall have occurred and be continuing, the Issuer may make, or cause
to be made, any such distributions to any owner of a beneficial interest in the
Issuer or
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35
otherwise with respect to any ownership or equity interest or security in or of
the Issuer using funds distributed to the Issuer pursuant to Section 8.02(d) or
(e) to the extent that such distributions would not cause the book value of the
remaining equity in the Issuer to decline below 0.5% of the original principal
amount of all Series of Transition Bonds which remain outstanding.
Notwithstanding the foregoing, from such time as all Transition Bonds have been
fully paid and discharged the Issuer shall not make any such distribution to any
owner of a beneficial interest in the Issuer or otherwise while amounts are owed
by the Issuer to any Counterparty. The Issuer will not, directly or indirectly,
make payments to or distributions from the Collection Account except in
accordance with this Indenture and the Basic Documents.
SECTION 3.17. Notice of Events of Default. The Issuer agrees to deliver to
the Bond Trustee and the Rating Agencies written notice in the form of an
Officer's Certificate of any Default or Event of Default hereunder, its status
and what action the Issuer is taking or proposes to take with respect thereto
within five days after the occurrence thereof.
SECTION 3.18. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Bond Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports, and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited annually by Independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and Independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. The Bond
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Bond Trustee may reasonably determine that such disclosure
is consistent with its obligations hereunder.
SECTION 3.19. Adjusted Overcollateralization Schedules. Not later than each
Schedule Revision Date, the Issuer shall deliver to the Bond Trustee a
replacement Schedule 1 hereto, adjusted to reflect the event giving rise to such
Schedule Revision Date and setting forth the Calculated Overcollateralization
Level for each Payment Date and the Monthly Allocated Overcollateralization
Balance for each Monthly Allocation Date.
SECTION 3.20. Sale Agreement and Servicing Agreement Covenants. (a) The
Issuer agrees to take all such lawful actions to enforce its rights under the
Sale Agreement and the Servicing Agreement and to compel or secure the
performance and observance by the Seller and the Servicer, of each of their
obligations to the Issuer under or in connection with the Sale Agreement and the
Servicing Agreement, respectively, in accordance with the terms thereof. So long
as no Event of Default occurs and is continuing, but subject to Section 3.20(f
), 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 Servicing Agreement.
(b) If an Event of Default occurs and is continuing, the Bond Trustee may,
and, at the direction (which direction shall be in writing or by telephone
(confirmed in writing promptly thereafter)) of the Holders of a majority of the
Outstanding Amount of the Transition Bonds of all Series shall, exercise all
right, remedies, powers, privileges
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36
and claims of the Issuer against the Seller or the Servicer under or in
connection with the Sale Agreement and the Servicing Agreement, respectively,
including the right or power to take any action to compel or secure performance
or observance by the Seller or the Servicer of each of their obligations to the
Issuer thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Sale Agreement and the Servicing Agreement, and
any right of the Issuer to take such action shall be suspended.
(c) With the consent of the Bond Trustee, the Sale Agreement and the
Servicing Agreement may be amended, at any time and from time to time, without
the consent of the Transition Bondholders or any Counterparty, provided that
such amendment shall not, as evidenced by an Officer's Certificate, adversely
affect the interest of any Transition Bondholder or Counterparty (except, in the
case of a Counterparty with the consent of such Counterparty, which consent may
not be unreasonably withheld) or change the Intangible Transition Charges
Adjustment Process. The Bond Trustee shall not withhold its consent to such
amendment so long as the Rating Agency Condition is satisfied in connection
therewith by each Rating Agency other than Moody's (and the Issuer shall have
furnished Moody's with written notice of such amendment prior to the
effectiveness thereof) and the foregoing Officer's Certificate is provided.
(d) No amendment, modification, supplement, termination, waiver or
surrender of, the terms of the Sale Agreement or the Servicing Agreement, or
waiver of timely performance or observance by the Servicer or the Seller under
the Sale Agreement or the Servicing Agreement, respectively, in each case in
such a way as would adversely affect the interests of Transition Bondholders or
any Counterparty is permitted (except, in the case of a Counterparty, with the
consent of such Counterparty, which consent may not be unreasonably withheld)
nor shall the Bond Trustee consent thereto. If the Issuer, the Seller or the
Servicer shall otherwise propose to amend, modify, waive, supplement, terminate
or surrender, or agree to any amendment, modification, supplement, termination,
waiver or surrender of, the terms of the Sale Agreement or the Servicing
Agreement or waive timely performance or observance by the Seller or the
Servicer under the Sale Agreement or Servicing Agreement, respectively, the
Issuer shall notify the Bond Trustee and any applicable Counterparty and the
Bond Trustee shall notify the Transition Bondholders thereof. The Bond Trustee
shall consent to such proposed amendment, modification, supplement or waiver
only with the consent of the Holders of at least a majority of the Outstanding
Amount of the Transition Bonds of each Series or Class. If any such amendment,
modification, supplement or waiver shall be so consented to by the Bond Trustee
or such Holders, the Issuer agrees to execute and deliver, in its own name and
at its own expense, such agreements, instruments, consents and other documents
as shall be necessary or appropriate in the circumstances.
(e) If the Issuer and the Seller or Servicer propose to amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the Intangible
Transition Charges Adjustment Process, the Issuer shall notify the Bond Trustee
and each Counterparty and the Bond Trustee shall notify Transition Bondholders
of such proposal and the Bond Trustee shall consent thereto only with the
consent of the Holder of each Outstanding Transition Bond of each Series or
Class affected thereby.
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37
(f) Promptly following a default by either the Seller or Servicer under the
Sale Agreement or the Servicing Agreement, respectively, and at the Issuer's
expense, the Issuer agrees to take all such lawful actions as the Bond Trustee
1may request to compel or secure the performance and observance by the Seller or
the Servicer, as applicable, of each of their obligations to the Issuer under or
in connection with the Sale Agreement or the Servicing Agreement in accordance
with the terms thereof, and to exercise any and all rights, remedies, powers and
privileges lawfully available to the Issuer under or in connection with the Sale
Agreement or the Servicing Agreement to the extent and in the manner directed by
the Bond Trustee, including the transmission of notices of default on the part
of the Seller or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Servicer of each of their obligations under the Sale Agreement and
the Servicing Agreement.
(g) If the Issuer shall have knowledge of the occurrence of a Servicer
Default under the Servicing Agreement, the Issuer shall promptly give written
notice thereof to the Bond Trustee and the Rating Agencies, and shall specify in
such notice the action, if any, the Issuer is taking with respect to such
default. If a Servicer Default shall arise from the failure of the Servicer to
perform any of its duties or obligations under the Servicing Agreement with
respect to the Intangible Transition Property or the Intangible Transition
Charges, the Issuer shall take all reasonable steps available to it to remedy
such failure. The Issuer shall not take any action to terminate the Servicer's
rights and powers under the Servicing Agreement following a Servicer Default
without the prior written consent of the Bond Trustee or of the Holders of
Transition Bonds evidencing not less than 25% of the Outstanding Amount of the
Transition Bonds of all Series and the consent, not to be unreasonably withheld,
of any Counterparties affected thereby.
(h) As promptly as possible after the giving of notice of termination to
the Servicer and the Rating Agencies of the Servicer's rights and powers
pursuant to Section 6.01 of the Servicing Agreement, the Bond Trustee shall,
together with such other Persons, if any, as are specified in Section 6.01 of
the Servicing Agreement, appoint a successor Servicer (the "Successor
Servicer"), and such Successor Servicer shall accept its appointment by a
written assumption in a form acceptable to the Issuer and the Bond Trustee. A
person shall qualify as a Successor Servicer only if such Person satisfies the
requirements of Section 6.04 of the Servicing Agreement. If within 30 days after
the delivery of the notice referred to above, a Successor Servicer shall not
have been appointed and accepted its appointment as such, the Bond Trustee may
petition the PUC or a court of competent jurisdiction to appoint a Successor
Servicer. In connection with any such appointment, the Issuer may make such
arrangements for the compensation of such Successor Servicer as it and such
Successor Servicer shall agree, subject to the limitations set forth below and
in the Servicing Agreement, and in accordance with Section 6.04 of the Servicing
Agreement, the Issuer shall enter into an agreement with such Successor Servicer
for the servicing of the Intangible Transition Property (such agreement to be in
form and substance satisfactory to the Bond Trustee).
(i) Upon termination of the Servicer's rights and powers pursuant to the
Servicing Agreement, the Bond Trustee shall promptly notify the Issuer, the
Transition Bondholders and the Rating Agencies. As soon as a Successor Servicer
is appointed, the Issuer shall notify the Bond Trustee, the Transition
Bondholders and the Rating Agencies of such appointment, specifying in such
notice the name and address of such Successor Servicer.
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SECTION 3.21. Taxes. So long as any of the Transition Bonds are
outstanding, the Issuer shall pay all material taxes, including gross receipts
taxes, assessments and governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any penalty accrues thereon if the failure to pay any such
taxes, assessments and governmental charges would, after any applicable grace
periods, notices or other similar requirements, result in a Lien on the
Collateral.
SECTION 3.22. Termination of Swap Agreements. (a) The Issuer shall duly and
punctually perform all of its obligations pursuant to any Swap Agreements.
(b) The Issuer shall not terminate or amend any Swap Agreement while any of
the floating rate Transition Bonds of a Class related thereto remain outstanding
except pursuant to the terms of such Swap Agreement and then only with the
consent of Holders of 66 2/3% of the Outstanding Amount of the Transition Bonds
of the related Class. Any termination or breakage fees owed by the Issuer
pursuant to any Swap Agreement shall be subordinated to amounts owed to Holders
of Transition Bonds except as otherwise provided herein.
ARTICLE IV
Satisfaction and Discharge; Defeasance
SECTION 4.01. Satisfaction and Discharge of Indenture; Defeasance. (a) The
Transition Bonds of any Series, all moneys payable with respect thereto and this
Indenture as it applies to such Series shall cease to be of further effect and
the lien hereunder shall be released with respect to such Series, interest shall
cease to accrue on the Transition Bonds of such Series and the Bond Trustee, on
demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Transition Bonds of such Series, when
(A) either
(1) all Transition Bonds of such Series theretofore authenticated
and delivered (other than (i) Transition Bonds that have been
destroyed, lost or stolen and that have been replaced or paid as
provided in Section 2.06 and (ii) Transition Bonds for whose payment
money has theretofore been deposited in trust or segregated and held
in trust by the Issuer and thereafter repaid to the Issuer or
discharged from such trust, as provided in Section 3.03) have been
delivered to the Bond Trustee for cancelation; or
(2) the Expected Final Payment Date or Redemption Date has
occurred with respect to all Transition Bonds of such Series not
theretofore delivered to the Bond Trustee for cancelation, and the
Issuer has irrevocably deposited or caused to be irrevocably deposited
with the Bond Trustee cash, in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such
Transition Bonds not theretofore delivered to the Bond Trustee on the
Expected Final Payment Date or Redemption Date, as applicable,
therefor;
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(B) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer with respect to such Series; and
(C) the Issuer has delivered to the Bond Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the Bond
Trustee) an Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of Section 11.01 and
each stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture with respect to Transition
Bonds of such Series have been complied with.
(b) Subject to Sections 4.01(c) and 4.02, the Issuer at any time may
terminate (i) all its obligations under this Indenture with respect to the
Transition Bonds of any Series ("Legal Defeasance Option") or (ii) its
obligations under Sections 3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.12, 3.13,
3.14, 3.15, 3.16, 3.17, 3.18, 3.19 and 3.20 and the operation of Section
5.01(iv) ("Covenant Defeasance Option") with respect to any Series of Transition
Bonds. 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 such Series.
If the Issuer exercises the Legal Defeasance Option with respect to any
Series, the maturity of the Transition Bonds of such Series may not be (a)
accelerated because of an Event of Default or (b) except as provided in Section
4.02, redeemed. If the Issuer exercises the Covenant Defeasance Option with
respect to any Series, the maturity of the Transition Bonds of such Series may
not be accelerated because of an Event of Default specified in Section 5.01(iv).
Upon satisfaction of the conditions set forth herein to the exercise of the
Legal Defeasance Option or the Covenant Defeasance Option with respect to any
Series of Transition Bonds, the Bond Trustee, on demand of and at the expense of
the Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of the obligations that are terminated pursuant to such exercise.
(c) Notwithstanding Sections 4.01(a) and 4.01(b) above, (i) rights of
registration of transfer and exchange, (ii) rights of substitution of mutilated,
destroyed, lost or stolen Transition Bonds, (iii) rights of Transition
Bondholders to receive payments of principal, premium, if any, and interest, but
only from the amounts deposited with the Bond Trustee for such payments, (iv)
Sections 4.03 and 4.04, (v) the rights, obligations and immunities of the Bond
Trustee hereunder (including the rights of the Bond Trustee under Section 6.07
and the obligations of the Bond Trustee under Section 4.03) and (vi) the rights
of Transition Bondholders under this Indenture with respect to the property
deposited with the Bond Trustee payable to all or any of them, shall survive
until the Transition Bonds of the Series as to which this Indenture or certain
obligations hereunder have be satisfied and discharged pursuant to Section
4.01(a) or 4.01(b) and have been paid in full. Thereafter, the obligations in
Sections 6.07 and 4.04 with respect to such Series shall survive.
SECTION 4.02. Conditions to Defeasance. The Issuer may exercise the Legal
Defeasance Option or the Covenant Defeasance Option with respect to any Series
of Transition Bonds only if:
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(b) 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 such Transition Bonds
to the Expected Payment Date or Redemption Date therefor, as applicable,
such deposit to be made in the Defeasance Subaccount for such Series of
Transition Bonds;
(c) 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 on the deposited U.S. Government Obligations plus any
deposited cash without investment will provide cash at such times and in
such amounts (but, in the case of the Legal Defeasance Option only, not
more than such amounts) as will be sufficient to pay in respect of the
Transition Bonds of such Series (i) subject to clause (ii), principal in
accordance with the Expected Amortization Schedule therefor, (ii) if such
Series is to be redeemed, the Redemption Price therefor on the Redemption
Date therefor and (iii) interest when due;
(d) in the case of the Legal Defeasance Option, 95 days pass after the
deposit is made and during the 95-day period no Default specified in
Section 5.01(v) or (vi) occurs which is continuing at the end of the
period;
(e) no Default has occurred and is continuing on the day of such
deposit and after giving effect thereto;
(f) in the case of the Legal Defeasance Option, the Issuer delivers to
the Bond Trustee an Opinion of Counsel stating that (i) the Issuer has
received from, or there has been published by, the Internal Revenue Service
a ruling, or (ii) since the date of execution of this Indenture, there has
been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the
Holders of the Transition Bonds of such Series will not recognize income,
gain or loss for Federal income tax purposes as a result of the exercise of
such 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 such Legal Defeasance had not occurred;
(g) 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 such Series will not recognize income, gain or loss
for Federal income tax purposes as a result of the exercise of such
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 such Covenant Defeasance had not occurred; and
(h) the Issuer delivers to the Bond Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the satisfaction and discharge of the Transition Bonds of such Series to
the extent contemplated by this Article IV have been complied with.
Notwithstanding any other provision of this Section 4.02 to the contrary,
no delivery of cash or U.S. Government Obligations to the Bond Trustee under
this Section shall terminate any obligations of the Issuer under this Indenture
with respect of
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any Transition Bonds which are to be redeemed prior to the Expected Final
Payment Date therefor until such Transition Bonds shall have been irrevocably
called or designated for redemption on a date thereafter on which such
Transition Bonds may be redeemed in accordance with the provisions of this
Indenture and proper notice of such redemption shall have been given in
accordance with the provisions of this Indenture or the Issuer shall have given
the Bond Trustee, in form satisfactory to the Bond Trustee, irrevocable
instructions to give, in the manner and at the times prescribed herein, notice
of redemption of such Series.
SECTION 4.03. Application of Trust Money. All moneys or U.S. Government
Obligations deposited with the Bond Trustee pursuant to Section 4.01 or 4.02
hereof with respect to any Series of Transition Bonds shall be held in trust in
the Defeasance Subaccount for such Series and applied by it, in accordance with
the provisions of the Transition Bonds and this Indenture, to the payment,
either directly or through any Paying Agent, as the Bond Trustee may determine,
to the Holders of the particular Transition Bonds for the payment or redemption
of which such moneys have been deposited with the Bond Trustee, of all sums due
and to become due thereon for principal, premium, if any, and interest. Such
moneys will be segregated and held apart solely for paying such Transition Bonds
and such Transition Bonds shall not entitled to any amounts on deposit in the
Collection Account other than amounts on deposit in the Defeasance Subaccount
for such Transition Bonds.
SECTION 4.04. Repayment of Moneys Held by Paying Agent. In connection with
the satisfaction and discharge of this Indenture or the Covenant Defeasance
Option or Legal Defeasance Option with respect to the Transition Bonds of any
Series, all moneys then held by any Paying Agent other than the Bond Trustee
under the provisions of this Indenture with respect to such Transition Bonds
shall, upon demand of the Issuer, be paid to the Bond Trustee to be held and
applied according to Section 3.03 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default" wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Transition Bond when
the same becomes due and payable, and such default shall continue for a
period of five days;
(ii) default in the payment of the then unpaid principal of any
Transition Bond of any Series on the Series Termination Date for such
Series or, if applicable, any Class on the Class Termination Date for such
Class;
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(iii) default in the payment of the Redemption Price for any
Transition Bond on the Redemption Date therefor;
(iv) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is
specifically dealt with in clause (i), (ii) or (iii) above), and such
default shall continue or not be cured, for a period of 30 days after there
shall have been given, by registered or certified mail, to the Issuer by
the Bond Trustee or to the Issuer and the Bond Trustee by the Holders of at
least 25% of the Outstanding Amount of the Transition Bonds of any Series,
a written notice specifying such default or incorrect representation or
warranty and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder;
(v) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial
part of the Collateral in an involuntary case under any applicable Federal
or state bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for any substantial part
of the Collateral, or ordering the winding-up or liquidation of the
Issuer's affairs, and such decree or order shall remain unstayed and in
effect for a period of 90 consecutive days; or
(vi) the commencement by the Issuer of a voluntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or the consent by the Issuer to the entry of an
order for relief in an involuntary case under any such law, or the consent
by the Issuer to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of the Issuer or for any substantial part of the Collateral, or the making
by the Issuer of any general assignment for the benefit of creditors, or
the failure by the Issuer generally to pay its debts as such debts become
due, or the taking of action by the Issuer in furtherance of any of the
foregoing.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default occurs and is continuing, then and in every such case either
the Bond Trustee or the Holders of Transition Bonds representing not less than a
majority of the Outstanding Amount of the Transition Bonds of all Series may,
but need not, declare all the Transition Bonds to be immediately due and
payable, by a notice in writing to the Issuer (and to the Bond Trustee if given
by Transition Bondholders), and upon any such declaration the unpaid principal
amount of the Transition Bonds of all Series, together with accrued and unpaid
interest thereon through the date of acceleration, shall become immediately due
and payable.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Bond Trustee as hereinafter in this Article V provided, the
Holders of Transition Bonds representing a majority of the Outstanding Amount of
the Transition Bonds of all Series, by written notice to the Issuer and the Bond
Trustee, may rescind and annul such declaration and its consequences if:
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(i) the Issuer has paid or deposited with the Bond Trustee, for
deposit in the General Subaccount of the Collection Account, a sum
sufficient to pay
(A) all payments of principal of and premium, if any, and
interest on all Transition Bonds of all Series and all other amounts
that would then be due hereunder or upon such Transition Bonds if the
Event of Default giving rise to such acceleration had not occurred;
and
(B) all sums paid or advanced by the Bond Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Bond Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the principal
of the Transition Bonds of all Series that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Bond
Trustee. (a) The Issuer covenants that if (i) Default is made in the payment of
any interest on any Transition Bond when such interest becomes due and payable
and such Default continues for a period of five days, (ii) Default is made in
the payment of the then unpaid principal of any Transition Bond on the Series
Termination Date or Class Termination Date, as applicable, therefor or (iii)
Default is made in the payment of the Redemption Price or for any Transition
Bond on the Redemption Date therefor, the Issuer will, upon demand of the Bond
Trustee, pay to it, for the benefit of the Holders of the Transition Bonds of
such Series, such amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Bond Trustee and its agents and counsel and the whole amount
then due and payable on such Transition Bonds for principal, premium, if any,
and interest, with interest upon the overdue principal and premium, if any, and,
to the extent payment at such rate of interest shall be legally enforceable,
upon overdue instalments of interest, at the respective Bond Rate of such Series
or the applicable Class of such Series.
(b) In case the Issuer shall fail forthwith to pay the amounts specified in
clause (a) above upon such demand, the Bond Trustee, in its own name and as
trustee of an express trust, may institute a Proceeding for the collection of
the sums so due and unpaid, and may prosecute such Proceeding to judgment or
final decree, and may enforce the same against the Issuer or other obligor upon
such Transition Bonds and collect in the manner provided by law out of the
property of the Issuer or other obligor upon such Transition Bonds, wherever
situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Bond Trustee may,
as more particularly provided in Section 5.04, in its discretion, proceed to
protect and enforce its rights and the rights of the Transition Bondholders, by
such appropriate Proceedings as the Bond Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Bond Trustee by this Indenture or
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44
by law including foreclosing or otherwise enforcing the lien on the Intangible
Transition Property securing the Transition Bonds or applying to the PUC for
sequestration of revenues arising with respect to such Intangible Transition
Property.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Transition Bonds or any Person having or claiming an ownership
interest in the Collateral, Proceedings under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Transition Bonds, or to the creditors or property of
the Issuer or such other obligor, the Bond Trustee, irrespective of whether the
principal of any Transition Bonds shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Bond
Trustee shall have made any demand pursuant to the provisions of this Section,
shall be entitled and empowered, by intervention in such Proceedings or
otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect
of the Transition Bonds and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the Bond
Trustee (including any claim for reasonable compensation to the Bond
Trustee and each predecessor Bond Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Bond Trustee
and each predecessor Bond Trustee, except as a result of negligence or
bad faith) and of the Transition Bondholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders of Transition Bonds in any election of a
trustee, a standby trustee or Person performing similar functions in
any such Proceedings;
(iii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Transition Bondholders and
of the Bond Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the
Bond Trustee or the Holders of Transition Bonds allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Transition Bondholders
to make payments to the Bond Trustee, and, in the event that the Bond Trustee
shall consent to the making of payments directly to such Transition Bondholders,
to pay to the Bond Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Bond Trustee, each predecessor Bond Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Bond Trustee and each
predecessor Bond Trustee except as a result of negligence or bad faith.
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45
(e) Nothing herein contained shall be deemed to authorize the Bond Trustee
to authorize or consent to or vote for or accept or adopt on behalf of any
Transition Bondholder any plan of reorganization, arrangement, adjustment or
composition affecting the Transition Bonds or the rights of any Holder thereof
or to authorize the Bond Trustee to vote in respect of the claim of any
Transition Bondholder in any such proceeding except, as aforesaid, to vote for
the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture, or
under any of the Transition Bonds, may be enforced by the Bond Trustee without
the possession of any of the Transition Bonds or the production thereof in any
trial or other Proceedings relative thereto, and any such action or proceedings
instituted by the Bond Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Bond Trustee, each predecessor
Bond Trustee and their respective agents and attorneys, shall be for the ratable
benefit of the Holders of the Transition Bonds.
(g) In any Proceedings brought by the Bond Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Bond Trustee shall be a party), the Bond Trustee shall be held to
represent all the Holders of the Transition Bonds, and it shall not be necessary
to make any Transition Bondholder a party to any such Proceedings.
SECTION 5.04. Remedies; Priorities. If an Event of Default occurs and is
continuing, the Bond Trustee may do one or more of the following (subject to
Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Transition Bonds or under this Indenture with respect thereto, whether
by declaration or otherwise, enforce any judgment obtained, and
collect from the Issuer and any other obligor upon such Transition
Bonds moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Collateral;
(iii) exercise any remedies of a secured party under the UCC or
the Statute or any other applicable law and take any other appropriate
action to protect and enforce the rights and remedies of the Bond
Trustee and the Holders of the Transition Bonds of such Series;
(iv) sell the Collateral or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law; and
(v) 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 or the Servicing Agreement as
provided in Section 3.20(b);
provided, however, that the Bond Trustee may not sell or otherwise liquidate any
portion of the Collateral following an Event of Default, other than an Event of
Default described
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46
in Section 5.01(i), (ii) or (iii), with respect to any Series unless (A) the
Holders of 100% of the Outstanding Amount of the Transition Bonds of all Series
consent thereto, (B) the proceeds of such sale or liquidation distributable to
the Transition Bondholders of all Series are sufficient to discharge in full all
amounts then due and unpaid upon such Transition Bonds for principal, premium,
if any, and interest or (C) the Bond Trustee determines that the Collateral will
not continue to provide sufficient funds for all payments on the Transition
Bonds of all Series as they would have become due if the Transition Bonds had
not been declared due and payable, and the Bond Trustee obtains the consent of
Holders of 66-2/3% of the Outstanding Amount of the Transition Bonds of each
Series. In determining such sufficiency or insufficiency with respect to clause
(B) and (C), the Bond Trustee may, but need not, obtain and rely upon an opinion
of an Independent investment banking or accounting firm of national reputation
as to the feasibility of such proposed action and as to the sufficiency of the
Collateral for such purpose.
SECTION 5.05. Optional Preservation of the Collateral. If the Transition
Bonds have been declared to be due and payable under Section 5.02 following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Bond Trustee may, but need not, elect, as provided
in Section 5.11(iii), to maintain possession of the Collateral and not sell or
liquidate the same. It is the desire of the parties hereto and the Transition
Bondholders that there be at all times sufficient funds for the payment of
principal of and premium, if any, and interest on the Transition Bonds, and the
Bond Trustee shall take such desire into account when determining whether or not
to maintain possession of the Collateral or sell or liquidate the same. In
determining whether to maintain possession of the Collateral or sell or
liquidate the same, the Bond Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.
SECTION 5.06. Limitation of Proceedings. No Holder of any Transition Bond
of any Series shall have any right to institute any Proceeding, judicial or
otherwise, or to avail itself of the remedies provided in Section 2812(d)(3)(v)
of the Statute, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(i) such Holder has previously given written notice to the Bond
Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding Amount
of the Transition Bonds of each Series have made written request to
the Bond Trustee to institute such Proceeding in respect of such Event
of Default in its own name as Bond Trustee hereunder;
(iii) such Holder or Holders have offered to the Bond Trustee
security or indemnity reasonably satisfactory to the Bond Trustee
against the costs, expenses and liabilities to be incurred in
complying with such request;
(iv) the Bond Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
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47
(v) no direction inconsistent with such written request has been
given to the Bond Trustee during such 60-day period by the Holders of
a majority of the Outstanding Amount of the Transition Bonds of all
Series;
it being understood and intended that no one or more Holders of Transition Bonds
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Transition Bonds or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided.
In the event the Bond Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Transition Bonds,
each representing less than a majority of the Outstanding Amount of the
Transition Bonds of all Series, the Bond Trustee in its sole discretion may
determine what action, if any, shall be taken, notwithstanding any other
provisions of this Indenture.
SECTION 5.07. Unconditional Rights of Transition Bondholders To Receive
Principal, Premium, if any, and Interest. Notwithstanding any other provisions
in this Indenture, the Holder of any Transition Bond shall have the right, which
is absolute and unconditional, (a) to receive payment of (i) the interest, if
any, on such Transition Bond on or after the due dates thereof expressed in such
Transition Bond or in this Indenture, (ii) the unpaid principal, if any, of such
Transition Bonds on or after the Series Termination Date or Class Termination
Date therefor or (iii) in the case of redemption, receive payment of the unpaid
principal, if any, of and premium, if any, and interest, if any, on such
Transition Bond on or after the Redemption Date therefor and (b) to institute
suit for the enforcement of any such payment, and such right shall not be
impaired without the consent of such Holder.
SECTION 5.08. Restoration of Rights and Remedies. If the Bond Trustee or
any Transition Bondholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Bond Trustee or
to such Transition Bondholder, then and in every such case the Issuer, the Bond
Trustee and the Transition Bondholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Bond Trustee
and the Transition Bondholders shall continue as though no such Proceeding had
been instituted.
SECTION 5.09. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Bond Trustee or to the Transition Bondholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10. Delay or Omission Not a Waiver. No delay or omission of the
Bond Trustee or any Transition Bondholder to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Bond Trustee or to the Transition Bondholders may be exercised from time
to time, and as often as may be
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48
deemed expedient, by the Bond Trustee or by the Transition Bondholders, as the
case may be.
SECTION 5.11. Control by Transition Bondholders. The Holders of a majority
of the Outstanding Amount of the Transition Bonds of all Series (or, if less
than all Series or Classes are affected, the affected Series or Class or
Classes) shall have the right to direct the time, method and place of conducting
any Proceeding for any remedy available to the Bond Trustee with respect to the
Transition Bonds of such Series or Class or Classes or exercising any trust or
power conferred on the Bond Trustee with respect to such Series or Class or
Classes; provided that
(i) such direction shall not be in conflict with any rule of law
or with this Indenture;
(ii) subject to the express terms of Section 5.04, any direction
to the Bond Trustee to sell or liquidate the Collateral shall be by
the Holders of Transition Bonds representing not less than 100% of the
Outstanding Amount of the Transition Bonds of all Series;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Bond Trustee elects to retain the Collateral
pursuant to such Section and not sell or liquidate the same, 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
shall be of no force and effect; and
(iv) the Bond Trustee may take any other action deemed proper by
the Bond Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.01, the Bond Trustee need not take
any action that it determines might involve it in liability or might materially
adversely affect the rights of any Transition Bondholders not consenting to such
action.
SECTION 5.12. Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Transition Bonds of all Series as provided
in Section 5.02, the Holders of not less than a majority of the Outstanding
Amount of the Transition Bonds of all Series may waive any past Default or Event
of Default and its consequences except a Default (i) in payment of principal of
or premium, if any, or interest on any of the Transition Bonds or (ii) in
respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Transition Bond of all Series or
Classes affected. In the case of any such waiver, the Issuer, the Bond Trustee
and the Holders of the Transition Bonds shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
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49
SECTION 5.13. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Transition Bond by such Holder's acceptance thereof shall
be deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Bond Trustee for any action taken, suffered or omitted by it as
Bond Trustee, the filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to (a) any suit instituted by the Bond Trustee, (b) any
suit instituted by any Transition Bondholder, or group of Transition
Bondholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Transition Bonds of a Series or (c) any suit
instituted by any Transition Bondholder for the enforcement of the payment of
(i) interest on any Transition Bond on or after the due dates expressed in such
Transition Bond and in this Indenture, (ii) the unpaid principal, if any, of any
Transition Bond on or after the Series Termination Date or Class Termination
Date, if applicable, therefor or (iii) in the case of redemption, the unpaid
principal of and premium, if any, and interest on any Transition Bond on or
after the Redemption Date therefor.
SECTION 5.14. Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Bond Trustee,
but will suffer and permit the execution of every such power as though no such
law had been enacted.
SECTION 5.15. Action on Transition Bonds. The Bond Trustee's right to seek
and recover judgment on the Transition Bonds or under this Indenture shall not
be affected by the seeking, obtaining or application of any other relief under
or with respect to this Indenture. Neither the lien of this Indenture nor any
rights or remedies of the Bond Trustee or the Transition Bondholders shall be
impaired by the recovery of any judgment by the Bond Trustee against the Issuer
or by the levy of any execution under such judgment upon any portion of the
Collateral or upon any of the assets of the Issuer.
ARTICLE VI
The Bond Trustee
SECTION 6.01. Duties and Liabilities of Bond Trustee. (a) If an Event of
Default has occurred and is continuing, the Bond Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
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50
(i) the Bond Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the Bond
Trustee; and
(ii) in the absence of bad faith on its part, the Bond Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Bond Trustee and conforming to the requirements of this Indenture.
(c) The Bond Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Bond Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer unless it is proved that the
Bond Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Bond Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates to the Bond
Trustee is subject to paragraphs (a), (b) and (c) of this Section 6.01.
(e) The Bond Trustee shall not be liable for interest on any money received
by it except as the Bond Trustee may agree in writing with the Issuer.
(f) Money held in trust by the Bond Trustee need not be segregated from
other funds except to the extent required by law or the terms of this Indenture
or the Sale Agreement or the Servicing Agreement.
(g) No provision of this Indenture shall require the Bond Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayments of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(h) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Bond Trustee shall be subject to
the provisions of this Section and to the provisions of the TIA.
(i) Under no circumstances shall the Bond Trustee be liable for any
indebtedness evidenced by or arising under the Transition Bonds or any Basic
Document.
SECTION 6.02. Rights of Bond Trustee. (a) The Bond Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper Person. The Bond Trustee need not investigate any fact or matter
stated in the document.
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51
(b) Before the Bond Trustee acts or refrains from acting, it may require an
Officer's Certificate or an Opinion of Counsel. The Bond Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on an
Officer's Certificate or an Opinion of Counsel.
(c) The Bond Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Bond Trustee shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Bond Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Bond Trustee's conduct does not constitute
wilful misconduct, negligence or bad faith.
(e) The Bond Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Transition Bonds shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
SECTION 6.03. Individual Rights of Bond Trustee. The Bond Trustee in its
individual or any other capacity may become the owner or pledgee of Transition
Bonds and may otherwise deal with the Issuer or its affiliates with the same
rights it would have if it were not Bond Trustee. Any Paying Agent, Transition
Bond Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Bond Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.04. Bond Trustee's Disclaimer. The Bond Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Transition Bonds. The Bond Trustee shall not be
accountable for the Issuer's use of the proceeds from the Transition Bonds, and
the Bond Trustee shall not be responsible for any statement of the Issuer in the
Indenture or in any document issued in connection with the sale of the
Transition Bonds or in the Transition Bonds other than the Bond Trustee's
certificate of authentication. The Bond Trustee shall not be responsible for the
form, character, genuineness, sufficiency, value or validity of any of the
Collateral, or for or in respect of the validity or sufficiency of the
Transition Bonds (other than the certificate of authentication for the
Transition Bonds) or the Basic Documents and the Bond Trustee shall in no event
assume or incur any liability, duty or obligation to any Holder of a Transition
Bond, other than is expressly provided for in this Indenture. The Bond Trustee
shall not be liable for the default or misconduct of the Issuer, the Seller, the
Servicer or the Issuer Trustee under any Basic Document or otherwise and the
Bond Trustee shall have no obligation or liability to perform the obligations of
the Issuer.
SECTION 6.05. Notice of Defaults. If a Default occurs and is continuing
with respect to any Series and if it is known to a Responsible Officer of the
Bond Trustee, the Bond Trustee shall mail to each Holder of Transition Bonds of
all Series notice of the Default within 90 days after it occurs. Except in the
case of a Default in payment of principal of or premium, if any, or interest on
any Transition Bond, the Bond Trustee may
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52
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of
Transition Bondholders.
SECTION 6.06. Reports by Bond Trustee to Holders. (a) The Bond Trustee
shall deliver to each Holder of Transition Bonds such information as may be
required to enable such Holder to prepare its Federal and state income tax
returns.
(b) With respect to each Series of Transition Bonds, on or prior to each
Payment Date therefor, the Bond Trustee will deliver a statement prepared by the
Bond Trustee to each Holder of Transition Bonds which will include (to the
extent applicable) the following information (and any other information so
specified in the Series Supplement for such Series) as to the Transition Bonds
of such Series with respect to such Payment Date or the period since the
previous Payment Date, as applicable:
(i) the amount paid to Holders of such Transition Bonds in respect of
principal, such amount to be expressed as a dollar amount per thousand;
(ii) the amount paid to Holders of such Transition Bonds in respect of
interest, such amount to be expressed as a dollar amount per thousand;
(iii) the Transition Bond Balance and the Projected Transition Bond
Balance, in each case for such Series and as of the most recent Payment
Date;
(iv) 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;
(v) the amount on deposit in the Capital Subaccount as of the most
recent Payment Date; and
(vi) the amount, if any, on deposit in the Reserve Subaccount as of
the most recent Payment Date.
(c) The Bond Trustee's responsibility for disbursing the information
described in subsection (b) above to Holders of Transition Bonds is limited to
the availability, timeliness and accuracy of the information provided by the
Servicer pursuant to Section 3.04 and Annex 1 of the Servicing Agreement.
SECTION 6.07. Compensation and Indemnity. The Issuer shall pay to the Bond
Trustee from time to time reasonable compensation for its services. The Bond
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuer shall reimburse the Bond Trustee for all
reasonable out-of-pocket expenses, disbursements and advances incurred or made
by it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Bond Trustee's agents, counsel, accountants
and experts. The Issuer shall indemnify and hold harmless the Bond Trustee from
and against any and all costs, damages, expenses, losses, liabilities or other
amounts whatsoever (including counsel fees) incurred by the Bond Trustee in
connection with the administration of this trust, the enforcement of this trust
and all of the Bond Trustee's rights, powers and duties under this Indenture and
the performance by the Bond Trustee of the duties and obligations of the Bond
Trustee under
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53
or pursuant to this Indenture. The Bond Trustee shall notify the Issuer promptly
of any claim for which it may seek indemnity. Failure by the Bond Trustee to so
notify the Issuer shall not relieve the Issuer of its obligations hereunder. The
Issuer shall defend the claim and the Bond Trustee may have separate counsel and
the Issuer shall pay the fees and expenses of such counsel. The Issuer need not
reimburse any expense or indemnify against any loss, liability or expense
incurred by the Bond Trustee (i) through the Bond Trustee's own wilful
misconduct, negligence or bad faith or (ii) to the extent the Bond Trustee was
reimbursed for or indemnified against any such loss, liability or expense by the
Seller pursuant to the Sale Agreement or by the Servicer pursuant to the
Servicing Agreement.
When the Bond Trustee incurs expenses after the occurrence of a Default
specified in Section 5.01(v) or (vi) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law.
SECTION 6.08. Replacement of Bond Trustee. The Bond Trustee may resign at
any time by so notifying the Issuer. The Holders of a majority in Outstanding
Amount of the Transition Bonds of all Series may remove the Bond Trustee by so
notifying the Issuer and the Bond Trustee and may appoint a successor Bond
Trustee. The Issuer shall remove the Bond Trustee if:
(i) the Bond Trustee fails to comply with Section 6.11;
(ii) the Bond Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the Bond
Trustee or its property; or
(iv) the Bond Trustee otherwise becomes incapable of acting.
If the Bond Trustee resigns or is removed or if a vacancy exists in the
office of Bond Trustee for any reason (the Bond Trustee in such event being
referred to herein as the "Retiring Bond Trustee"), the Issuer shall promptly
appoint a successor Bond Trustee.
A successor Bond Trustee shall deliver a written acceptance of its
appointment to the Retiring Bond Trustee and to the Issuer. Thereupon the
resignation or removal of the Retiring Bond Trustee shall become effective, and
the successor Bond Trustee shall have all the rights, powers and duties of the
Bond Trustee under this Indenture. The successor Bond Trustee shall mail a
notice of its succession to Transition Bondholders. The Retiring Bond Trustee
shall promptly transfer all property held by it as Bond Trustee to the successor
Bond Trustee.
If a successor Bond Trustee does not take office within 60 days after the
Retiring Bond Trustee resigns or is removed, the Retiring Bond Trustee, the
Issuer or the Holders of a majority in Outstanding Amount of the Transition
Bonds of all Series may petition any court of competent jurisdiction for the
appointment of a successor Bond Trustee.
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54
If the Bond Trustee fails to comply with Section 6.11, any Transition
Bondholder may petition any court of competent jurisdiction for the removal of
the Bond Trustee and the appointment of a successor Bond Trustee.
The Issuer shall promptly furnish written notification of the appointment
of any successor Bond Trustee pursuant to this Section 6.08 to each of the
Rating Agencies.
Notwithstanding the replacement of the Bond Trustee pursuant to this
Section 6.08, the Issuer's obligations under Section 6.07 shall continue for the
benefit of the Retiring Bond Trustee.
SECTION 6.09. Successor Bond Trustee by Merger. If the Bond Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or banking
association shall, without any further act, be the successor Bond Trustee. The
Issuer shall promptly furnish written notification of any such successor Bond
Trustee to each of the Rating Agencies.
In case at the time such successor or successors by merger, conversion
consolidation or transfer shall succeed to the trusts created by this Indenture
any of the Transition Bonds shall have been authenticated but not delivered, any
such successor to the Bond Trustee may adopt the certificate of authentication
of any Retiring Bond Trustee, and deliver such Transition Bonds so
authenticated; and in case at that time any of the Transition Bonds shall not
have been authenticated, any successor to the Bond Trustee may authenticate such
Transition Bonds either in the name of any Retiring Bond Trustee hereunder or in
the name of the successor to the Bond Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Transition
Bonds or in this Indenture provided that the certificate of the Bond Trustee
shall have.
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Collateral may at the time be located, the Bond Trustee shall have the
power and may execute and deliver all instruments to appoint one or more Persons
to act as a co-trustee or co-trustees, or separate trustee or separate trustees,
of all or any part of the Collateral, and to vest in such Person or Persons, in
such capacity and for the benefit of the Transition Bondholders, such title to
the Collateral, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Bond Trustee
may consider necessary or desirable. No co-trustee or separate trustee hereunder
shall be required to meet the terms of eligibility as a successor trustee under
Section 6.11 and no notice to Transition Bondholders of the appointment of any
co-trustee or separate trustee shall be required under Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Bond Trustee shall be conferred or imposed upon and exercised or
performed by the Bond Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is
not authorized to act
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separately without the Bond Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular act
or acts are to be performed the Bond Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the
Collateral or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Bond Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Bond Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Bond Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Indenture and the conditions
of this Article VI. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Bond Trustee or
separately, as may be provided therein, subject to all the provisions of this
Indenture, specifically including every provision of this Indenture relating to
the conduct of, affecting the liability of, or affording protection to, the Bond
Trustee. Every such instrument shall be filed with the Bond Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the Bond
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Bond Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
SECTION 6.11. Eligibility; Disqualification. The Bond Trustee shall at all
times satisfy the requirements of TIA ss. 310(a). The Bond Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition and it shall have a long term debt
rating of "Baa3" or better by Moody's and "BBB-" by Fitch IBCA (if currently
rated by Fitch IBCA). The Bond Trustee shall comply with TIA ss. 310(b),
including the optional provision permitted by the second sentence of TIA ss.
310(b)(9); provided, however, that there shall be excluded from the operation of
TIA ss. 310(b)(1) any indenture or indentures under which other securities of
the Issuer are outstanding if the requirements for such exclusion set forth in
TIA ss. 310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against Issuer. The Bond
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Bond Trustee who has resigned or been removed shall
be subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VII
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56
Transition Bondholders' Lists and Reports
SECTION 7.01. Issuer To Furnish Bond Trustee Names and Addresses of
Transition Bondholders. The Issuer will furnish or cause to be furnished to the
Bond Trustee (a) not more than five days after the earlier of (i) each Record
Date with respect to each Series and (ii) three months after the last Record
Date with respect to each Series, a list, in such form as the Bond Trustee may
reasonably require, of the names and addresses of the Holders of Transition
Bonds of such Series as of such Record Date, (b) at such other times as the Bond
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date not more than
10 days prior to the time such list is furnished; provided, however, that so
long as the Bond Trustee is the Transition Bond Registrar, no such list shall be
required to be furnished.
SECTION 7.02. Preservation of Information; Communications to Transition
Bondholders. (a) The Bond Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Transition
Bonds contained in the most recent list furnished to the Bond Trustee as
provided in Section 7.01 and the names and addresses of Holders of Transition
Bonds received by the Bond Trustee in its capacity as Transition Bond Registrar.
The Bond Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.
(b) Transition Bondholders may communicate pursuant to TIA ss. 312(b) with
other Transition Bondholders with respect to their rights under this Indenture
or under the Transition Bonds.
(c) The Issuer, the Bond Trustee and the Transition Bond Registrar shall
have the protection of TIA ss. 312(c).
SECTION 7.03. Reports by Issuer. (a) The Issuer shall:
(i) file with the Bond Trustee, within 15 days after the Issuer is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Issuer may be required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Bond Trustee and the Commission in accordance with
rules and regulations prescribed from time to time by the Commission such
additional information, documents and reports with respect to compliance by
the Issuer with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(iii) supply to the Bond Trustee (and the Bond Trustee shall transmit
by mail to all Transition Bondholders described in TIA ss. 313(c)) such
summaries of any information, documents and reports required to be filed by
the Issuer pursuant to clauses (i) and (ii) of this Section 7.03(a) as may
be required by rules and regulations prescribed from time to time by the
Commission.
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(b) Unless the Issuer otherwise determines, the fiscal year of the Issuer
shall end on December 31 of each year.
SECTION 7.04. Reports by Bond Trustee. If required by TIA ss. 313(a),
within 60 days after January 1st of each year, commencing with the year after
the issuance of the Transition Bonds of any Series, the Bond Trustee shall mail
to each Holder of Transition Bonds of such Series as required by TIA ss. 313(c)
a brief report dated as of such date that complies with TIA ss. 313(a). The Bond
Trustee also shall comply with TIA ss. 313(b); provided, however, that the
initial report so issued shall be delivered not more than 12 months after the
initial issuance of each Series.
A copy of each report at the time of its mailing to Transition Bondholders
shall be filed by the Bond Trustee with the Commission and each stock exchange,
if any, on which the Transition Bonds are listed. The Issuer shall notify the
Bond Trustee if and when the Transition Bonds are listed on any stock exchange.
SECTION 7.05. Provision of Servicer Reports. Upon the written request of
any Transition Bondholder to the Bond Trustee addressed to the Corporate Trust
Office, the Bond Trustee shall provide such Transition Bondholder with a copy of
the Officer's Certificate referred to in Section 3.05 of the Servicing Agreement
and the Annual Accountant's Report referred to in Section 3.06 of the Servicing
Agreement.
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.01. Collection of Money. Except as otherwise expressly provided
herein, the Bond Trustee may demand payment or delivery of, and shall receive
and collect, directly and without intervention or assistance of any fiscal agent
or other intermediary, all money and other property payable to or receivable by
the Bond Trustee pursuant to this Indenture. The Bond Trustee shall apply all
such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Collateral, the Bond Trustee may take such action as may be appropriate to
enforce such payment or performance, including the institution and prosecution
of appropriate Proceedings. Any such action shall be without prejudice to any
right to claim a Default or Event of Default under this Indenture and any right
to proceed thereafter as provided in Article V.
SECTION 8.02. Collection Account. (a) On or prior to the Series Issuance
Date for the first Series issued hereunder, the Issuer shall open, at the Bond
Trustee's Corporate Trust Office, or at another Eligible Institution, one or
more segregated trust accounts in the Bond Trustee's name (collectively, the
"Collection Account"). The Collection Account will initially be divided into
subaccounts, which need not be separate bank accounts: a general subaccount (the
"General Subaccount"), an Overcollateralization subaccount (the
"Overcollateralization Subaccount"), a capital subaccount (the "Capital
Subaccount"), a reserve subaccount (the "Reserve Subaccount"), a series
subaccount for each Series of Transition Bonds issued on such date (each a
"Series Subaccount"), and a class subaccount for each Class of Transition Bonds
issued on such date that the supplemental indenture authorizing such Class
specifies a class
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subaccount shall be established therefor (each a "Class Subaccount"). On or
prior to the Series Issuance Date for each Series issued after the Series
Issuance Date for the first Series issued hereunder, the Issuer shall establish
a Series Subaccount therefor and any necessary Class Subaccounts as subaccounts
of the Collection Account. Prior to depositing funds or U.S. Government
Obligations in the Collection Account pursuant to Sections 4.01 or 4.02, the
Issuer shall establish defeasance subaccounts (each a "Defeasance Subaccount")
for each Series for which funds shall be deposited, as subaccounts of the
Collection Account. Prior to any Loss Amounts or Interest Deposit Amounts being
deposited in the Collection Account, the Issuer shall establish a loss
subaccount (the "Loss Subaccount") or an interest deposit subaccount (the
"Interest Deposit Subaccount"), as applicable, as a subaccount of the Collection
Account. All amounts in the Collection Account not allocated to any other
subaccount shall be allocated to the General Subaccount. All references to the
Collection Account shall be deemed to include reference to all subaccounts
contained therein. Withdrawals from and deposits to each of the foregoing
subaccounts of the Collection Account shall be made as set forth in Sections
4.01, 4.02, 4.03 and 8.02(c), (d), (e) and (f). The Collection Account shall at
all times be maintained in an Eligible Deposit Account and only the Bond Trustee
shall have access to the Collection Account for the purpose of making deposits
in and withdrawals from the Collection Account in accordance with this
Indenture. Funds in the Collection Account shall not be commingled with any
other moneys. All moneys deposited from time to time in the Collection Account,
all deposits therein pursuant to this Indenture, and all investments made in
Eligible Investments with such moneys, including all income or other gain from
such investments, shall be held by the Bond Trustee in the Collection Account as
part of the Collateral as herein provided.
(b) So long as no Default or Event of Default has occurred and is
continuing, all or a portion of the funds in the Collection Account shall be
invested in Eligible Investments and reinvested by the Bond Trustee upon Issuer
Order; provided, however, that (i) such Eligible Investments shall not mature
later than the Business Day prior to (x) with respect to funds in the General
Subaccount, the Overcollateralization Subaccount, the Capital Subaccount, the
Reserve Subaccount, the Loss Subaccount and the Interest Deposit Subaccount, the
next Monthly Allocation Date or (y) with respect to funds in the Series
Subaccount for any Series of Transition Bonds or the Class Subaccount for any
Class of Transition Bonds, the next Payment Date for such Series or Class, (ii)
such Eligible Investments shall not be sold, liquidated or otherwise disposed of
at a loss prior to the maturity thereof, and (iii) no funds in the Defeasance
Subaccount for any Series of Transition Bonds shall be invested in Eligible
Investments or otherwise, except that U.S. Government Obligations deposited by
the Issuer with the Bond Trustee pursuant to Sections 4.01 or 4.02 shall remain
as such. All income or other gain from investments of moneys deposited in the
Collection Account shall be deposited by the Bond Trustee in the Collection
Account, and any loss resulting from such investments shall be charged to the
Collection Account. The Issuer will not direct the Bond Trustee to make any
investment of any funds or to sell any investment held in the Collection Account
unless the security interest granted and perfected in such account will continue
to be perfected in such investment or the proceeds of such sale, in either case
without any further action by any Person, and, in connection with any direction
to the Bond Trustee to make any such investment or sale, if requested by the
Bond Trustee, the Issuer shall deliver to the Bond Trustee an Opinion of
Counsel, acceptable to the Bond Trustee, to such effect. Subject to Section
6.01(c), the Bond Trustee shall not in any way be held liable for the selection
of Eligible Investments or for investment losses incurred thereon except for
losses attributable to the Bond Trustee's failure to make payments on such
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Eligible Investments issued by the Bond Trustee, in its commercial capacity as
principal obligor and not as Bond Trustee, in accordance with their terms. The
Bond Trustee shall have no liability in respect of losses incurred as a result
of the liquidation of any Eligible Investment prior to its stated maturity or
the failure of the Issuer to provide timely written investment direction. The
Bond Trustee shall have no obligation to invest or reinvest any amounts held
hereunder in the absence of written investment direction pursuant to an Issuer
Order, however, if (i) the Issuer shall have failed to give investment
directions for any funds on deposit in the Collection Account to the Bond
Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by the
Issuer and Bond Trustee) on any Business Day; or (ii) a Default or Event of
Default shall have occurred and be continuing but the Transition Bonds shall not
have been declared due and payable pursuant to Section 5.02; then the Bond
Trustee shall, to the fullest extent practicable, invest and reinvest funds in
the Collection Account in one or more Eligible Investments.
(c) ITC Collections remitted by the Servicer to the Bond Trustee,
Liquidated Damages remitted by the Seller to the Bond Trustee and Indemnity
Amounts remitted to the Bond Trustee by the Seller or the Servicer or otherwise
received by the Bond Trustee or the Issuer shall be deposited in the General
Subaccount. Loss Amounts remitted by the Seller to the Bond Trustee shall 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. Amounts remitted by a Counterparty shall be deposited in the Class
Subaccount for the Class to which such amounts relate.
(d) On each Monthly Allocation Date, the Bond Trustee shall by 12:00 noon
(New York City time) apply all amounts on deposit in the General Subaccount of
the Collection Account and any investment earnings thereon in the following
priority:
(i) all amounts owed to the Bond Trustee (including legal fees and
expenses, Indemnity Amounts and Loss Amounts) shall be paid to the Bond
Trustee;
(ii) all amounts owed to the Issuer Trustee (including legal fees and
expenses, Indemnity Amounts and Loss Amounts) shall be paid to the Issuer
Trustee;
(iii) the Monthly Servicing Fee and all unpaid Monthly Servicing Fees
from prior Monthly Allocation Dates shall be paid to the Servicer;
(iv) so long as no Event of Default has occurred and is continuing or
would be caused by such payment, all Operating Expenses other than (i),
(ii) and (iii) above shall be paid to the Persons entitled thereto,
provided that the amount paid on any Monthly Allocation Date pursuant to
this clause (iv) may not exceed $12,500 in the aggregate for all Series;
(v) an amount equal to Interest (which shall mean, in the case of any
Series or Class for which a Swap Agreement is in effect and any payments
due thereunder from the applicable Counterparty are being received by the
Issuer, the regular fixed payment to a Counterparty determined without
regard to netting, but not payment in respect of breakage or termination of
the related Swap Agreement)
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with respect to each Series of Transition Bonds for such Monthly Allocation
Date shall be transferred on a Pro Rata basis to the Series Subaccount for
such Series;
(vi) an amount equal to any Principal of any Series or Class of
Transition Bonds payable as a result of acceleration pursuant to Section
5.02, 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 shall be
transferred on a Pro Rata basis to the Series Subaccount for such Series,
taking into account amounts on deposit therein in respect of Principal as
of such Monthly Allocation Date;
(vii) an amount equal to Principal with respect to each Series of
Transition Bonds for such Monthly Allocation Date not provided for pursuant
to clause (vi) above shall be transferred on a Pro Rata basis to the Series
Subaccount for such Series;
(viii) all unpaid Operating Expenses, Indemnity Amounts and Loss
Amounts shall be paid to the Persons entitled thereto;
(ix) Overcollateralization with respect to all Series of Transition
Bonds for such Monthly Allocation Date shall be transferred to the
Overcollateralization Subaccount;
(x) any termination or breakage amounts owed to any Counterparty
pursuant to a Swap Agreement shall be paid to such Counterparty;
(xi) provided no Event of Default has occurred and is continuing, an
amount up to the amount of net investment earnings on amounts in the
Collection Account since the previous Monthly Allocation Date will be
released to the Issuer, free from the lien of this Indenture;
(xii) the balance, if any, will be allocated to the Reserve
Subaccount; and
(xiii) following repayment of all outstanding Series of Transition
Bonds, the balance, if any, will be released to the Issuer, free from the
lien of this Indenture.
"Pro Rata" means with respect to any Series of Transition Bonds a ratio,
(i) in the case of clause (v) above, the numerator of which is the Monthly
Allocated Interest Balance with respect to such Series, for such Monthly
Allocation Date and the denominator of which is the sum of Monthly Allocated
Interest Balances with respect to all Series, for such Monthly Allocation Date,
(ii) in the case of clause (vi) above, the numerator of which is the amount
allocable under such clause with respect to such Series and the denominator of
which is the amount allocable to all Series under such clause and (iii) in the
case of clause (vii) above, the numerator of which is the Monthly Allocated
Principal Balance with respect to such Series, for such Monthly Allocation Date
and the denominator of which is the sum of Monthly Allocated Principal Balances
with respect to all Series, for such Monthly Allocation Date.
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If, on any Monthly Allocation Date funds on deposit in the General
Subaccount are insufficient to make the payments or transfers contemplated by
clauses (i) through (ix) 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 such payments and transfers:
(i) from the Interest Deposit Subaccount, with respect to the payments
or transfers contemplated by clause (v) above only;
(ii) then from the Loss Subaccount, with respect to the payments or
transfers contemplated by clauses (i) through (viii) above only; and
(iii) thereafter, from the Reserve Subaccount, then from the
Overcollateralization Subaccount and finally from the Capital Subaccount.
(e) On each Payment Date for any Series, the amounts on deposit in the
applicable 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,
shall be released to the Issuer free of the lien of Indenture) will be applied
as follows (in the priority indicated): (i) interest due and payable on the
Transition Bonds of such Series, together with any overdue interest and, to the
extent permitted by law, interest thereon, will be paid to the Holders of
Transition Bonds of such Series provided that with respect to a Class of such
Series for which a Swap Agreement is in effect and any payments due thereunder
from the applicable Counterparty are being received by the Issuer, only amounts
on deposit in the Class Subaccount therefor shall be so applied, (ii) the
balance, if any, up to the principal amount of the Transition Bonds of such
Series that is scheduled to be paid by such Payment Date in accordance with the
Expected Amortization Schedule therefor or, with respect to any Series of
Transition Bonds payable as a result of acceleration pursuant to Section 5.02 or
to be redeemed pursuant to Article X, the outstanding principal amount of such
Series and premium, if any, will be paid to the Holders of Transition Bonds of
such Series in respect of principal of and premium, if any, on the Transition
Bonds of such Series, and (iii) the balance, if any, will be 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 with respect to Classes of such Series for which a Swap
Agreement is in effect and any payments due thereunder from the applicable
Counterparty are being received by the Issuer (other than net income or other
gain, which, so long as no Event of Default has occurred and is continuing,
shall be released to the Issuer free of the lien of the Indenture) will be
allocated to the applicable Class Subaccount up to the gross amount, if any,
owed to the applicable Counterparty pursuant to the related Swap Agreement in
respect of regular fixed payments but not breakage or termination of such Swap
Agreement. On such day net amounts in respect of regular fixed payments, but not
breakage or termination of such Swap Agreement, owed to such Counterparty will
be paid from, or net amounts paid by such Counterparty will be deposited into,
such Class Subaccount. On the related Payment Date, remaining amounts in each
Class Subaccount will be paid as interest to the Holders of Transition Bonds of
the applicable Class.
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All payments to the Transition Bondholders of a Series pursuant to clauses
(i) and (ii) of the second preceding paragraph shall be made pro rata based on
the respective principal amounts of Transition Bonds of such Series held by such
Holders, unless, in the case of a Series comprised of two or more Classes, the
Series Supplement for such Series provides otherwise. All payments to Transition
Bondholders of a Class pursuant to clause (i) or (ii) of the second preceding
paragraph shall be made pro rata based on the respective principal amounts of
Transition Bonds of such Class held by such Holders. If on any Payment Date a
Counterparty has failed to fully pay amounts due to the Issuer under the
applicable Swap Agreement, then after all Series Subaccounts have accessed the
Reserve Subaccount pursuant to Section 8.01(d) the Bond Trustee shall transfer
amounts on deposit in the Reserve Subaccount up to the amount of such shortfall
attributable to the failure of the Swap Counterparty to the applicable Class
Subaccount, 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, such amounts will not be needed to cover any other
shortfalls on any Monthly Allocation Date prior to the next Adjustment Date.
(f) On the Liquidated Damages Redemption Date, the Bond Trustee shall by
12:00 noon (New York City time) apply all amounts on deposit in the Collection
Account and any investment earnings thereon since the immediately preceding
Monthly Allocation Date to pay the following amounts in the following priority:
(i) 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;
(ii) the Monthly Servicing Fee or the portion thereof 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;
(iii) all other Operating Expenses shall be paid to the Persons
entitled thereto, provided that as long as PECO Energy Company is Servicer
all amounts owed to the Servicer will be paid as per clause (v) below and
if PECO Energy Company is not the Servicer then any payments to the
Servicer pursuant to this clause (iii) shall not exceed $150,000;
(iv) the Redemption Price and accrued interest for each Series of
Transition Bonds shall be paid to Transition Bondholders of such Series and
any amounts due to any Counterparty pursuant to a Swap Agreement shall be
paid to such Counterparty;
(v) any other Operating Expenses owed to the Servicer not yet paid
shall be paid to the Servicer; and
(vi) the balance, if any, will be released to the Issuer, free from
the lien of this Indenture.
SECTION 8.03. Release of Collateral. (a) All money and other property
withdrawn from the Collection Account by the Bond Trustee for payment to the
Issuer as provided in this Indenture in accordance with Section 8.02 hereof
shall be deemed
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released from the Indenture when so withdrawn and applied in accordance with the
provisions of Article VIII, without further notice to, or release or consent by,
the Bond Trustee.
(b) So long as the Issuer is not in default hereunder, the Issuer, through
the Servicer, may collect, liquidate, sell or otherwise dispose of the
Transferred Intangible Transition Property, at any time and from time to time,
without any notice to, or release or consent by, the Bond Trustee, but only as
and to the extent permitted by the Basic Documents; provided, however, that any
and all proceeds of such dispositions shall become Collateral and be deposited
to the General Subaccount immediately upon receipt thereof by the Issuer or any
other Person, including the Servicer.
(c) Other than as provided for in clauses (a) and (b) above, the Bond
Trustee shall release property from the lien of this Indenture only upon receipt
of an Issuer Request accompanied by an Officer's Certificate, an Opinion of
Counsel and Independent Certificates in accordance with TIA ss.ss. 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.01 or an Opinion of
Counsel in lieu of such Independent Certificates to the effect that the TIA does
not require any such Independent Certificate.
(d) Subject to the payment of its fees and expenses pursuant to Section
6.07, the Bond Trustee may, and when required by the provisions of this
Indenture shall, execute instruments to release property from the lien of this
Indenture, or convey the Bond Trustee's interest in the same, in a manner and
under circumstances that are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Bond Trustee as
provided in this Article VIII shall be bound to ascertain the Bond Trustee's
authority, inquire into the satisfaction of any conditions precedent or see to
the application of any moneys.
(e) Subject to Section 8.03(c), the Bond Trustee shall, at such time as
there are no Transition Bonds Outstanding and all sums due the Bond Trustee
pursuant to Section 6.07 have been paid, release any remaining portion of the
Collateral that secured the Transition Bonds from the lien of this Indenture and
release to the Issuer or any other Person entitled thereto any funds then on
deposit in the Collection Account.
SECTION 8.04. Opinion of Counsel. The Bond Trustee shall receive at least
five Business Days notice when requested by the Issuer to take any action
pursuant to Section 8.03, accompanied by copies of any instruments involved, and
the Bond Trustee shall also require, as a condition to such action, an Opinion
of Counsel, in form and substance satisfactory to the Bond Trustee, stating the
legal effect of any such action, outlining the steps required to complete the
same, and concluding that all conditions precedent to the taking of such action
have been complied with and such action will not materially and adversely impair
the security for the Transition Bonds or the rights of the Transition
Bondholders in contravention of the provisions of this Indenture; provided,
however, that such Opinion of Counsel shall not be required to express an
opinion as to the fair value of the Collateral. Counsel rendering any such
opinion may rely, without independent investigation, on the accuracy and
validity of any certificate or other instrument delivered to the Bond Trustee in
connection with any such action.
SECTION 8.05. Reports by Independent Accountants. The Issuer shall appoint
a firm of Independent certified public accountants of recognized national
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reputation for purposes of preparing and delivering the reports or certificates
of such accountants required by this Indenture and the related Series
Supplements. Upon any resignation by such firm the Issuer shall promptly appoint
a successor thereto that shall also be a firm of Independent certified public
accountants of recognized national reputation. If the Issuer shall fail to
appoint a successor to a firm of Independent certified public accountants that
has resigned within 15 days after such resignation, the Bond Trustee shall
promptly notify the Issuer of such failure in writing. If the Issuer shall not
have appointed a successor within 10 days thereafter the Bond Trustee shall
promptly appoint a successor firm of Independent certified public accountants of
recognized national reputation. The fees of such firm of Independent certified
public accountants and its successor shall be payable by the Issuer.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Transition
Bondholders. (a) Without the consent of the Holders of any Transition Bonds or
any Counterparty but with prior notice to the Rating Agencies, the Issuer and
the Bond Trustee, when authorized by an Issuer Order, at any time and from time
to time, may enter into one or more indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act as in force at the date of
the execution thereof), in form satisfactory to the Bond Trustee, for any of the
following purposes:
(i) 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 this Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the
Transition Bonds contained;
(iii) 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 herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Bond Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be inconsistent with any
other provision herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided, however, that (i)
such action shall not, as evidenced by an Opinion of Counsel, adversely
affect in any material respect the interests of any Transition Bondholder
and (ii) the Rating Agency Condition shall have been satisfied with respect
thereto by all Rating Agencies other than Moody's (and prior written notice
of such action shall be provided to Moody's);
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(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor bond trustee with respect to the Transition Bonds
and to add to or change any of the provisions of this Indenture as shall be
necessary to facilitate the administration of the trusts hereunder by more
than one bond trustee, pursuant to the requirements of Article VI;
(vii) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA or under any similar Federal statute hereafter
enacted and to add to this Indenture such other provisions as may be
expressly required by the TIA;
(viii) to set forth the terms of any Series that has not theretofore
been authorized by a Series Supplement; or
(ix) 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 (i) such action shall
not, as evidenced by an opinion of counsel, adversely affect in any
material respect the interests of any Transition Bondholder and (ii) the
Rating Agency Condition shall have been satisfied with respect thereto by
all Rating Agencies other than Moody's (and prior written notice of such
action shall be provided to Moody's).
The Bond Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
(b) The Issuer and the Bond Trustee, when authorized by an Issuer Order,
may, also without the consent of any of the Holders of the Transition Bonds or
any Counterparty, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Transition Bonds under this Indenture;
provided, however, that (i) such action shall not, as evidenced by an Opinion of
Counsel, adversely affect the interests of any Transition Bondholder or any
Counterparty and (ii) the Rating Agency Condition shall have been satisfied with
respect thereto.
SECTION 9.02. Supplemental Indentures with Consent of Transition
Bondholders. The Issuer and the Bond Trustee, when authorized by an Issuer
Order, 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, by Act of such Holders
delivered to the Issuer and the Bond Trustee, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of the Holders of the Transition Bonds
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Transition Bond of
each Series or Class affected thereby and each Counterparty, if any, affected
thereby:
(i) change the date of payment of any instalment of principal of or
premium, if any, or interest on any Transition Bond, or reduce the
principal amount thereof, the interest rate thereon or the redemption price
or the premium,
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if any, with respect thereto, change the provisions of this Indenture and
the related applicable Series Supplement 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 the interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds available
therefor, as provided in Article V, to the payment of any such amount due
on the Transition Bonds on or after the respective due dates thereof (or,
in the case of redemption, on or after the Redemption Date);
(iii) reduce the percentage of the Outstanding Amount of the
Transition Bonds or of a Series or Class thereof, the consent of the
Holders of which is required for any such supplemental indenture, or the
consent of the Holders of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture or modify or alter the
provisions of the proviso to the definition of the term "Outstanding";
(iv) 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 pursuant to Section 5.04;
(v) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified or
waived without the consent of the Holder of each Outstanding Transition
Bond affected thereby;
(vi) modify any of the provisions of this Indenture in such 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 the Holders of Transition Bonds to the benefit of any provisions
for the mandatory redemption of the Transition Bonds contained herein or
change the Redemption Dates, Expected Amortization Schedules or Series
Termination Dates or Class Termination Dates of any Transition Bonds;
(vii) decrease the Overcollateralization Amount or Required Capital
Amount with respect to any Series or the Calculated Overcollateralization
Level with respect to any Payment Date;
(viii) modify or alter the provisions of this 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;
(ix) decrease the percentage of the aggregate principal amount of
Transition Bonds required to amend the sections of this Indenture which
specify the applicable percentage of the aggregate principal amount of the
Transition Bonds necessary to amend this Indenture or certain other related
agreements; or
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(x) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral
or, except as otherwise permitted or contemplated herein, terminate the
lien of this Indenture on any property at any time subject hereto or
deprive the Holder of any Transition Bond of the security provided by the
lien of this Indenture.
It shall not be necessary for any Act of Transition Bondholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Bond Trustee of any
supplemental indenture pursuant to this Section, the Bond Trustee shall mail to
the Holders of the Transition Bonds and any applicable Counterparty, in each
case to which such amendment or supplemental indenture relates, a notice setting
forth in general terms the substance of such supplemental indenture. Any failure
of the Bond Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Bond Trustee shall be entitled to receive, and subject to
Sections 6.01 and 6.02, shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Bond Trustee may, but shall not be obligated
to, enter into any such supplemental indenture that affects the Bond Trustee's
own rights, duties, liabilities or immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith with respect
to each Series or Class of Transition Bonds affected thereby, and the respective
rights, limitations of rights, obligations, duties, liabilities and immunities
under this Indenture of the Bond Trustee, the Issuer and the Holders of the
Transition Bonds shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and all
the terms and conditions of any such supplemental indenture shall be and be
deemed to be part of the terms and conditions of this Indenture for any and all
purposes.
SECTION 9.05. Conformity with Trust Indenture Act. Every amendment of this
Indenture and every supplemental indenture executed pursuant to this Article IX
shall conform to the requirements of the TIA as then in effect so long as this
Indenture shall then be qualified under the TIA.
SECTION 9.06. Reference in Transition Bonds to Supplemental Indentures.
Transition Bonds authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and if required by the
Bond Trustee shall, bear a notation in form approved by the Bond Trustee as to
any matter provided for in such supplemental indenture. If the Issuer or the
Bond Trustee shall so determine, new Transition Bonds so modified as to conform,
in the opinion of the Bond Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed
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by the Issuer and authenticated and delivered by the Bond Trustee in exchange
for Outstanding Transition Bonds.
ARTICLE X
Redemption of Transition Bonds
SECTION 10.01. Optional Redemption by Issuer. The Issuer may, at its
option, redeem the Transition Bonds of a Series, in whole or from time to time
in part, as permitted by the related Series Supplement on any Redemption Date at
a price specified in such Series Supplement (such price being called the
"Redemption Price") plus interest accrued on the Transition Bonds to be redeemed
to such Redemption Date. If the Issuer shall elect to redeem the Transition
Bonds of a Series pursuant to this Section 10.01, it shall furnish notice of
such election to the Bond Trustee not later than 25 days prior to the Redemption
Date for such redemption and shall deposit with the Bond Trustee the Redemption
Price of the Transition Bonds to be redeemed plus interest accrued thereon to
such Redemption Date on or prior to such Redemption Date whereupon all such
Transition Bonds shall be due and payable on such Redemption Date upon the
furnishing of a notice complying with Section 10.03 hereof to each Holder of the
Transition Bonds of such Series pursuant to this Section 10.01.
SECTION 10.02. Mandatory Redemption by Issuer. (a) The Issuer shall redeem
(i) the Transition Bonds of a Series on the Redemption Date or Dates, if any, in
the amounts required, if any, and at the Redemption Price specified in the
Series Supplement for such Series plus accrued interest thereon to such
Redemption Date and (ii) the Transition Bonds of all Series, if the Issuer
receives Liquidated Damages, on the Liquidated Damages Redemption Date at a
Redemption Price that shall be equal to the then outstanding principal amount of
the Transition Bonds as of the Liquidated Damages Redemption Date plus accrued
interest to such Redemption Date. If the Issuer is required to redeem the
Transition Bonds of a Series pursuant to this Section 10.02, it shall furnish
notice of such requirement to the Bond Trustee not later than 25 days prior to
the Redemption Date for such redemption and shall deposit with the Bond Trustee
the Redemption Price of the Transition Bonds to be redeemed whereupon all such
Transition Bonds shall be due and payable on the Redemption Date upon the
furnishing of a notice complying with Section 10.03 hereof to each Holder of the
Transition Bonds of such Series pursuant to this Section 10.02.
SECTION 10.03. Form of Redemption Notice. Unless otherwise specified in the
Series Supplement relating to a Series of Transition Bonds, notice of redemption
under Section 10.01 or 10.02 hereof shall be given by the Bond Trustee by
first-class mail, postage prepaid, mailed not less than five days nor more than
45 days prior to the applicable Redemption Date to each Holder of Transition
Bonds to be redeemed, as of the close of business on the Record Date preceding
the applicable Redemption Date at such Holder's address appearing in the
Transition Bond Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the amount of such Transition Bonds to be redeemed;
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(3) the Redemption Price; and
(4) the place where such Transition Bonds are to be surrendered for
payment of the Redemption Price and accrued interest (which shall be the
office or agency of the Issuer to be maintained as provided in Section 3.02
hereof).
Notice of redemption of the Transition Bonds to be redeemed shall be given
by the Bond Trustee in the name and at the expense of the Issuer. Failure to
give notice of redemption, or any defect therein, to any Holder of any
Transition Bond selected for redemption shall not impair or affect the validity
of the redemption of any other Transition Bond. Any notice of optional
redemption may be conditioned upon the deposit of sufficient moneys to pay the
Redemption Price and accrued interest with the Bond Trustee before the date
fixed for redemption and such notice shall be of no effect unless such moneys
are so deposited.
SECTION 10.04. Payment of Redemption Price. If (a) unconditional notice of
redemption has been duly mailed or duly waived by the Holders of all Transition
Bonds called for redemption or (b) conditional notice of redemption has been so
mailed or waived and the redemption moneys have been duly deposited with the
Bond Trustee, then in either case the Transition Bonds called for redemption
shall be payable on the applicable Redemption Date at the applicable Redemption
Price. No further interest will accrue on the principal amount of any Transition
Bonds called for redemption after the Redemption Date for such redemption if
payment of the Redemption Price thereof has been duly provided for, and the
Holder of such Transition Bonds will have no rights with respect thereto, except
to receive payment of the Redemption Price thereof and unpaid interest accrued
to the Redemption Date. Payment of the Redemption Price together with accrued
interest shall be made by the Bond Trustee to or upon the order of the Holders
of the Transition Bonds called for redemption upon surrender of such Transition
Bonds, and the Transition Bonds so redeemed shall cease to be of further effect
and the Lien hereunder shall be released with respect to such Transition Bonds.
ARTICLE XI
Miscellaneous
SECTION 11.01. Compliance Certificates and Opinions, etc. Upon any
application or request by the Issuer to the Bond Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Bond
Trustee (i) an Officer's Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with, (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with and (iii)
(if required by the TIA) an Independent Certificate from a firm of certified
public accountants meeting the applicable requirements of this Section, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
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(a) statement that each signatory of such certificate or opinion has read
or has caused to be read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such signatory, such signatory
has made such examination or investigation as is necessary to enable such
signatory to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such signatory, such
condition or covenant has been complied with.
SECTION 11.02. Form of Documents Delivered to Bond Trustee. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Servicer, the
Seller or the Issuer, stating that the information with respect to such factual
matters is in the possession of the Servicer, the Seller or the Issuer, unless
such Authorized Officer or counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Bond Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Bond Trustee's right to rely upon the truth and accuracy
of any statement or opinion contained in any such document as provided in
Article VI.
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SECTION 11.03. Acts of Transition Bondholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Transition Bondholders may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Transition Bondholders in person or by agents duly appointed in writing;
and except as herein otherwise expressly provided such action shall become
effective when such instrument or instruments are delivered to the Bond Trustee,
and, where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Transition Bondholders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.01) conclusive in favor of the Bond Trustee
and the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such instrument
or writing may be proved in any manner that the Bond Trustee deems sufficient.
(c) The ownership of Transition Bonds shall be proved by the Transition
Bond Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Transition Bonds shall bind the Holder of
every Transition Bond issued upon the registration thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered to
be done by the Bond Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Transition Bond.
SECTION 11.04. Notices, etc., to Bond Trustee, Issuer, Counterparties and
Rating Agencies. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Transition Bondholders or other documents provided or permitted
by this Indenture to be made upon, given or furnished to or filed with:
(a) the Bond Trustee by any Transition Bondholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing, delivered personally, via facsimile transmission, by
reputable overnight courier or by first-class mail, postage prepaid, to the
Bond Trustee at its Corporate Trust Office, or
(b) the Issuer by the Bond Trustee or by any Transition Bondholder
shall be sufficient for every purpose hereunder if in writing, delivered
personally, via facsimile transmission, by reputable overnight courier or
by first-class mail, postage prepaid, to the Issuer addressed to: c/o First
Union Trust Company, National Association, One Rodney Square, 920 King
Street, Wilmington, DE 19801, Attention: Corporate Trustee Administration
Department, or at any other address previously furnished in writing to the
Bond Trustee by the Issuer. The Issuer shall promptly transmit any notice
received by it from the Transition Bondholders to the Bond Trustee.
Notices required to be given to any Counterparty or the Rating Agencies by
the Issuer, the Bond Trustee or the Issuer Trustee shall be in writing,
delivered
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personally, via facsimile transmission, by reputable overnight courier or by
first-class mail, postage prepaid, to (i) in the case of a Counterparty, to the
address provided in the applicable Swap Agreement, (ii) in the case of Duff, at
the following address: Duff & Phelps Credit Rating Company, 55 E. Monroe Street,
35th Floor, Chicago, Illinois 60603, (iii) in the case of Fitch IBCA, at the
following address: Fitch IBCA, Inc., 1 State Street Plaza, New York, New York
IBCA 10004, Attention: ABS Surveillance, (iv) in the case of Moody's, at the
following address: Moody's Investors Service, Inc., Attention: ABS Monitoring
Department, 99 Church Street, New York, New York 10007 and (v) in the case of
Standard & Poor's, at the following address: Standard & Poor's Corporation, 26
Broadway (15th Floor), New York, New York 10004, Attention: Asset Backed
Surveillance Department.
SECTION 11.05. Notices to Transition Bondholders; Waiver. Where this
Indenture provides for notice to Transition Bondholders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and delivered by first-class mail, postage prepaid, to each
Transition Bondholder affected by such event, at their address as it appears on
the Transition Bond Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Transition Bondholders is given by mail, neither the failure to
mail such notice nor any defect in any notice so mailed to any particular
Transition Bondholder shall affect the sufficiency of such notice with respect
to other Transition Bondholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Transition Bondholders shall be filed with the Bond Trustee
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case it shall be impractical to deliver notice in accordance with the
first paragraph of this Section 11.05 to the Holders of Transition Bonds when
such notice is required to be given pursuant to any provision of this Indenture,
then any manner of giving such notice as shall be satisfactory to the Bond
Trustee shall be deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure to
give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.
SECTION 11.06. Alternate Payment and Notice Provisions. Notwithstanding any
provision of this Indenture or any of the Transition Bonds to the contrary, the
Issuer may enter into any agreement with any Holder of a Transition Bond
providing for a method of payment, or notice by the Bond Trustee or any Paying
Agent to such Holder, that is different from the methods provided for in this
Indenture for such payments or notices. The Issuer will furnish to the Bond
Trustee a copy of each such agreement and the Bond Trustee will cause payments
to be made and notices to be given in accordance with such agreements.
SECTION 11.07. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be
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included in this Indenture by any of the provisions of the TIA, such required
provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.08. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.09. Successors and Assigns. All covenants and agreements in this
Indenture and the Transition Bonds by the Issuer shall bind its successors and
permitted assigns, whether so expressed or not.
All agreements of the Bond Trustee in this Indenture shall bind its
successors.
SECTION 11.10. Separability. In case any provision in this Indenture or in
the Transition Bonds shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 11.11. Benefits of Indenture. Nothing in this Indenture or in the
Transition Bonds, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Transition Bondholders,
and any other party secured hereunder, and any other Person with an ownership
interest in any part of the Collateral, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 11.12. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Transition Bonds or this Indenture) payment need not be made on
such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the date on which nominally due, and no interest
shall accrue for the period from and after any such nominal date.
SECTION 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
SECTION 11.14. Counterparts. This Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
SECTION 11.15. Issuer Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer or the Bond Trustee on
the
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Transition Bonds or under this Indenture or any certificate or other writing
delivered in connection herewith or therewith, against (i) any owner of a
beneficial interest in the Issuer or (ii) any partner, owner, beneficiary,
agent, officer, director, employee or agent of the Bond Trustee, any holder of a
beneficial interest in the Issuer or the Bond Trustee or of any successor or
assign of the Bond Trustee, except as any such Person may have expressly agreed
(it being understood that none of the Bond Trustee's obligations are in its
individual capacity).
SECTION 11.16. No Petition. The Bond Trustee, by entering into this
Indenture, and each Transition Bondholder, by accepting a Transition Bond,
hereby covenant and agree that they will not at any time institute against the
Issuer, or join in any institution against the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Transition Bonds, this
Indenture or any of the Basic Documents.
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75
IN WITNESS WHEREOF, the Issuer and the Bond Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
PECO ENERGY TRANSITION TRUST,
by First Union Trust Company,
National Association,
not in its individual capacity but
solely as Issuer Trustee, Delaware
Trustee and Independent Trustee
by /s/ Edward L. Truitt
---------------------------------
Name: Edward L. Truitt
Title: Vice President
THE BANK OF NEW YORK,
by /s/ Cheryl L. Laser
---------------------------------
Name: Cheryl L. Laser
Title: Assistant Vice President
<PAGE>
SCHEDULE 1
Calculated Overcollateralization Level
Payment Date Required Overcollateralization Level
- ------------ ------------------------------------
September 1, 1999 4,210,526
March 1, 2000 8,421,053
September 1, 2000 12,631,579
March 1, 2001 16,842,105
September 1, 2001 21,052,632
March 1, 2002 25,263,158
September 1, 2002 29,473,684
March 1, 2003 33,684,211
September 1, 2003 37,894,737
March 1, 2004 42,105,263
September 1, 2004 46,315,789
March 1, 2005 50,526,316
September 1, 2005 54,736,842
March 1, 2006 58,947,368
September 1, 2006 63,157,895
March 1, 2007 67,368,421
September 1, 2007 71,578,947
March 1, 2008 75,789,474
September 1, 2008 80,000,000
<PAGE>
Monthly
Monthly Allocated
Allocation Date Overcollateralization Balance
----------------------- -----------------------------
April 1, 1999 0.00
May 1, 1999 236,715.80
June 1, 1999 944,952.06
July 1, 1999 1,885,868.18
August 1, 1999 2,978,348.10
September 1, 1999 4,210,526.32
October 1, 1999 5,166,912.03
November 1, 1999 5,928,603.39
December 1, 1999 6,556,455.60
January 1, 2000 7,133,295.37
February 1, 2000 7,753,819.46
March 1, 2000 8,421,052.63
April 1, 2000 9,127,508.85
May 1, 2000 9,814,294.02
June 1, 2000 10,466,865.26
July 1, 2000 11,120,398.85
August 1, 2000 11,834,292.07
September 1, 2000 12,631,578.95
October 1, 2000 13,375,258.64
November 1, 2000 14,109,402.75
December 1, 2000 14,768,502.95
January 1, 2001 15,388,824.02
February 1, 2001 16,076,033.96
March 1, 2001 16,842,105.26
April 1, 2001 17,548,526.84
May 1, 2001 18,235,913.21
June 1, 2001 18,888,614.77
July 1, 2001 19,541,185.78
August 1, 2001 20,254,225.57
September 1, 2001 21,052,631.58
October 1, 2001 21,809,339.98
November 1, 2001 22,564,553.96
December 1, 2001 23,242,799.88
<PAGE>
Monthly
Monthly Allocated
Allocation Date Overcollateralization Balance
----------------------- -----------------------------
January 1, 2002 23,881,011.04
February 1, 2002 24,557,450.01
March 1, 2002 25,263,157.89
April 1, 2002 25,972,911.53
May 1, 2002 26,660,428.53
June 1, 2002 27,312,447.88
July 1, 2002 27,963,663.43
August 1, 2002 28,675,430.69
September 1, 2002 29,473,684.21
October 1, 2002 30,155,508.86
November 1, 2002 30,909,346.95
December 1, 2002 31,606,330.20
January 1, 2003 32,266,967.51
February 1, 2003 32,963,585.70
March 1, 2003 33,684,210.53
April 1, 2003 34,394,275.20
May 1, 2003 35,081,816.29
June 1, 2003 35,733,767.35
July 1, 2003 36,384,801.42
August 1, 2003 37,096,428.27
September 1, 2003 37,894,736.84
October 1, 2003 38,696,640.73
November 1, 2003 39,458,633.84
December 1, 2003 40,129,592.95
January 1, 2004 40,757,444.67
February 1, 2004 41,419,236.83
March 1, 2004 42,105,263.16
April 1, 2004 42,815,279.19
May 1, 2004 43,502,810.71
June 1, 2004 44,154,771.28
July 1, 2004 44,805,845.66
August 1, 2004 45,517,503.81
September 1, 2004 46,315,789.47
October 1, 2004 47,124,228.08
<PAGE>
Monthly
Monthly Allocated
Allocation Date Overcollateralization Balance
----------------------- -----------------------------
November 1, 2004 47,886,347.36
December 1, 2004 48,555,621.75
January 1, 2005 49,181,446.35
February 1, 2005 49,841,427.03
March 1, 2005 50,526,315.79
April 1, 2005 51,236,290.13
May 1, 2005 51,923,825.60
June 1, 2005 52,575,793.44
July 1, 2005 53,226,866.00
August 1, 2005 53,938,531.49
September 1, 2005 54,736,842.11
October 1, 2005 55,520,778.56
November 1, 2005 56,274,801.98
December 1, 2005 56,943,030.98
January 1, 2006 57,569,661.53
February 1, 2006 58,238,909.05
March 1, 2006 58,947,368.42
April 1, 2006 59,657,181.37
May 1, 2006 60,345,000.80
June 1, 2006 60,997,043.22
July 1, 2006 61,647,639.63
August 1, 2006 62,358,945.52
September 1, 2006 63,157,894.74
October 1, 2006 63,959,599.62
November 1, 2006 64,722,390.54
December 1, 2006 65,395,667.45
January 1, 2007 66,026,407.74
February 1, 2007 66,687,684.16
March 1, 2007 67,368,421.05
April 1, 2007 68,080,588.14
May 1, 2007 68,768,850.35
June 1, 2007 69,420,456.72
July 1, 2007 70,069,417.84
August 1, 2007 70,779,312.49
<PAGE>
Monthly
Monthly Allocated
Allocation Date Overcollateralization Balance
----------------------- -----------------------------
September 1, 2007 71,578,947.37
October 1, 2007 72,477,223.32
November 1, 2007 73,245,706.99
December 1, 2007 73,894,515.67
January 1, 2008 74,494,676.77
February 1, 2008 75,128,180.71
March 1, 2008 75,789,473.68
April 1, 2008 76,501,530.98
May 1, 2008 77,189,952.50
June 1, 2008 77,841,602.11
July 1, 2008 78,490,297.29
August 1, 2008 79,199,998.08
September 1, 2008 80,000,000.00
================================================================================
PECO ENERGY TRANSITION TRUST,
Issuer
and
THE BANK OF NEW YORK,
Bond Trustee
------------------------------
SERIES SUPPLEMENT
Dated as of [ ], 2000
------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
SECTION 1. Definitions.............................................................2
SECTION 2. Designation; Series Issuance Dates......................................4
SECTION 3. Initial Principal Amount; Bond Rate; Expected
Final Payment Date; Series Termination Date; Class
Termination Dates......................................................4
SECTION 4. Payment Dates; Expected Amortization Schedule
for Principal; Interest; Overcollateralization
Amount; Monthly Allocated Balances.....................................5
SECTION 5. Authorized Initial Denominations........................................6
SECTION 6. Redemption..............................................................6
SECTION 7. Credit Enhancement......................................................7
SECTION 8. Amendments to Indenture.................................................7
SECTION 9. Delivery and Payment for the Series 1999-A
Transition Bonds; Form of the Series 1999-A
Transition Bonds.......................................................8
SECTION 10. Confirmation of Indenture...............................................8
SECTION 11. Counterparts............................................................8
SECTION 12. Governing Law...........................................................8
SECTION 13. Issuer Obligation.......................................................9
Schedule A Expected Amortization Schedule
Schedule B Monthly Allocated Balances
Exhibit A Form of Transition Bond
</TABLE>
<PAGE>
SERIES SUPPLEMENT dated as of [ ], 2000 (this
"Supplement"), by and between PECO ENERGY TRANSITION TRUST,
a Delaware statutory business trust (the "Issuer"), and THE
BANK OF NEW YORK, a New York banking corporation (the "Bond
Trustee"), as Bond Trustee under the Indenture dated as of
March 1, 1999, between the Issuer and the Bond Trustee (the
"Indenture").
PRELIMINARY STATEMENT
Section 9.01 of the Indenture provides, among other things, that the Issuer
and the Bond Trustee may at any time and from time to time enter into one or
more indentures supplemental to the Indenture for the purposes of authorizing
the issuance by the Issuer of a Series of Transition Bonds and specifying the
terms thereof and for modifying certain provisions of the Indenture. The Issuer
has duly authorized the execution and delivery of this Supplement and the
creation of a Series of Transition Bonds with an initial aggregate principal
amount of $[ ] to be known as the Issuer's Transition Bonds, Series [ ] (the
"Series [ ] Transition Bonds"). All acts and all things necessary to make the
Series [ ] Transition Bonds, when duly executed by the Issuer and authenticated
by the Bond Trustee as provided in the Indenture and this Supplement and issued
by the Issuer, the valid, binding and legal obligations of the Issuer and to
make this Supplement a valid and enforceable supplement to the Indenture have
been done, performed and fulfilled and the execution and delivery hereof have
been in all respects duly and lawfully authorized. The Issuer and the Bond
Trustee are executing and delivering this Supplement in order to provide for the
Series [ ] Transition Bonds and to modify certain provisions of the Indenture in
connection therewith.
In order to secure the payment of principal of and interest on the Series
[ ] Transition Bonds issued and to be issued under the Indenture and/or any
Series Supplement, the Issuer hereby Grants to the Bond Trustee as trustee for
the benefit of the Holders of the Transition Bonds from time to time issued and
outstanding, all of the Issuer's right, title and interest in and to (a) the
Intangible Transition Property transferred by the Seller to the Issuer from time
to time pursuant to the Sale Agreement and all proceeds thereof, (b) the Sale
Agreement except for Section 5.01 thereof solely to the extent such Section
provides for indemnification of the Issuer, (c) all Bills of Sale delivered by
the Seller pursuant to the Sale Agreement,
<PAGE>
2
(d) the Servicing Agreement except for Section 5.02(b) thereof solely to the
extent such Section provides for indemnification of the Issuer, (e) the
Collection Account and all amounts on deposit therein from time to time, (f) all
Swap Agreements with respect to the Series [ ] Transition Bonds, (g) all other
property of whatever kind owned from time to time by the Issuer including all
accounts, accounts receivable and chattel paper, (h) all present and future
claims, demands, causes and choses in action in respect of any or all of the
foregoing and (i) all payments on or under and all proceeds of every kind and
nature whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, general intangibles,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind, and
other forms of obligations and receivables, instruments and other property which
at any time constitute all or part of or are included in the proceeds of any of
the foregoing (collectively, the "Collateral").
To have and to hold in trust to secure the payment of principal of and
premium, if any, and interest on, and any other amounts (including all fees,
expenses, counsel fees and other amounts due and owing to the Bond Trustee)
owing in respect of, the Transition Bonds equally and ratably without prejudice,
preference, priority or distinction, except as expressly provided in the
Indenture or any Series Supplement and to secure performance by the Issuer of
all of the Issuer's obligations under the Indenture and all Series Supplements
with respect to the Transition Bonds, all as provided in the Indenture.
The Bond Trustee, as trustee on behalf of the Holders of the Transition
Bonds, acknowledges such Grant, accepts the trusts hereunder in accordance with
the provisions hereof and agrees to perform its duties required in the Indenture
and this Supplement.
SECTION 1. Definitions. (a) Article One of the Indenture provides that the
meanings of certain defined terms used in the Indenture shall, when applied to
the Transition Bonds of a particular Series, be as defined in Article One but
with such additional provisions as are specified in the related Series
Supplement. With respect to the Series [ ] Transition Bonds, the following
definitions shall apply:
<PAGE>
3
"Adjustment Date" shall mean initially each August 12th, until [ ] and on
such date and thereafter, the [ ]th day of each month.
"Authorized Initial Denominations" shall mean $1,000 and integral multiples
thereof.
"Bond Rate" has the meaning set forth in Section 3 of this Supplement.
"Calculation Date" means initially each May 14th, until [ ] and on such
date and thereafter the [ ]th day of each month.
"Class Termination Date" means, with respect to any Class of the Series [ ]
Transition Bonds, the termination date therefor, as specified in Section 3 of
this Supplement.
"Expected Amortization Schedule" means Schedule A to this Supplement.
"Expected Final Payment Date" means, with respect to any Class of the
Series [ ] Transition Bonds, the expected final payment date therefor, as
specified in Section 3 of this Supplement.
"Interest Accrual Period" means, with respect to any Payment Date, 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 such Payment Date.
"Monthly Allocated Interest Balance" has the meaning set forth in Section
4(e) of this Supplement.
"Monthly Allocated Principal Balance" has the meaning set forth in Section
4(e) of this Supplement.
"Overcollateralization Amount" has the meaning set forth in Section 4(e) of
this Supplement.
"Payment Date" has the meaning set forth in Section 4(a) of this
Supplement.
"Record Date" shall mean, with respect to any Payment Date, the close of
business on the day prior to such Payment Date.
<PAGE>
4
"Series Issuance Date" has the meaning set forth in Section 2(b) of this
Supplement.
"Series Termination Date" has the meaning set forth in Section 3 of this
Supplement.
"Servicing Fee Rate" shall mean 0.25% per annum so long as ITC Charges are
included in electric bills otherwise sent to Customers or, if ITC Charges are
not included in such bills, 1.50% per annum.
(b) All terms used in this Supplement that are defined in the Indenture,
either directly or by reference therein, have the meanings assigned to them
therein, except to the extent such terms are defined or modified in this
Supplement or the context clearly requires otherwise.
SECTION 2. Designation; Series Issuance Dates. (a) Designation. The Series
[ ] Transition Bonds shall be designated generally as the Issuer's Transition
Bonds, Series [ ] and further denominated as Classes A-1 through A-[4].
(b) Series Issuance Date. The Series [ ] Transition Bonds that are
authenticated and delivered by the Bond Trustee to or upon the order of the
Issuer on [ ], 2000 (the "Series Issuance Date") shall have as their date of
authentication [ ], 2000. Each other Series [ ] Transition Bond shall be dated
the date of its authentication.
SECTION 3. Initial Principal Amount; Bond Rate; Expected Final Payment
Date; Series Termination Date; Class Termination Dates. The Transition Bonds of
each Class of the Series [ ] Transition Bonds shall have the initial principal
amounts, bear interest at the rates per annum and shall have Expected Final
Payment Dates and Class Termination Dates as set forth below:
<TABLE>
<CAPTION>
Initial
Principal Bond Expected Final Class
Class Amount Rate Payment Date Termination Date
- ----- --------- ---- -------------- ----------------
<S> <C> <C> <C> <C>
A-1
A-2
A-3
A-4
</TABLE>
<PAGE>
5
The Bond Rate for each Class shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 4. Payment Dates; Expected Amortization Schedule for Principal;
Interest; Overcollateralization Amount; Monthly Allocated Balances. (a) Payment
Dates. The Payment Dates for each Class of the Series [ ] Transition Bonds are
March 1 and September 1 of each year or, if any such date is not a Business Day,
the next succeeding Business Day, commencing on [ , 2000] and continuing until
the earlier of repayment of such Class in full and the applicable Class
Termination Date.
(b) Expected Amortization Schedule for Principal. Unless an Event of
Default shall have occurred and be continuing and the unpaid principal amount of
all Series of Transition Bonds has been declared to be due and payable together
with accrued and unpaid interest thereon, on each Payment Date, the Bond Trustee
shall distribute to the Series [ ] Transition Bondholders of record as of the
related Record Date amounts payable in respect of the Series [ ] Transition
Bonds pursuant to Section 8.02(e) of the Indenture as principal, in accordance
with the Expected Amortization Schedule. Available funds in the Series __
Subaccount will be allocated in a sequential manner, to the extent funds are
available, as follows: (1) to the holders of the Series __ Transition Bonds,
Class A-1, until this Class is retired in full, (2) to the holders of the Series
__ Transition Bonds, Class A-2, until this Class is retired in full, (3) to the
holders of the Series __ Transition Bonds, Class A-3, until this Class is
retired in full, and (4) to the holders of the Series __ Transition Bonds, Class
A-4, until this Class is retired in full. Other than in the event of an
acceleration of payments following an Event of Default or a redemption, in no
event shall a principal payment pursuant to this Section 4(b) on any Class on a
Payment Date be greater than the amount that reduces the Outstanding Amount of
such Class of Series [ ] Transition Bonds to the amount specified in the
Expected Amortization Schedule which is attached as Schedule A hereto for such
Class and Payment Date. In the event of an acceleration of payments following an
Event of Default on the Series __ Transition Bonds, principal payments on each
Class of Series __ Transition Bonds will be made on a pro rata basis based on
the respective Outstanding Amount of each Class as of the prior Payment Date.
(c) Interest. Interest will be payable on each Class of the Series [ ]
Transition Bonds on each Payment Date in an amount equal to one-half of the
product of (i) the applicable Bond Rate and (ii) the Outstanding
<PAGE>
6
Amount of the related Class of Transition Bonds as of the close of business on
the preceding Payment Date after giving effect to all payments of principal made
to the holders of the related Class of Series [ ] Transition Bonds on such
preceding Payment Date; and provided, further, that with respect to the initial
Payment Date or, if no payment has yet been made, interest on the outstanding
principal balance will accrue from and including the Series Issuance Date to,
but excluding, the following Payment Date.
(d) Overcollateralization Amount. The Overcollateralization Amount for the
Series [ ] Transition Bonds shall be $[ ].
(e) Monthly Allocated Balances. The Monthly Allocated Interest Balance and
Monthly Allocated Principal Balance for any Monthly Allocation Date and the
Series [ ] Transition Bonds shall be as set forth in Schedule B hereto.
Not later than each Schedule Revision Date, the Issuer shall deliver to the
Bond Trustee replacement Schedules A and B hereto, adjusted to reflect the event
giving rise to such Schedule Revision Date and setting forth the Expected
Amortization Schedule for each Payment Date and the Monthly Allocated Interest
Balance and Monthly Allocated Principal Balance for each Monthly Allocation
Date; provided, however, that no such replacement schedules shall be required if
the event giving rise to such Schedule Revision Date is a redemption of the
Series [ ] Transition Bonds in whole.
SECTION 5. Authorized Initial Denominations. The Series [ ] Transition
Bonds shall be issuable in the Authorized Initial Denominations.
SECTION 6. Redemption. (a) Mandatory Redemption. The Series [ ] Transition
Bonds shall not be subject to mandatory redemption except as provided in Section
10.02 of the Indenture in the event that the Issuer receives Liquidated Damages.
If the Issuer receives Liquidated Damages from the Seller as a result of a
breach of a representation and warranty under the Sale Agreement which relates
to one of the Qualified Rate Orders, but not both of the Qualified Rate Orders,
then (i) only the Affected Transition Bonds will be redeemed and (ii) the
Redemption Price shall be equal to the then outstanding principal amount of the
Affected Transition Bonds as of the Liquidated Damages Redemption Date plus
accrued interest to such Redemption Date.
<PAGE>
7
(b) Optional Redemption. The Series [ ] Transition Bonds shall not be
subject to optional redemption by the Issuer except that the Series [ ]
Transition Bonds may be redeemed in whole at a Redemption Price equal to the
principal amount thereof plus interest at the applicable Bond Rate accrued to
the Redemption Date on any Payment Date on which the Outstanding Amount thereof
(after giving effect to payments that would otherwise be made on such Payment
Date) has been reduced to less than 5% of the initial principal balance thereof.
SECTION 7. Credit Enhancement. No credit enhancement (other than the
Overcollateralization Amount) is provided for the Series [ ] Transition Bonds.
SECTION 8. Amendments to Indenture. In connection with the issuance of the
Series [ ] Transition Bonds, the Indenture shall be amended as follows:
(a) Section 1.01(a) of the Indenture shall be amended by (i) amending the
definition of "Liquidated Damages" by deleting the phrase "5.01(c)(ii) or" in
the second line thereof; (ii) amending the definition of "Liquidated Damages
Redemption Date" by adding the word "Affected" after the phrase "for the
redemption of" in the second line thereof; (iii) amending the definition of
"Sale Agreement" by replacing the phrase "Intangible Transition Property Sale
Agreement dated as of March 25, 1999" with the phrase "Amended and Restated
Intangible Transition Property Sale Agreement dated as of [ ], 2000"; and (iv)
amending the definition of "Servicing Agreement" by replacing the phrase "Master
Servicing Agreement dated as of March 25, 1999" with the phrase "Amended and
Restated Master Servicing Agreement dated as of [ ], 2000".
(b) Section 1.01(b) of the Indenture shall be amended by (i) adding the
term "Affected Transition Bonds" in proper alphabetical order and (ii) replacing
the term "Qualified Rate Order" with the term "Qualified Rate Orders".
(c) Section 3.10(vi) of the Indenture shall be amended by replacing the
term "Qualified Rate Order" with the term "Qualified Rate Orders" in each of the
second line and third line thereof.
(d) Section 8.02(f) of the Indenture shall be amended by (i) adding the
following phrase at the end of clause (iv) thereof: "provided that if the Issuer
receives Liquidated Damages from the Seller as a result of a breach of a
representation and warranty under the Sale Agreement
<PAGE>
8
which relates to one of the Qualified Rate Orders, but not both of the Qualified
Rate Orders, then only the Redemption Price and accrued interest for the
Affected Transition Bonds shall be paid to Transition Bondholders of such
Series, and any amounts due to any Counterparty pursuant to a Swap Agreement
entered into in connection with the issuance of the Affected Transition Bonds
shall be paid to such Counterparty;" and (ii) adding the following phrase at the
end of clause (vi) thereof: "provided that if the Issuer receives Liquidated
Damages from the Seller as a result of a breach of a representation and warranty
under the Sale Agreement which relates to one of the Qualified Rate Orders, but
not both of the Qualified Rate Orders, then the balance, if any, will remain in
the Collection Account".
(e) Section 10.02(a) of the Indenture shall be amended by adding the
following phrase at the end of clause (ii) thereof: "; provided that if the
Issuer receives Liquidated Damages from the Seller as a result of a breach of a
representation and warranty under the Sale Agreement which relates to one of the
Qualified Rate Orders, but not both of the Qualified Rate Orders, then (1) only
the Affected Transition Bonds will be redeemed and (2) the Redemption Price
shall be equal to the then outstanding principal amount of the Affected
Transition Bonds as of the Liquidated Damages Redemption Date plus accrued
interest to such Redemption Date".
SECTION 9. Delivery and Payment for the Series [ ] Transition Bonds; Form
of the Series [ ] Transition Bonds. The Bond Trustee shall deliver the Series
[ ] Transition Bonds to the Issuer when authenticated in accordance with Section
2.02 of the Indenture. The Series [ ] Transition Bonds of each Class shall be in
the form of Exhibits A-1 through A-[4] hereto.
SECTION 10. Confirmation of Indenture. As supplemented by this Supplement,
the Indenture is in all respects ratified and confirmed and the Indenture, as so
supplemented by this Supplement, shall be read, taken, and construed as one and
the same instrument.
SECTION 11. Counterparts. This Supplement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
SECTION 12. Governing Law. This Supplement shall be construed in accordance
with the laws of the Commonwealth of Pennsylvania, without reference to its
conflict of law
<PAGE>
9
provisions, and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
SECTION 13. Issuer Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer or the Bond Trustee on
the Transition Bonds or under this Supplement or any certificate or other
writing delivered in connection herewith or therewith, against (i) any owner of
a beneficial interest in the Issuer or (ii) any partner, owner, beneficiary,
agent, officer, director or employee of the Bond Trustee, any holder of a
beneficial interest in the Issuer or the Bond Trustee or of any successor or
assign of the Bond Trustee, except as any such Person may have expressly agreed
(it being understood that none of the Bond Trustee's obligations are in its
individual capacity).
<PAGE>
10
IN WITNESS WHEREOF, the Issuer and the Bond Trustee have caused this
Supplement to be duly executed by their respective officers thereunto duly
authorized as of the first day of the month and year first above written.
PECO ENERGY TRANSITION TRUST,
by First Union Trust Company,
National Association, not in
its individual capacity but
solely as Issuer Trustee,
Delaware Trustee and
Independent Trustee
by
---------------------------
Name:
Title:
THE BANK OF NEW YORK, not in
its individual capacity but
solely as Bond Trustee on
behalf of the Transition
Bondholders,
by
----------------------------
Name:
Title:
<PAGE>
SCHEDULE A
Expected Amortization Schedule
Outstanding Principal Balance
<TABLE>
<CAPTION>
Payment Date Class A-1 Class A-2 Class A-3 Class A-4 Series 1999-A
- ---------------------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Series Issuance Date..
September 1, 2000.....
March 1, 2001.........
September 1, 2001.....
March 1, 2002.........
September 1, 2002.....
March 1, 2003.........
September 1, 2003.....
March 1, 2004.........
September 1, 2004.....
March 1, 2005.........
September 1, 2005.....
March 1, 2006.........
September 1, 2006.....
March 1, 2007.........
September 1, 2007.....
March 1, 2008.........
September 1, 2008.....
March 1, 2009.........
September 1, 2009.....
</TABLE>
<PAGE>
SCHEDULE B
Monthly Allocated Balances
<TABLE>
<CAPTION>
Monthly Allocated Monthly Allocated
Monthly Allocation Date Interest Balance Principal Balance
- -------------------------------------- ----------------- -----------------
<S> <C> <C>
May 1, 2000...........................
June 1, 2000..........................
July 1, 2000..........................
August 1, 2000........................
September 1, 2000.....................
October 1, 2000.......................
November 1, 2000......................
December 1, 2000......................
January 1, 2001.......................
February 1, 2001......................
March 1, 2001.........................
April 1, 2001.........................
May 1, 2001...........................
June 1, 2001..........................
July 1, 2001..........................
August 1, 2001........................
September 1, 2001.....................
October 1, 2001.......................
November 1, 2001......................
December 1, 2001......................
January 1, 2002.......................
February 1, 2002......................
March 1, 2002.........................
April 1, 2002.........................
May 1, 2002...........................
June 1, 2002..........................
July 1, 2002..........................
August 1, 2002........................
September 1, 2002.....................
October 1, 2002.......................
November 1, 2002......................
December 1, 2002......................
January 1, 2003.......................
February 1, 2003......................
March 1, 2003.........................
April 1, 2003.........................
May 1, 2003...........................
June 1, 2003..........................
July 1, 2003..........................
August 1, 2003........................
September 1, 2003.....................
October 1, 2003.......................
November 1, 2003......................
December 1, 2003......................
January 1, 2004.......................
February 1, 2004......................
March 1, 2004.........................
April 1, 2004.........................
May 1, 2004...........................
June 1, 2004..........................
July 1, 2004..........................
August 1, 2004........................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Monthly Allocated Monthly Allocated
Monthly Allocation Date Interest Balance Principal Balance
- -------------------------------------- ----------------- -----------------
<S> <C> <C>
September 1, 2004.....................
October 1, 2004.......................
November 1, 2004......................
December 1, 2004......................
January 1, 2005.......................
February 1, 2005......................
March 1, 2005.........................
April 1, 2005.........................
May 1, 2005...........................
June 1, 2005..........................
July 1, 2005..........................
August 1, 2005........................
September 1, 2005.....................
October 1, 2005.......................
November 1, 2005......................
December 1, 2005......................
January 1, 2006.......................
February 1, 2006......................
March 1, 2006.........................
April 1, 2006.........................
May 1, 2006...........................
June 1, 2006..........................
July 1, 2006..........................
August 1, 2006........................
September 1, 2006.....................
October 1, 2006.......................
November 1, 2006......................
December 1, 2006......................
January 1, 2007.......................
February 1, 2007......................
March 1, 2007.........................
April 1, 2007.........................
May 1, 2007...........................
June 1, 2007..........................
July 1, 2007..........................
August 1, 2007........................
September 1, 2007.....................
October 1, 2007.......................
November 1, 2007......................
December 1, 2007......................
January 1, 2008.......................
February 1, 2008......................
March 1, 2008.........................
April 1, 2008.........................
May 1, 2008...........................
June 1, 2008..........................
July 1, 2008..........................
August 1, 2008........................
September 1, 2008.....................
October 1, 2008.......................
November 1, 2008......................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Monthly Allocated Monthly Allocated
Monthly Allocation Date Interest Balance Principal Balance
- -------------------------------------- ----------------- -----------------
<S> <C> <C>
December 1, 2008......................
January 1, 2009.......................
February 1, 2009......................
March 1, 2009.........................
April 1, 2009.........................
May 1, 2009...........................
June 1, 2009..........................
July 1, 2009..........................
August 1, 2009........................
September 1, 2009.....................
October 1, 2009.......................
November 1, 2009......................
December 1, 2009......................
[ ]..........
</TABLE>
<PAGE>
EXHIBIT A
Form of Transition Bond
[To be provided]
REGISTERED $[ ]
No. ______
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
THE PRINCIPAL OF THIS CLASS [ ] TRANSITION BOND WILL BE PAID IN
INSTALMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT
OF THIS CLASS [ ] TRANSITION BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN
ON THE FACE HEREOF.
PECO ENERGY TRANSITION TRUST
TRANSITION BONDS, SERIES [ ], Class [ ].
Bond Original Principal Expected Final
Rate Amount Amortization Date
- ---- ------ -----------------
[ ]% $[ ] [ ], [ ]
PECO Energy Transition Trust, a statutory business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to the Registered Holder
hereof, or registered assigns, the Original Principal Amount shown above in
[monthly][quarterly][semi-annual] instalments on the Payment Dates and in the
amounts specified on the reverse hereof or, if less, the amounts determined
pursuant to Section 8.02(e) of the Indenture, in each year, commencing on the
date determined as provided on the reverse hereof and ending on or before the
Class Rated Final Payment Date, to pay the entire unpaid principal hereof on the
Class Final Maturity Date and to pay interest, at [the Bond Rate shown above][a
floating rate calculated as follows [insert formula]], on each [ ] or if any
such day is not a Business Day, the next succeeding Business Day, commencing on
[ ], 2000 and continuing until the earlier of the payment of the principal
hereof and the Class Termination Date (each a "Payment Date"), on the principal
amount of this Class [ ] Transition Bond outstanding from time to time. Interest
on this Class [ ] Transition Bond will accrue for each Payment Date from the
most recent
<PAGE>
2
Payment Date on which interest has been paid to but excluding such Payment Date
or, if no interest has yet been paid, from [ ], 2000. Interest will be computed
on the basis of [a 360-day year of twelve 30-day months]. Such principal of and
interest on this Class [ ] Transition Bond shall be paid in the manner specified
on the reverse hereof.
The principal of and interest on this Class [ ] Transition Bond are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts. All payments
made by the Issuer with respect to this Class [ ] Transition Bond shall be
applied first to interest due and payable on this Class [ ] Transition Bond as
provided above and then to the unpaid principal of and premium, if any, on this
Class [ ] Transition Bond, all in the manner set forth in Section 8.02(e) of the
Indenture.
Reference is made to the further provisions of this Class [ ]
Transition Bond set forth on the reverse hereof, which shall have the same
effect as though fully set forth on the face of this Class [ ] Transition Bond.
Unless the certificate of authentication hereon has been executed by
the Bond Trustee whose name appears below by manual signature, this Class [ ]
Transition Bond shall not be entitled to any benefit under the Indenture
referred to on the reverse hereof, or be valid or obligatory for any purpose.
<PAGE>
3
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by an Authorized Officer of the Issuer Trustee.
Date:
PECO ENERGY TRANSITION TRUST,
by First Union Trust Company,
National Association, not in
its individual capacity but
solely as Issuer Trustee,
by
---------------------------
Name:
Title:
<PAGE>
4
BOND TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: , 2000
-----------------
This is one of the Class [ ] Transition Bonds of the Series [ ]
Transition Bonds, designated above and referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
by
--------------------------
Authorized Signatory
<PAGE>
5
[REVERSE OF TRANSITION BOND]
This Series [ ], Class [ ] Transition Bond is one of a duly authorized
issue of Transition Bonds of the Issuer, designated as its Transition Bonds
(herein called the "Transition Bonds"), issued and to be issued in one or more
Series, which Series are issuable in one or more Classes, and this Series [ ]
Transition Bond, in which this Class [ ] Transition Bond represents an interest,
consists of [ ] Classes, including the Class [ ] Transition Bonds (herein called
the "Class [ ] Transition Bonds"), all issued and to be issued under an
indenture dated as of March 1, 1999, and a series supplement thereto dated as of
[ ], [2000] (such series supplement, as supplemented or amended, the
"Supplement" and, collectively with such indenture, as supplemented or amended,
the "Indenture"), each between the Issuer and The Bank of New York, as Bond
Trustee (the "Bond Trustee", which term includes any successor bond trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the Collateral property pledged, the
nature and extent of the security, the respective rights, obligations and
immunities thereunder of the Issuer, the Bond Trustee and the Holders of the
Transition Bonds and the terms and conditions under which additional Transition
Bonds may be issued. All terms used in this Class [ ] Transition Bond that are
defined in the Indenture, as supplemented or amended, shall have the meanings
assigned to them in the Indenture.
The Class [ ] Transition Bonds, the other Classes of Series [ ]
Transition Bonds and any other Series of Transition Bonds issued by the Issuer
are and will be equally and ratably secured by the Collateral pledged as
security therefor as provided in the Indenture.
The principal of this Class [ ] Transition Bond shall be payable on
each Payment Date only to the extent that amounts in the Collection Account are
available therefor, and only until the outstanding principal balance thereof on
such Payment Date (after giving effect to all payments of principal, if any,
made on such Payment Date) has been reduced to the principal balance specified
in the Expected Amortization Schedule which is attached to the Supplement as
Schedule A, unless payable earlier either because (i) an Event of Default shall
have occurred and be continuing and the Bond Trustee or the Holders of
Transition
<PAGE>
6
Bonds representing not less than a majority of the Outstanding Amount of the
Transition Bonds of all Series have declared the Transition Bonds to be
immediately due and payable in accordance with Section 5.02 of the Indenture,
(ii) the Issuer, at its option, shall have called for the redemption of the
Series [ ] Transition Bonds in whole or from time to time in part pursuant to
Section 10.01 of the Indenture [or][,] (iii) the Issuer shall have called for
the redemption of the Series [ ] Transition Bonds pursuant to Section 10.02 of
the Indenture if the Seller is required to pay Liquidated Damages pursuant to
Section 5.01(c) or (d) of the Sale Agreement [or (iv) the Issuer shall have
called for the redemption of the Series [ ] Transition Bond in whole or from
time to time in part pursuant to Section 6(a) or 6(b) of the Supplement].
However, actual principal payments may be made in lesser than expected amounts
and at later than expected times as determined pursuant to Section 8.02(e) of
the Indenture. The entire unpaid principal amount of this Class [ ] Transition
Bond shall be due and payable on the earlier of the Class Final Maturity Date
hereof and the Redemption Date, if any, herefor. Notwithstanding the foregoing,
the entire unpaid principal amount of the Transition Bonds shall be due and
payable, if not then previously paid, on the date on which an Event of Default
shall have occurred and be continuing and the Bond Trustee or the Holders of the
Transition Bonds representing not less than a majority of the Outstanding Amount
of the Transition Bonds have declared the Transition Bonds to be immediately due
and payable in the manner provided in Section 5.02 of the Indenture. All
principal payments on the Class [ ] Transition Bonds shall be made pro rata to
the Class [ ] Transition Bondholders entitled thereto based on the respective
principal amounts of the Class [ ] Transition Bonds held by them.
Payments of interest on this Class [ ] Transition Bond due and payable
on each Payment Date, together with the instalment of principal or premium, if
any, due on this Class [ ] Transition Bond on such Payment Date shall be made by
check mailed first-class, postage prepaid, to the Person whose name appears as
the Registered Holder of this Class [ ] Transition Bond (or one or more
Predecessor Transition Bonds) in the Transition Bond Register as of the close of
business on the Record Date or in such other manner as may be provided in the
Supplement, except that with respect to Class [ ] Transition Bonds registered on
the Record Date in the name of a Clearing Agency, payments will be made by wire
transfer in immediately available funds to
<PAGE>
7
the account designated by such Clearing Agency and except for the final
instalment of principal and premium, if any, payable with respect to this Class
[ ] Transition Bond on a Payment Date which shall be payable as provided below.
Such checks shall be mailed to the Person entitled thereto at the address of
such Person as it appears in the Transition Bond Register as of the applicable
Record Date without requiring that this Class [ ] Transition Bond be submitted
for notation of payment. Any reduction in the principal amount of this Class [ ]
Transition Bond (or any one or more Predecessor Transition Bonds) effected by
any payments made on any Payment Date shall be binding upon all future Holders
of this Class [ ] Transition Bond and of any Class [ ] Transition Bond issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Class [ ] Transition Bond on a Payment Date, then the
Bond Trustee, in the name of and on behalf of the Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final instalment will be payable only
upon presentation and surrender of this Class [ ] Transition Bond and shall
specify the place where this Class [ ] Transition Bond may be presented and
surrendered for payment of such instalment.
The Issuer shall pay interest on overdue instalments of interest on
this Class [ ] Transition Bond at the Class [ ] Bond Rate to the extent lawful.
As provided in the Indenture, the Class [ ] Transition Bonds may be
redeemed, in whole or from time to time in part, at the option of the Issuer on
any Redemption Date at the Redemption Price. In addition, as provided in the
Indenture, if the Seller is required to pay Liquidated Damages pursuant to
Section 5.01(c) or (d) of the Sale Agreement, the Issuer will be required to
redeem all outstanding Series of Transition Bonds, including the Class [ ]
Transition Bonds, on the Liquidated Damages Redemption Date. [The Issuer will
also be required to redeem the Class [ ] Transition Bonds in certain
circumstances as provided in Sections 6(a) and 6(b) of the Supplement.]
<PAGE>
8
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Class [ ] Transition Bond may be registered
in the Transition Bond Register upon surrender of this Class [ ] Transition Bond
for registration of transfer at the office or agency designated by the Issuer
pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Bond Trustee duly executed by
the Holder hereof or his attorney duly authorized in writing, with such
signature guaranteed by an Eligible Guarantor Institution, and thereupon one or
more new Class [ ] Transition Bonds of any Authorized Initial Denominations and
in the same aggregate initial principal amount will be issued to the designated
transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Class [ ] Transition Bond, but the
transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange.
Each Class [ ] Transition Bondholder, by acceptance of a Class [ ]
Transition Bond, covenants and agrees that no recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer or the Bond Trustee on
the Class [ ] Transition Bonds or under the Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) any
owner of a beneficial interest in the Issuer or (ii) any partner, owner,
beneficiary, agent, officer, director or employee of the Bond Trustee, any
holder of a beneficial interest in the Issuer or the Bond Trustee or of any
successor or assign of the Bond Trustee, except as any such Person may have
expressly agreed (it being understood that all of the Bond Trustee's obligations
are in its individual capacity).
Prior to the due presentment for registration of transfer of this Class
[ ] Transition Bond, the Issuer, the Bond Trustee and any agent of the Issuer or
the Bond Trustee may treat the Person in whose name this Class [ ] Transition
Bond is registered (as of the day of determination) as the owner hereof for the
purpose of receiving payments of principal of and premium, if any, and interest
on this Class [ ] Transition Bond and for all other purposes whatsoever, whether
or not this Class [ ] Transition Bond be overdue, and neither the Issuer, the
Bond
<PAGE>
9
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Transition Bonds under the Indenture
at any time by the Issuer with the consent of the Holders of Transition Bonds
representing a majority of the Outstanding Amount of all Transition Bonds at the
time Outstanding of each Series or Class to be affected. The Indenture also
contains provisions permitting the Holders of Transition Bonds representing
specified percentages of the Outstanding Amount of the Transition Bonds of all
Series, on behalf of the Holders of all the Transition Bonds, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Class [ ] Transition Bond (or any one of more
Predecessor Transition Bonds) shall be conclusive and binding upon such Holder
and upon all future Holders of this Class [ ] Transition Bond and of any Class [
] Transition Bond issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof whether or not notation of such consent or waiver is
made upon this Class [ ] Transition Bond. The Indenture also permits the Bond
Trustee to amend or waive certain terms and conditions set forth in the
Indenture without the consent of Holders of the Transition Bonds issued
thereunder.
The term "Issuer" as used in this Class [ ] Transition Bond includes
any successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Bond Trustee and the
Holders of Transition Bonds under the Indenture.
The Class [ ] Transition Bonds are issuable only in registered form in
Authorized Initial Denominations as provided in the Indenture and the
Supplement, subject to certain limitations therein set forth.
This Class [ ] Transition Bond, the Indenture and the Supplement shall
be construed in accordance with the laws of the Commonwealth of Pennsylvania,
without reference to its conflict of law provisions, and the obligations,
<PAGE>
10
rights and remedies of the parties hereunder and thereunder shall be determined
in accordance with such laws.
No reference herein to the Indenture and no provision of this Class [ ]
Transition Bond or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Class [ ] Transition Bond at the times, place, and rate, and in
the coin or currency herein prescribed.
<PAGE>
11
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number
of assignee
_____________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________________________________________
_______________________________________________________________________________
(name and address of assignee)
the within Class [ ] Transition Bond and all rights
thereunder, and hereby irrevocably constitutes and appoints
_____________________________________________________________________________,
attorney, to transfer said Class [ ] Transition Bond on the books kept for
registration thereof, with full power of substitution in the premises.
Dated: ______________ _____________________________*
Signature Guaranteed:
_____________________ ______________________________
___________
* NOTE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Class [ ]
Transition Bond in every particular, without alteration, enlargement or any
change whatsoever.
[Letterhead of Richards, Layton & Finger, P.A.]
March 2, 2000
PECO Energy Transition Trust
c/o First Union Trust Company, National Association
One Rodney Square
920 King Street, First Floor
Wilmington, Delaware 19801
Re: PECO Energy Transition Trust
----------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for PECO Energy Company, a
Pennsylvania corporation (the "Company"), and PECO Energy Transition Trust, a
Delaware business trust (the "Trust"), in connection with the matters set
forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as June 23, 1998
(the "Certificate"), as filed in the office of the Secretary of State of the
State of Delaware (the "Secretary of State") on June 23, 1998;
(b) The Trust Agreement of the Trust, dated as of June 23, 1998,
among the Company and the trustees of the Trust named therein;
(c) The Registration Statement on Form S-3, including a preliminary
prospectus (the "Prospectus") and prospectus supplement, relating to the
Series ___ $____ Transition Bonds of the Trust (the "Transition Bonds"), as
proposed to be filed by the Trust with
<PAGE>
PECO Energy Transition Trust
March 2, 2000
Page 2
the Securities and Exchange Commission on or about March 2, 2000 (the
"Registration Statement");
(d) The Amended and Restated Trust Agreement of the Trust, dated as
of February 19, 1999 (the "Amended Trust Agreement"), among the Company, as
grantor and owner, and the trustees of the Trust named therein;
(e) A form of Second Amended and Restated Trust Agreement of the
Trust (the "Trust Agreement"), among the Company, as grantor and owner, and
the trustees of the Trust named therein, attached as an exhibit to the
Registration Statement;
(f) A Memorandum, dated November 3, 1999 (the "Kelly Memorandum"),
reflecting the removal Diana Moy Kelly ("Kelly") as a Beneficiary Trustee;
(g) A letter, dated November 3, 1999 (the "Mitchell Substitution
Instrument"), reflecting the substitution of Barry Mitchell ("Mitchell") as a
Beneficiary Trustee;
(h) A Memorandum, dated March 1, 2000 (the "Mitchell Memorandum"),
reflecting the removal Mitchell as a Beneficiary Trustee;
(i) A letter, dated March 1, 2000 (the "Miller Substitution
Instrument"), reflecting the substitution of Thomas R. Miller as a
Beneficiary Trustee;
(j) The Indenture, dated as of March 1, 1999 (the "Base Indenture"),
between the Trust and The Bank of New York;
(k) A form of Series Supplement (jointly with the Base Indenture, the
"Indenture"), between the Trust and The Bank of New York, attached as an
exhibit to the Registration Statement; and
(l) A Certificate of Good Standing for the Trust, dated March 2,
2000, obtained from the Secretary of State.
Capitalized terms used herein and not otherwise defined are used as
defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (l) above, which we
believe are all of the documents necessary or appropriate for us to have
considered for the purposes of the opinions stated herein.
<PAGE>
PECO Energy Transition Trust
March 2, 2000
Page 3
We have not reviewed any document (other than the documents listed in
paragraphs (a) through (l) above) that is referred to in or incorporated by
reference into the documents reviewed by us. We have conducted no independent
factual investigation of our own but rather have relied solely upon the
foregoing documents, the statements and information set forth therein and the
additional matters recited or assumed herein, all of which we have assumed to
be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii)
the conformity with the originals of all documents submitted to us as copies
or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement and the Certificate are in full force and effect and have not been
amended, (ii) that there are no proceedings pending or contemplated for the
merger, consolidation, conversion, dissolution or termination of the Trust,
(iii) except to the extent provided in paragraph 1 below, that each party to
documents examined by us has been duly created, organized or formed, as the
case may be, and is validly existing in good standing under the laws of the
jurisdiction governing its creation, organization or formation, (iv) the
legal capacity of natural persons who are parties to the documents examined
by us, (v) except to the extent provided in paragraph 2 below, that each of
the parties to the documents examined by us has the power and authority to
execute and deliver, and to perform its obligations under, such documents,
(vi) except to the extent provided in paragraph 3 below, that each of the
documents examined by us has been duly authorized, executed and delivered by
all parties thereto, (vii) that the Kelly Memorandum reflects that Kelly was
removed as Beneficiary Trustee by the Company as Grantor and that the
Mitchell Substitution Instrument was delivered to Kelly in accordance with
Section 11.01(b) of the Amended Trust Agreement, (viii) that the Mitchell
Memorandum reflects that Mitchell was removed as Beneficiary Trustee by the
Company as Grantor and that the Miller Substitution Instrument was delivered
to Mitchell in accordance with Section 11.01(b) of the Amended Trust
Agreement, (ix) that any amendment or restatement of any document reviewed by
us has been accomplished in accordance with, and was permitted by, the
relevant provisions of said document prior to its amendment or restatement
form time to time, and (x) that the Transition Bonds are issued and delivered
in accordance with the provisions of a qualified rate order. We have not
participated in the preparation of the Registration Statement (other than
Exhibits 5.1 and 23.2 thereto) and assume no responsibility for its contents
(other than Exhibits 5.1 and 23.2 thereto).
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on
<PAGE>
PECO Energy Transition Trust
March 2, 2000
Page 4
the laws of any other jurisdiction, including federal laws and rules
and regulations relating thereto. Our opinions are rendered only with respect
to Delaware laws and rules, regulations and orders thereunder that are
currently in effect.
Based upon the foregoing, and upon our examination of such questions
of law and statutes of the State of Delaware as we have considered necessary
or appropriate, and subject to the assumptions, qualifications, limitations
and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Business Trust Act.
2. Under the Business Trust Act and the Trust Agreement, the Trust
has all necessary trust power and authority to execute and deliver the
Indenture and to issue the Transition Bonds, and to perform its obligations
under the Indenture and the Transition Bonds.
3. Under the Business Trust Act and the Trust Agreement, the
execution and delivery by the Trust of the Indenture and the Transition
Bonds, and the performance by the Trust of its obligations under the
Indenture and the Transition Bonds, have been duly authorized by all
necessary trust action on the part of the Trust.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In addition,
we hereby consent to the use of our name under the heading "Legal Matters" in
the Prospectus. We also consent to Ballard Spahr Andrews & Ingersoll's
relying as to matters of Delaware law upon this opinion in connection with
its rendering of an opinion to be attached as an exhibit to the Registration
Statement. In giving the foregoing consents, we do not thereby admit that we
come within the category of Persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
-----------------------------------
BJK/MKS
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
March 3, 2000
PECO Energy Transition Trust
c/o First Union Trust Company, National Association
One Rodney Square
920 King Street
Wilmington, Delaware 19801
Re: PECO Energy Transition Trust
----------------------------
Ladies and Gentlemen:
We have acted as special counsel to PECO Energy Transition Trust, a
Delaware statutory business trust (the "Trust"), in connection with the
preparation of the Registration Statement filed on Form S-3 on the date hereof
(the "Registration Statement") with the Securities and Exchange Commission (the
"Commission") in connection with the registration under the Securities Act of
1933, as amended, of Transition Bonds (the "Transition Bonds") of the Trust to
be offered from time to time as described in the form of the prospectus (the
"Prospectus") included as part of the Registration Statement. Each term used in
this letter and not defined has the meaning given to such term in the
Prospectus.
We are familiar with the proceedings taken and proposed to be taken by the
Trust in connection with the proposed authorization, issuance and sale of the
Transition Bonds. In this connection, we have examined and relied upon such
trust records and other documents, instruments and certificates and have made
such other investigation as we deemed appropriate as the basis for the opinion
set forth below. In our examination, we have assumed legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of such original documents.
We have relied on the opinion of Richards, Layton & Finger, P.A. filed
contemporaneously herewith for all matters of Delaware law.
The opinions expressed below are based on the following assumptions:
<PAGE>
PECO Energy Transition Trust
March 3, 2000
Page 2
(a) The Registration Statement will become effective;
(b) The proposed transactions are carried out on the basis set forth in the
Registration Statement;
(c) Prior to the issuance of any series or class of Transition Bonds:
(i) all necessary orders, approvals and authorizations for the
Trust's purchase from time to time of intangible transition
property from PECO Energy Company, a Pennsylvania corporation,
in exchange for the proceeds from the issuance of Transition
Bonds will have been obtained by the Trust;
(ii) the supplemental indenture for the Transition Bonds issued under
the Registration Statement (the "Supplemental Indenture") will
have been executed and delivered by the Trust's authorized
representative and The Bank of New York, as trustee;
(iii) the maturity dates, the bond rates, the redemption provisions
and the other terms of the Transition Bonds being offered will
be fixed in accordance with the terms of the Indenture dated as
of March 1, 1999 between the Trust and The Bank of New York, as
trustee;
(iv) the Amended and Restated Intangible Transition Property Sale
Agreement between the Trust and PECO Energy Company, as Seller,
will have been executed and delivered; and
(v) the Amended and Restated Master Servicing Agreement between the
Trust and PECO Energy Company, as Servicer, will have been
executed and delivered.
(d) The Supplemental Indenture will be qualified in accordance with the
provisions of the Trust Indenture Act of 1939, as amended.
Based on the foregoing, we are of the opinion that, when properly executed,
authenticated, delivered and paid for as provided in the indenture and upon
satisfaction of all conditions contained in the indenture and the underwriting
agreement (a form of which will be filed as Exhibit 1.1 to the Registration
Statement), the Transition Bonds will be legally issued, valid and binding
obligations of the Trust.
<PAGE>
PECO Energy Transition Trust
March 3, 2000
Page 3
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the references to this firm under the headings "Legal Matters"
and "Risk Factors" in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
March 3, 2000
PECO Energy Transition Trust
c/o First Union Trust Company, National Association
One Rodney Square
920 King Street
Wilmington, Delaware 19801
Re: PECO Energy Transition Trust
----------------------------
Ladies and Gentlemen:
We have acted as special counsel to PECO Energy Transition Trust, a
Delaware statutory business trust (the "Trust"), in connection with the
preparation of the Registration Statement, as amended to the date hereof, filed
on Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of Transition Bonds of the Trust to be offered from time to time as
described in the prospectus and the prospectus supplement (collectively, the
"Prospectus") included as part of the Registration Statement.
We hereby adopt and confirm to you our opinion as set forth under the
headings "Summary of Terms - Tax Status,""Prospectus Summary - Tax Status,"
"United States Taxation" and "Material Commonwealth of Pennsylvania Tax Matters"
in the Prospectus, and hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and the references to this firm under the
headings "Summary of Terms - Tax Status," "Prospectus Summary - Tax Status,"
"United States Taxation" and "Material Commonwealth of Pennsylvania Tax Matters"
in the Prospectus.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
INTANGIBLE TRANSITION PROPERTY
SALE AGREEMENT
between
PECO ENERGY TRANSITION TRUST
Issuer
and
PECO ENERGY COMPANY
Seller
Dated as of [ ], 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
SECTION 1.01. Definitions....................................................2
SECTION 1.02. Other Definitional Provisions..................................9
ARTICLE II
Conveyance of Intangible Transition Property
SECTION 2.01. Conveyance of Initial Intangible
Transition Property...........................10
SECTION 2.02. Conveyance of Subsequent Intangible
Transition Property...........................11
SECTION 2.03. Conditions to Conveyance of Intangible
Transition Property...........................11
ARTICLE III
Representations and Warranties of Seller
SECTION 3.01. Organization and Good Standing.............................14
SECTION 3.02. Due Qualification..........................................14
SECTION 3.03. Power and Authority........................................15
SECTION 3.04. Binding Obligation.........................................15
SECTION 3.05. No Violation...............................................15
SECTION 3.06. No Proceedings.............................................16
SECTION 3.07. Approvals..................................................17
SECTION 3.08. The Intangible Transition Property.........................17
ARTICLE IV
Covenants of the Seller
SECTION 4.01. Corporate Existence........................................23
SECTION 4.02. No Liens or Conveyances....................................23
SECTION 4.03. Delivery of Collections....................................24
SECTION 4.04. Notice of Liens............................................24
SECTION 4.05. Compliance with Law........................................25
SECTION 4.06. Covenants Related to Intangible Transition
Property......................................25
SECTION 4.07. Notice of Indemnification Events...........................27
SECTION 4.08. Protection of Title........................................27
SECTION 4.09. Taxes......................................................28
<PAGE>
Contents, p. ii
Page
----
ARTICLE V
The Seller
SECTION 5.01. Liability of Seller; Indemnities and
Liquidated Damages............................29
SECTION 5.02. Merger or Consolidation of, or Assumption
of the Obligations of, Seller.................36
SECTION 5.03. Limitation on Liability of Seller
and Others....................................38
SECTION 5.04. Opinions of Counsel........................................39
ARTICLE VI
Miscellaneous Provisions
SECTION 6.01. Amendment..................................................40
SECTION 6.02. Notices....................................................41
SECTION 6.03. Assignment.................................................42
SECTION 6.04. Limitations on Rights of Others............................42
SECTION 6.05. Severability...............................................42
SECTION 6.06. Separate Counterparts......................................42
SECTION 6.07. Headings...................................................43
SECTION 6.08. Governing Law..............................................43
SECTION 6.09. Assignment to Bond Trustee.................................43
SECTION 6.10. Nonpetition Covenant.......................................44
SECTION 6.11. Limitation of Liability of Issuer Trustee..................44
SECTION 6.12. Perfection.................................................45
<PAGE>
AMENDED AND RESTATED INTANGIBLE TRANSITION PROPERTY SALE
AGREEMENT dated as of [ ], 2000, between PECO ENERGY
TRANSITION TRUST, a Delaware business trust (the
"Issuer"), and PECO ENERGY COMPANY, a Pennsylvania
corporation, and its successors in interest to the
extent permitted hereunder, as Seller (the "Seller").
WHEREAS the Issuer desires to purchase from time to time Intangible
Transition Property created pursuant to the Statute and the Qualified Rate
Orders;
WHEREAS the Seller is willing to sell Intangible Transition Property to the
Issuer;
WHEREAS the Issuer, in order to finance the purchase of the Transferred
Intangible Transition Property, will from time to time issue Transition Bonds
under the Indenture;
WHEREAS the Issuer, to secure its obligations under all Transition Bonds
and the Indenture, will pledge its right, title and interest in the Transferred
Intangible Transition Property to the Bond Trustee for the benefit of the
Transition Bondholders; and
WHEREAS the Issuer has determined that the transactions contemplated by the
Basic Documents are in the best interest of the Issuer and its creditors and
represent
<PAGE>
2
a prudent and advisable course of action that does not impair the rights and
interests of the Issuer's creditors.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. (a) Whenever used in this Agreement, each of the
following words and phrases shall have the following meaning:
"Addition Notice" means, with respect to the transfer of Subsequent
Intangible Transition Property to the Issuer pursuant to Section 2.02, notice,
which shall be given by the Seller to the Issuer and the Rating Agencies not
later than 10 days prior to the related Subsequent Transfer Date, specifying the
Subsequent Transfer Date for such Subsequent Intangible Transition Property.
"Affected Transition Bonds" means all of the Transition Bonds; provided
that if the Seller is obligated pursuant to Section 5.01(d)(i) to pay amounts
for deposit into the General Subaccount of the Collection Account for a breach
of a representation or warranty which relates to one Qualified Rate Order (such
Qualified Rate Order, a "Breaching QRO"), but not both of the Qualified Rate
Orders,
<PAGE>
3
then "Affected Transition Bonds" shall mean only the Series of Transition Bonds
issued in connection with the Breaching QRO.
"Agreement" means this Amended and Restated Intangible Transition Property
Sale Agreement, as the same may be amended and supplemented from time to time.
"Bill of Sale" means a bill of sale substantially in the form of Exhibit A
hereto.
"Breaching QRO" has the meaning specified in the definition of Affected
Transition Bonds.
"Business Day" has the meaning specified in the Master Servicing Agreement.
"Competitive Transition Charges" has the meaning specified in the Master
Servicing Agreement.
"Corporate Trust Office" means,(i) with respect to the Bond Trustee, 101
Barclay Street, Floor 12 East, New York, New York 10286, Attention: Asset Backed
Finance Unit, or the principal corporate trust office of any successor Bond
Trustee (the address of which the successor Bond Trustee will notify the
Transition Bondholders and the Issuer), and (ii) with respect to the Issuer
Trustee, c/o First Union Trust Company, National Association, One Rodney Square,
920 King Street, Wilmington, Delaware 19801.
"Customers" has the meaning specified in the Master Servicing Agreement.
<PAGE>
4
"De Minimis Loss Amount" has the meaning specified in Section 5.01(d)(iii).
"Duff" has the meaning specified in the Master Servicing Agreement.
"Fitch IBCA" has the meaning specified in the Master Servicing Agreement.
"Indemnification Event" has the meaning specified in Section 5.01(c)(i).
"Indenture" means the Indenture dated as of March 1, 1999, between the
Issuer and The Bank of New York, as the same may be amended and supplemented
from time to time.
"Initial Intangible Transition Property" means the Intangible Transition
Property, as identified in the related Bill of Sale, sold to the Issuer on the
Initial Transfer Date pursuant to this Agreement in connection with the issuance
of the Series 1999-A Transition Bonds.
"Initial Loss Calculation Date" has the meaning specified in Section
5.01(c)(ii).
"Initial Transfer Date" means March 25, 1999.
"Intangible Transition Charges" has the meaning specified in the Master
Servicing Agreement.
"Intangible Transition Property" has the meaning specified in the Master
Servicing Agreement.
"ITC Collections" has the meaning specified in the Master Servicing
Agreement.
<PAGE>
5
"Lien" has the meaning specified in the Master Servicing Agreement.
"Liquidated Damages Amount" means an amount equal to the sum of (i) all
amounts due to the Bond Trustee or the Issuer Trustee in respect of expenses or
indemnity payments, (ii) the then outstanding principal amount of the Affected
Transition Bonds as of the Liquidated Damages Redemption Date and unpaid
interest accrued thereon to such date, (iii) amounts due to the Issuer in
respect of any other fees or Operating Expenses of the Issuer or indemnity
payments and (iv) amounts due to any Counterparty in respect of the termination
of a Swap Agreement related to the Affected Transition Bonds.
"Liquidated Damages Payment Date" means the date that is (i) 90 days after
the date of a breach of a representation or warranty specified in Section
3.08(b),(c),(d)(i), (d)(ii), (d)(iv) or (f) if the Seller (A) has the long term
debt ratings specified by, and enters into the binding agreement described in,
Section 5.01(d)(i)(B)(i) or (B) does not have such long term debt ratings but
makes the deposit required by Section 5.01(d)(i)(B)(ii) or (ii) in all other
cases, two Business Days after the date of such breach.
"Losses" has the meaning specified in the Master Servicing Agreement.
<PAGE>
6
"Master Servicing Agreement" means the Amended and Restated Master
Servicing Agreement dated as of [ ], 2000, among the Issuer, the Servicer and
any Other Issuers, as the same may be amended and supplemented from time to
time.
"Monthly Allocation Date" has the meaning specified in the Master Servicing
Agreement.
"Moody's" has the meaning specified in the Master Servicing Agreement.
"Mortgage" has the meaning specified in the Master Servicing Agreement.
"Officers' Certificate" means a certificate signed by (a) the chairman of
the board, the president, the vice chairman of the board, the executive vice
president or any vice president and (b) a treasurer, assistant treasurer,
secretary or assistant secretary, in each case of the Seller or the Servicer, as
appropriate.
"Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to the Seller or the Servicer, which counsel shall
be reasonably acceptable to the Bond Trustee, the Issuer or the Rating Agencies,
as applicable, and which shall be in form reasonably satisfactory to the Bond
Trustee, if applicable.
"Other Issuer" means any Person other than the Issuer that issues Other
Transition Bonds secured by
<PAGE>
7
Intangible Transition Property sold by the Seller to such Person in accordance
with Section 4.02 of this Agreement.
"Other Transition Bonds" means "transition bonds" (as defined in the
Statute) issued by any Other Issuer.
"PECO Energy" has the meaning specified in the Master Servicing Agreement.
"PUC" has the meaning specified in the Master Servicing Agreement.
"PUC Regulations" has the meaning specified in the Master Servicing
Agreement.
"Qualified Rate Orders" has the meaning specified in the Master Servicing
Agreement.
"Qualified Transition Expenses" has the meaning specified in the Master
Servicing Agreement.
"Rate Class" has the meaning specified in the Master Servicing Agreement.
"Retained Intangible Transition Property" means Intangible Transition
Property other than (i) the Transferred Intangible Transition Property and (ii)
any Intangible Transition Property sold to Other Issuers.
"Serviced Intangible Transition Property" has the meaning specified in the
Master Servicing Agreement.
"Servicer" means PECO Energy, as the servicer of the Intangible Transition
Property, and each successor to PECO Energy (in the same capacity) pursuant to
Section 5.03 or 6.04 of the Master Servicing Agreement.
<PAGE>
8
"Servicer Default" means an event specified in Section 6.01 of the Master
Servicing Agreement.
"Standard & Poor's" has the meaning specified in the Master Servicing
Agreement.
"Statute" has the meaning specified in the Master Servicing Agreement.
"Subsequent Intangible Transition Property" means Intangible Transition
Property, as identified in the related Bill of Sale, sold to the Issuer on any
Subsequent Transfer Date in connection with the issuance of a Series of
Transition Bonds.
"Subsequent Transfer Date" means any date on which Subsequent Intangible
Transition Property is to be transferred to the Issuer pursuant to Section 2.02.
"Third Party" has the meaning specified in the Master Servicing Agreement.
"Transferred Intangible Transition Property" means, collectively, the
Initial Intangible Transition Property and any Subsequent Intangible Transition
Property.
"Trust Agreement" means the Second Amended and Restated Trust Agreement
dated as of [ ], 2000, among the Seller, the Issuer Trustee and the other
trustees named therein, as the same may be amended and supplemented from time to
time.
"UCC" has the meaning specified in the Master Servicing Agreement.
<PAGE>
9
(b) Except as otherwise specified herein or as the context may otherwise
require, each of the following terms has the meaning set forth in the Indenture
for all purposes of this Agreement, and the definitions of such terms are
equally applicable both to the singular and plural forms of such terms:
Term Section of the Indenture
- ---- ------------------------
Adjustment Date............................................. 1.01(a)
Affiliate................................................... 1.01(a)
Basic Documents............................................. 1.01(a)
Bond Trustee................................................ 1.01(a)
Capital Subaccount.......................................... 1.01(a)
Collateral.................................................. 1.01(a)
Collection Account.......................................... 1.01(a)
Counterparty................................................ 1.01(a)
General Subaccount.......................................... 1.01(a)
Holders or Transition
Bondholders . . . . . . . . . 1.01(a)
Issuer Trustee.............................................. 1.01(a)
Liquidated Damages.......................................... 1.01(a)
Liquidated Damages Redemption
Date...................................................... 1.01(a)
Loss Subaccount............................................. 1.01(a)
Monthly Servicing Fee....................................... 1.01(a)
Operating Expenses.......................................... 1.01(a)
Overcollateralization Amount................................ 1.01(a)
Person...................................................... 1.01(a)
Rating Agency............................................... 1.01(a)
Rating Agency Condition..................................... 1.01(a)
Reserve Subaccount.......................................... 1.01(a)
Series...................................................... 1.01(a)
Swap Agreement.............................................. 1.01(a)
Transition Bonds............................................ 1.01(a)
SECTION 1.02. Other Definitional Provisions. (a) The words "hereof",
"herein", "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular
<PAGE>
10
provision of this Agreement; Section, Schedule and Exhibit references contained
in this Agreement are references to Sections, Schedules and Exhibits in or to
this Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation".
(b) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
ARTICLE II
Conveyance of Intangible Transition Property
SECTION 2.01. Conveyance of Initial Intangible Transition Property. (a) In
consideration of the Issuer's delivery to or upon the order of the Seller of
$3,994,560,476, subject to the conditions specified in Section 2.03, the Seller
does hereby irrevocably sell, transfer, assign, set over and otherwise convey to
the Issuer, without recourse (subject to the obligations herein), all right,
title and interest of the Seller in and to the Initial Intangible Transition
Property (such sale, transfer, assignment, set over and conveyance of the
Initial Intangible Transition Property includes, to the fullest extent permitted
by the Statute, the assignment of all revenues, collections, claims, rights,
payments, money or proceeds of or arising from the Intangible Transition
<PAGE>
11
Charges related to the Initial Intangible Transition Property, as the same may
be adjusted from time to time). Such sale, transfer, assignment, set over and
conveyance is hereby expressly stated to be a sale and, pursuant to Section
2812(e) of the Statute, shall be treated as an absolute transfer of all of the
Seller's right, title and interest (as in a true sale), and not as a pledge or
other financing, of the Initial Intangible Transition Property. The preceding
sentence is the statement referred to in Section 2812(e) of the Statute. The
Seller agrees and confirms that after giving effect to the sale contemplated
hereby it has no rights in the Initial Intangible Transition Property to which a
security interest of creditors of the Seller could attach because it has sold
all rights in the Initial Intangible Transition Property to the Issuer pursuant
to Section 2812(e) of the Statute.
(b) Subject to the conditions specified in Section 2.03, the Issuer does
hereby purchase the Initial Intangible Transition Property from the Seller for
the consideration set forth in paragraph (a) above.
(c) The Seller and the Issuer each acknowledge and agree that the purchase
price for the Initial Intangible Transition Property sold pursuant to this
Agreement is equal to its fair market value at the time of sale.
SECTION 2.02. Conveyance of Subsequent Intangible Transition Property. The
Seller may from time to time offer
<PAGE>
12
to sell additional Intangible Transition Property to the Issuer, subject to the
conditions specified in Section 2.03. If any such offer is accepted by the
Issuer, such Subsequent Intangible Transition Property shall be sold to the
Issuer effective on the Subsequent Transfer Date specified in the related
Addition Notice, subject to the satisfaction or waiver of the conditions
specified in Section 2.03.
SECTION 2.03. Conditions to Conveyance of Intangible Transition Property.
The Seller shall be permitted to sell Intangible Transition Property to the
Issuer only upon the satisfaction or waiver of each of the following conditions:
(i) on or prior to the Initial Transfer Date or Subsequent Transfer
Date, as applicable, 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;
(ii) as of the Initial Transfer Date or the Subsequent Transfer Date,
as applicable, the Seller was not insolvent and will not have been made
insolvent by such sale and the Seller is not aware of any pending
insolvency with respect to itself;
(iii) as of the Initial Transfer Date or the Subsequent Transfer Date,
as applicable, no breach by the Seller of its representations, warranties
or
<PAGE>
13
covenants in this Agreement shall exist; and no Servicer Default shall have
occurred and be continuing;
(iv) as of the Initial Transfer Date or the Subsequent Transfer Date,
as applicable, (A) the Issuer shall have sufficient funds available to pay
the purchase price for the Transferred Intangible Transition Property to be
conveyed on such date and (B) all conditions to the issuance of one or more
Series of Transition Bonds intended to provide such funds set forth in the
Indenture shall have been satisfied or waived;
(v) on or prior to the Initial Transfer Date or Subsequent Transfer
Date, as applicable, the Seller shall have taken all action required to
transfer to the Issuer ownership of the Transferred Intangible Transition
Property to be conveyed on such date, free and clear of all Liens other
than Liens created by the Issuer pursuant to the Indenture; and the Issuer
or the Servicer, on behalf of the Issuer, shall have taken any action
required for the Issuer to grant the Bond Trustee a first priority
perfected security interest in the Collateral and maintain such security
interest as of such date;
(vi) in the case of a sale of Subsequent Intangible Transition
Property only, on or prior to such Subsequent Transfer Date, the Seller
shall have
<PAGE>
14
provided the Issuer and the Rating Agencies with a timely Addition Notice;
(vii) the Seller shall have delivered to the Rating Agencies and the
Issuer (A) an Opinion of Counsel with respect to the transfer of the
Transferred Intangible Transition Property then being conveyed to the
Issuer substantially in the form of Exhibit B hereto and (B) the Opinion of
Counsel required by Section 5.04(a); and
(viii) the Seller shall have delivered to the Bond Trustee and the
Issuer an Officers' Certificate confirming the satisfaction of each
condition precedent specified in this Section 2.03.
ARTICLE III
Representations and Warranties of Seller
As of the Initial Transfer Date and as of any Subsequent Transfer Date, as
applicable, the Seller makes the following representations and warranties on
which the Issuer has relied and will rely in acquiring Transferred Intangible
Transition Property. The representations and warranties shall survive the sale
of Transferred Intangible Transition Property to the Issuer and the pledge
thereof to the Bond Trustee pursuant to the Indenture.
SECTION 3.01. Organization and Good Standing. The Seller is a corporation
duly organized and in good standing under the laws of the Commonwealth of
Pennsylvania,
<PAGE>
15
with corporate power and authority to own its properties and conduct its
business as currently owned or conducted.
SECTION 3.02. Due Qualification. 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 such
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).
SECTION 3.03. Power and Authority. The Seller has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms; the
Seller has full corporate power and authority to own the Intangible Transition
Property and sell and assign the Initial Intangible Transition Property, in the
case of the Initial Transfer Date, and the Subsequent Intangible Transition
Property, in the case of each Subsequent Transfer Date, as applicable, and the
Seller has duly authorized such sale and assignment to the Issuer by all
necessary corporate action; and the execution, delivery and performance of this
Agreement has been duly authorized by the Seller by all necessary corporate
action.
<PAGE>
16
SECTION 3.04. Binding Obligation. This Agreement constitutes a legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its terms subject to bankruptcy, receivership, insolvency,
fraudulent transfer, reorganization, moratorium or other laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
SECTION 3.05. No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof 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 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 the Mortgage on the Seller's interest in the
Monthly Servicing Fee and any other rights under this Agreement in accordance
with the terms of this Agreement) pursuant to the terms of any such 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
<PAGE>
17
instrumentality having jurisdiction over the Seller or its properties.
SECTION 3.06. No Proceedings. 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 (i)
asserting the invalidity of the Basic Documents or the Transition Bonds, (ii)
seeking to prevent the issuance of the Transition Bonds or the consummation of
any of the transactions contemplated by the Basic Documents or the Transition
Bonds or (iii) except as disclosed by the Seller to the Issuer, seeking any
determination or ruling that could reasonably be 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.
SECTION 3.07. Approvals. Except for UCC continuation filings, 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 this Agreement, the performance by the Seller of the transactions
<PAGE>
18
contemplated hereby or the fulfillment by the Seller of the terms hereof, except
those that have been obtained or made.
SECTION 3.08. The Intangible Transition Property. (a) Information. All
information provided by the Seller to the Issuer with respect to the Transferred
Intangible Transition Property is correct in all material respects.
(b) Effect of Transfer. The transfers and assignments herein contemplated
constitute sales of the Initial Intangible Transition Property or the Subsequent
Intangible Transition Property, as the case may be, 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.
(c) Transfer Filings. The Seller is the sole owner of the Intangible
Transition Property being sold to the Issuer on the Initial Transfer Date or
Subsequent Transfer Date, as applicable; 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 pursuant to the Indenture. All
filings, including filings with the PUC under the Statute, necessary in any
jurisdiction to give the Issuer a valid ownership interest in the Transferred
Intangible Transition
<PAGE>
19
Property, free and clear of all Liens of the Seller or anyone claiming through
the Seller, and to give the Bond Trustee a first priority perfected security
interest in the Transferred Intangible Transition Property have been made, other
than any such filings (except for filings with the PUC under the Statute and UCC
filings with the Secretary of State of the State of Delaware) the absence of
which would not have an adverse impact on (i) the ability of the Servicer to
collect Intangible Transition Charges with respect to the Serviced Intangible
Transition Property or (ii) the rights of the Issuer or the Bond Trustee with
respect to the Transferred Intangible Transition Property.
(d) Irrevocable; Process Valid; No Litigation; Etc. (i) Each Qualified Rate
Order has been issued by the PUC in accordance with the Statute, such order and
the process by which it was issued comply with all applicable laws, rules and
regulations, and each such order is in full force and effect. (ii) As of the
date of issuance of any Series of Transition Bonds, such Transition Bonds are
entitled to the protections provided by the Statute and, accordingly, the
provisions of each Qualified Rate Order relating to Intangible Transition
Property and Intangible Transition Charges are not revocable by the PUC. (iii)
(a) Under the Statute, neither the Commonwealth of Pennsylvania nor the PUC may
limit, alter or in any way impair or reduce the value of Intangible Transition
Property
<PAGE>
20
or Intangible Transition Charges approved by the Qualified Rate Orders or any
rights thereunder, except such a limitation or alteration may be made by the
Commonwealth of Pennsylvania or the PUC if adequate compensation is made by law
for the full protection of the Intangible Transition Charges and of Transition
Bondholders; and (b) under the Contract Clauses of the Constitutions of the
Commonwealth of Pennsylvania and the United States, the Commonwealth of
Pennsylvania and the PUC cannot take any action that substantially impairs the
rights of the Transition Bondholders unless such action is a reasonable exercise
of the Commonwealth of Pennsylvania's sovereign powers and appropriate to
further a legitimate public purpose, and, under the Takings Clauses of the
Pennsylvania and United States Constitutions, in the event such 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, unless just compensation, as determined by a court of
competent jurisdiction, is provided to Transition Bondholders. (iv) There is no
order by any court providing for the revocation, alteration, limitation or other
impairment of the Statute, any Qualified Rate Order, the Intangible Transition
Property or the Intangible Transition Charges or any rights arising under
<PAGE>
21
any of them or which seeks to enjoin the performance of any obligations under
the Qualified Rate Orders. (v) 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 the Intangible Transition Property, except those
that have been obtained or made. (vi) Except as disclosed by the Seller to the
Issuer 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 challenging either Qualified Rate Order or the
Statute. (vii) No failure on the Initial Transfer Date or any Subsequent
Transfer Date or any time thereafter to satisfy any condition imposed by the
Statute with respect to the recovery of stranded costs will adversely affect the
creation or sale hereunder of Intangible Transition Property or the right to
collect Intangible Transition Charges.
(e) Assumptions. The assumptions used in calculating Intangible Transition
Charges are reasonable and made in good faith.
(f) Creation of Intangible Transition Property. (i) The Intangible
Transition Property other than the Retained Intangible Transition Property
constitutes a
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22
current property right, (ii) the Intangible Transition Property includes,
without limitation, (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 and Other 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 Other Transition Bonds, and (B) all right, title and interest of the
Seller or its assignee applicable to the Transition Bonds and Other 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 and Other Transition Bonds set forth in the
Qualified Rate Orders to the extent that in accordance with the Statute, the
Qualified Rate Orders and the rates and charges authorized under the Qualified
Rate Orders are declared to be irrevocable and (iii) paragraphs four through
nineteen of each Qualified Rate Order, including the right to collect Intangible
Transition Charges, have been declared to be irrevocable by the PUC.
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23
(g) Solvency. After giving effect to the sale of any Transferred Intangible
Transition Property hereunder, the Seller (i) is solvent and expects to remain
solvent, (ii) is adequately capitalized to conduct its business and affairs
considering its size and the nature of its business and intended purposes, (iii)
is not engaged in nor does it expect to engage in a business for which its
remaining property represents an unreasonably small capital, (iv) believes that
it will be able to pay its debts as they come due and that such belief is
reasonable and (v) 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.
(h) Swap Payments. Semiannual fixed amounts payable by the Issuer to a
Counterparty in respect of fixed interest under a Swap Agreement are includable
in Intangible Transition Charges.
ARTICLE IV
Covenants of the Seller
SECTION 4.01. Corporate Existence. Subject to Section 5.02, so long as any
of the Transition Bonds are outstanding, the Seller will keep in full force and
effect its corporate existence and remain in good standing, in each case under
the laws of the jurisdiction of its incorporation, and will obtain and preserve
its
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24
qualification to do business in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of this
Agreement and the Trust Agreement and each other instrument or agreement to
which the Seller is a party necessary to the proper administration of this
Agreement and the transactions contemplated hereby.
SECTION 4.02. No Liens or Conveyances. Except for the conveyances
hereunder, the Seller will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on, any of
the Intangible Transition Property, whether now existing or hereafter created,
or any interest therein, other than, with respect to Retained Intangible
Transition Property, the Lien of the Mortgage; provided, that the Seller may
sell Retained Intangible Transition Property to Other Issuers if (i) the Rating
Agency Condition is satisfied with respect to all outstanding Transition Bonds
and (ii) each such Other Issuer is, or prior to such sale becomes, a party to
the Master Servicing Agreement as an "Issuer" (as defined in the Master
Servicing Agreement). The Seller shall not at any time assert any Lien against
or with respect to any Serviced Intangible Transition Property, and shall defend
the right, title and interest of the Issuer, the Bond Trustee, as assignee of
the Issuer, and any Other Issuers in, to and under the Intangible Transition
Property, whether now
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25
existing or hereafter created, against all claims of third parties claiming
through or under the Seller.
SECTION 4.03. Delivery of Collections. If the Seller receives collections
in respect of the Intangible Transition Charges, other than Intangible
Transition Charges relating to Retained Intangible Transition Property, or the
proceeds thereof, the Seller agrees to pay the Servicer all payments received by
the Seller in respect thereof as soon as practicable after receipt thereof by
the Seller, but in no event later than two Business Days after such receipt.
SECTION 4.04. Notice of Liens. The Seller shall notify the Issuer Trustee
and the Bond Trustee promptly after becoming aware of any Lien on any Intangible
Transition Property other than the conveyances hereunder or under the Indenture,
conveyances to Other Issuers (and related pledges) or, in the case of Retained
Intangible Transition Property, the Lien of the Mortgage.
SECTION 4.05. Compliance with Law. The Seller hereby agrees to comply with
its organizational or governing documents and all laws, treaties, rules,
regulations and determinations of any governmental instrumentality applicable to
the Seller, except to the extent that failure to so comply would not adversely
affect the Issuer's, the Bond Trustee's or any Other Issuer's interests in the
Intangible Transition Property or under any of the Basic Documents or the
Seller's performance of its obligations
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26
hereunder or under any of the other Basic Documents to which it is a party.
SECTION 4.06. Covenants Related to Intangible Transition Property. (a) So
long as any of the Transition Bonds are outstanding, the Seller shall treat the
Transition Bonds as debt of the Seller for Federal income tax purposes.
(b) So long as any of the Transition Bonds are outstanding, the Seller
shall (i) clearly disclose in its financial statements that it is not the owner
of the Serviced Intangible Transition Property and that the assets of the Issuer
are not available to pay creditors of the Seller or any of its Affiliates and
(ii) clearly disclose the effects of all transactions between the Seller and the
Issuer in accordance with generally accepted accounting principles.
(c) The Seller agrees that upon the sale by the Seller of the Transferred
Intangible Transition Property to the Issuer pursuant to this Agreement, (i) to
the fullest extent permitted by law, including applicable PUC Regulations, the
Issuer shall have all of the rights originally held by the Seller with respect
to the Transferred Intangible Transition Property (other than the rights of an
electric distribution company set forth in Section 2807 of the Statute),
including the right to collect any amounts payable by any Customer or Third
Party in respect of such Transferred Intangible Transition Property,
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27
notwithstanding any objection or direction to the contrary by the Seller and
(ii) any payment by any Customer or Third Party to the Issuer shall discharge
such Customer's or such Third Party's obligations in respect of such Transferred
Intangible Transition Property to the extent of such payment, notwithstanding
any objection or direction to the contrary by the Seller.
(d) So long as any of the Transition Bonds are outstanding, (i) the Seller
shall not make any statement or reference in respect of the Transferred
Intangible Transition Property that is inconsistent with the ownership thereof
by the Issuer and (ii) the Seller shall not take any action in respect of the
Serviced Intangible Transition Property except solely in its capacity as the
Servicer thereof pursuant to the Master Servicing Agreement or as otherwise
contemplated by the Basic Documents.
SECTION 4.07. Notice of Indemnification Events. The Seller shall deliver to
the Issuer and the Bond Trustee promptly after having obtained knowledge
thereof, written notice in an Officers' Certificate of any Indemnification Event
or any event which, with the giving of notice or the passage of time, would
become an Indemnification Event.
SECTION 4.08. Protection of Title. The Seller shall execute and file such
filings, including filings with the PUC pursuant to the Statute, and cause to be
executed
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28
and filed such filings, all in such manner and in such places as may be required
by law fully to preserve, maintain, and protect the interests of the Issuer in
the Transferred Intangible Transition Property, including all filings required
under the Statute relating to the transfer of the ownership or security interest
in the Transferred Intangible Transition Property by the Seller to the Issuer.
The Seller shall deliver (or cause to be delivered) to the Issuer file-stamped
copies of, or filing receipts for, any document filed as provided above, as soon
as available following such filing. The Seller agrees to take such 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 (i) 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
representation or warranty set forth in Article III or (ii) to block or overturn
any attempts to cause a repeal of, modification of or supplement to the Statute
or 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.
<PAGE>
29
SECTION 4.09. Taxes. So long as any of the Transition Bonds are
outstanding, the Seller shall, and shall cause each of its subsidiaries (other
than the Issuer) to, pay all material taxes, including gross receipts taxes,
assessments and governmental charges imposed upon it or any of its properties or
assets or with respect to any of its franchises, business, income or property
before any penalty accrues thereon if the failure to pay any such taxes,
assessments and governmental charges would, after any applicable grace periods,
notices or other similar requirements, result in a lien on the Intangible
Transition Property; provided that no such tax need be paid if the Seller or one
of its subsidiaries is contesting the same in good faith by appropriate
proceedings promptly instituted and diligently conducted and if the Seller or
such subsidiary has established appropriate reserves as shall be required in
conformity with generally accepted accounting principles.
ARTICLE V
The Seller
SECTION 5.01. Liability of Seller; Indemnities and Liquidated Damages. (a)
The Seller shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Seller under this Agreement.
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30
(b) The Seller shall indemnify the Issuer and the Bond Trustee, for itself
and on behalf of the Transition Bondholders, and each of their respective
trustees, officers, directors and agents for, and defend and hold harmless each
such Person from and against, any and all taxes (other than any taxes imposed on
Transition Bondholders solely as a result of their ownership of Transition
Bonds) that may at any time be imposed on or asserted against any such Person as
a result of the acquisition or holding of the Transferred Intangible Transition
Property by the Issuer or the issuance and sale by the Issuer of the Transition
Bonds, including any sales, gross receipts, general corporation, tangible
personal property, privilege or license taxes.
(c)(i) The Seller shall indemnify the Issuer and the Bond Trustee, on
behalf of the Transition Bondholders, each of their respective trustees,
officers, directors, and agents, and any Counterparty, and defend and hold
harmless each such Person from and against, any and all Losses that may be
imposed on, incurred by or asserted against any such Person as a result of (x)
the Seller's wilful misconduct, bad faith or gross negligence in the performance
of its duties or observance of its covenants under this Agreement, (y) the
Seller's reckless disregard of its obligations and duties under this Agreement
or (z) the Seller's breach of any of its representations or warranties contained
in this
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31
Agreement other than those contained in Sections 3.08(b), 3.08(c), 3.08(d)(i),
(ii) and (iv) and 3.08(f) (any event described in any of the foregoing clauses
(x), (y) or (z), an "Indemnification Event"); provided, however, that the amount
of such Losses (other than those payable pursuant to Section 5.01(e)) for which
the Seller shall be obligated to provide indemnification shall not exceed the
Liquidated Damages Amount. Amounts on deposit in the Reserve Subaccount, the
Overcollateralization Subaccount and the Capital Subaccount shall not be
available to satisfy any Losses for which indemnification is provided in this
Agreement.
(ii) If an Indemnification Event shall occur, upon receipt of written
notice thereof by the Seller from the Issuer or the Bond Trustee, the Seller
shall notify the Servicer of the occurrence of such event so that the Servicer
may, pursuant to Section 8 of Annex 1 to the Master Servicing Agreement,
calculate (x) on the day which is 90 days after receipt of such notice by the
Seller (the "Initial Loss Calculation Date") the amount of Losses expected to be
incurred as a result of such Indemnification Event from and including the time
of its occurrence through and including the next Monthly Allocation Date after
the Initial Loss Calculation Date and (y) to the extent that Losses may be
incurred as a result of such Indemnification Event in an amount exceeding the
amount of Losses calculated
<PAGE>
32
pursuant to clause (x) above and unless the Seller has paid Liquidated Damages
with respect to such Indemnification Event pursuant to Section 5.01(d)(i)(B),
not later than each Monthly Allocation Date succeeding the Initial Loss
Calculation Date, the amount of Losses expected to be incurred as a result of
such Indemnification Event from but excluding such Monthly Allocation Date
through and including the next Monthly Allocation Date. All such calculations
shall be subject to the approval of the Bond Trustee. If such Indemnification
Event shall continue unremedied beyond the Initial Loss Calculation Date, the
Seller shall pay to the Bond Trustee, as assignee of the Issuer, for deposit
into the General Subaccount of the Collection Account, (x) on the Monthly
Allocation Date immediately following the Initial Loss Calculation Date, the
amount of Losses calculated pursuant to clause (x) and clause (y) of the
preceding sentence with respect to such Monthly Allocation Date and (y) on each
subsequent Monthly Allocation Date, the amount of Losses calculated as of such
date pursuant to clause (y) of the preceding sentence. Upon payment pursuant to
this Section 5.01(c)(ii), the Seller shall have no further obligations with
respect to such Losses to the extent of such payments.
(d)(i) In the event of a breach by the Seller of any representation and
warranty specified in (A) Section 3.08(b), 3.08(c), 3.08(d)(i), (ii) or (iv) or
3.08(f) of
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33
this Agreement that has a material adverse effect on the Transition Bondholders
or (B) Sections 3.01, 3.03, 3.04, 3.05 and 3.08(d)(iii), (v) or (vi) of this
Agreement for which the full amount of Losses attributable thereto are
reasonably expected to be incurred beyond a 90-day period immediately following
the occurrence of such Indemnification Event, the Seller shall pay to the Bond
Trustee, as assignee of the Issuer, for deposit into the General Subaccount of
the Collection Account the Liquidated Damages Amount. Such amount shall be paid
(x) in the case of clause (A) above, on the Liquidated Damages Payment Date or
(y) in the case of clause (B) above, on the First Monthly Allocation Date
following the expiration of the 90-day period set forth in such clause (B).
Notwithstanding the foregoing, if the Seller is obligated pursuant to this
Section 5.01(d)(i) to pay amounts for deposit into the General Subaccount of the
Collection Account for a breach of a representation and warranty which relates
to one of the Qualified Rate Orders, but not both of the Qualified Rate Orders,
then the Liquidated Damages Amount will include the then outstanding principal
amount of only the Affected Transition Bonds as of the Liquidated Damages
Redemption Date and unpaid interest accrued thereon.
(ii) The Seller shall not be obligated to pay the Liquidated Damages Amount
pursuant to Section 5.01(d)(i) (A) if (A) within 90 days after the date of the
occurrence
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34
thereof such 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 such breach and (B) either (i) 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, the Seller enters into a binding agreement with the Issuer to pay any
amounts necessary so that all interest payments due on the Transition Bonds
during such 90-day period will be paid in full, or (ii) if the Seller does not
have such long term debt ratings, the Seller deposits, within two Business Days
after such breach, an amount in escrow with the Bond Trustee sufficient, taking
into account amounts on deposit in the Collection Account which will be
available for such purpose, to pay all interest payments which will become due
on the Transition Bonds during such 90-day period. In the event that within such
90-day period (i) such breach is cured or (ii) the Seller takes the remedial
action specified by Section 5.01(d)(ii)(A), any amounts paid by the Seller to
the Bond Trustee, as assignee of the Issuer pursuant to Section 5.01(d)(ii)(B),
which have not been distributed pursuant to the Indenture shall be returned to
the Seller at the end of such 90-day period.
(iii) With respect to any Losses described in Section 5.01(c)(ii) or
Section 5.01(d)(i)(B) above, the full
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35
amount of which is reasonably expected not to exceed 1/12th of 1% of the annual
outstanding balance of Transition Bonds per Monthly Allocation Date (the "De
Minimis Loss Amount"), the Seller, on the Monthly Allocation Date immediately
following the Initial Loss Calculation Date, 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 such Losses for all Monthly Allocation
Dates on which such Losses are expected to be incurred, following which the
Seller's obligation to pay indemnification or Liquidated Damages, as applicable,
as a result of such Losses shall be waived so long as the actual Losses incurred
on any Monthly Allocation Date do not exceed the De Minimis Loss Amount. If the
aggregate amount of such Losses incurred as of any Monthly Allocation Date
exceeds the amounts paid by the Seller to the Bond Trustee, as assignee of the
Issuer, with respect thereto, the Seller shall pay to the Bond Trustee, as
assignee of the Issuer, on the next Monthly Allocation Date, the amount of such
excess for such Monthly Allocation Date and the expected amount of excess for
all subsequent Monthly Allocation Dates.
(iv) Upon the payment by the Seller of the Liquidated Damages
Amount pursuant to Section 5.01(d)(i), neither the Issuer nor any other Person
shall have any other claims, rights or remedies against the Seller for a breach
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36
of the representations and warranties specified in Section 3.08(b), (c), (d)(i),
(d)(ii), (d)(iv) or (f).
(e) The Seller shall indemnify the Bond Trustee and the Issuer Trustee and
their respective officers, directors and agents for, and defend and hold
harmless each such Person from and against, any and all Losses that may be
imposed upon, incurred by or asserted against any such Person as a result of the
acceptance or performance of the trusts and duties contained herein and in the
Indenture, except to the extent that any such Loss shall be due to the wilful
misfeasance, bad faith or gross negligence of the Bond Trustee or the Issuer
Trustee, as applicable. Such amounts shall be deposited into the Collection
Account and distributed in accordance with the Indenture.
(f) The Seller's indemnification obligations under Section 5.01(b),(c), (d)
and (e) for events occurring prior to the removal or resignation of the Bond
Trustee or the termination of this Agreement shall survive the resignation or
removal of the Bond Trustee or the termination of this Agreement and shall
include reasonable fees and expenses of investigation and litigation (including
the Bond Trustee's reasonable attorney's fees and expenses).
(g) The Seller shall indemnify each Counterparty for, and defend and hold
harmless each Counterparty from and against, any and all Losses that may be
imposed upon, incurred by or asserted against such Counterparty as a
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37
result of breach of the Seller's representations or warranties contained in
Section 3.08(h) of this Agreement. Such amounts shall be deposited into the
Collection Account and distributed in accordance with the Indenture.
SECTION 5.02. Merger or Consolidation of, or Assumption of the Obligations
of, Seller. Any Person (a) into which the Seller may be merged or consolidated
and which succeeds to the major part of the electric distribution business of
the Seller, (b) which results from the division of the Seller into two or more
Persons and which succeeds to the major part of the electric distribution
business of the Seller, (c) which may result from any merger or consolidation to
which the Seller shall be a party and which succeeds to the major part of the
electric distribution business of the Seller, (d) which may succeed to the
properties and assets of the Seller substantially as a whole and which succeeds
to the major part of the electric distribution business of the Seller or (e)
which may otherwise succeed to the major part of the electric distribution
business of the Seller, which Person in any of the foregoing cases executes an
agreement of assumption to perform every obligation of the Seller under this
Agreement, shall be the successor to the Seller hereunder without the execution
or filing of any document or any further act by any of the parties to this
Agreement; provided, however, that (i) immediately after giving effect
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38
to such transaction, no representation or warranty made pursuant to Article III
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, (ii) the Seller shall have delivered to the Issuer
and the Bond Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section and that all conditions precedent, if any,
provided for in this Agreement relating to such transaction have been complied
with, (iii) the Rating Agencies shall have received prior written notice of such
transaction and (iv) the Seller shall have delivered to the Issuer and the Bond
Trustee an Opinion of Counsel either (A) stating that, in the opinion of such
counsel, all filings, including filings with the PUC pursuant to the Statute,
have been executed and filed that are necessary fully to preserve and protect
the interest of the Issuer in the Transferred Intangible Transition Property and
reciting the details of such filings or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interests. Notwithstanding anything herein to the contrary, the execution of the
above described agreement of assumption and compliance with clauses (i), (ii),
(iii) and (iv) above shall be conditions
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39
precedent to the consummation of any transaction referred to
in clauses (a), (b), (c), (d) or (e) above.
SECTION 5.03. Limitation on Liability of Seller and Others. The Seller and
any director or officer or employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person, respecting any matters arising
hereunder. Subject to Section 5.04, the Seller shall not be under any obligation
to appear in, prosecute or defend any legal action that is not incidental to its
obligations under this Agreement, and that in its opinion may involve it in any
expense or liability.
SECTION 5.04. Opinions of Counsel. The Seller shall deliver to the Issuer
and the Bond Trustee: (a) promptly after the execution and delivery of this
Agreement and of each amendment hereto or to the Master Servicing Agreement and
on each Subsequent Transfer Date, an Opinion of Counsel either (i) to the effect
that, in the opinion of such counsel, all filings, including filings with the
PUC pursuant to the Statute, that are necessary to fully preserve and protect
the interests of the Issuer in the Intangible Transition Property have been
executed and filed, and reciting the details of such filings or referring to
prior Opinions of Counsel in which such details are given, or (ii) to the effect
that, in the opinion of such counsel,
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40
no such action shall be necessary to preserve and protect such interest; and (b)
within 90 days after the beginning of each calendar year beginning with the
first calendar year beginning more than three months after the Initial Transfer
Date, an Opinion of Counsel, dated as of a date during such 90-day period,
either (i) to the effect that, in the opinion of such counsel, all filings with
the PUC pursuant to the Statute, have been executed and filed that are necessary
to preserve fully and protect fully the interest of the Issuer in the Intangible
Transition Property, and reciting the details of such filings or referring to
prior Opinions of Counsel in which such details are given, or (ii) to the effect
that, in the opinion of such counsel, no such action shall be necessary to
preserve and protect such interest. Each Opinion of Counsel referred to in
clause (a) or (b) above shall specify any action necessary (as of the date of
such opinion) to be taken in the following year to preserve and protect such
interest.
ARTICLE VI
Miscellaneous Provisions
SECTION 6.01. Amendment. This Agreement may be amended by the Seller and
the Issuer, with the consent of the Bond Trustee and, with respect to any
amendment which would materially adversely affect the rights of any Counterparty
under any Swap Agreement, the consent of each
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41
such Counterparty (which consent shall not be unreasonably withheld). The Issuer
shall furnish to each of the Rating Agencies (i) prior to the execution of any
such amendment or consent, written notification of the substance thereof and
(ii) promptly after the execution of any such amendment or consent, a copy
thereof.
Prior to the execution of any amendment to this Agreement, the Issuer and
the Bond Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement and the Opinion of Counsel referred to in Section 5.04(a). The
Issuer and the Bond Trustee may, but shall not be obligated to, enter into any
such amendment which affects their own rights, duties or immunities under this
Agreement or otherwise.
SECTION 6.02. Notices. All demands, notices and communications upon or to
the Seller, the Issuer or the Issuer Trustee, the Bond Trustee or the Rating
Agencies under this Agreement shall be in writing, delivered personally, via
facsimile, reputable overnight courier or by certified mail, return-receipt
requested, and shall be deemed to have been duly given upon receipt (a) in the
case of the Seller, to PECO Energy Company, 2301 Market Street, Philadelphia, PA
19101, Attention of Vice President, Finance and Treasurer, (b) in the case of
the Issuer, the Issuer Trustee or any other trustee of the Issuer, at the
Corporate
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42
Trust Office, (c) in the case of the Bond Trustee, at the Corporate Trust
Office, (d) in the case of Moody's, to Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007, (e) in the
case of Standard & Poor's, to Standard & Poor's Corporation, 26 Broadway (15th
Floor), New York, New York 10004, Attention of Asset Backed Surveillance
Department, (f) in the case of Fitch IBCA, to Fitch IBCA, Inc., One State Street
Plaza, New York, New York 10004, Attention of ABS Surveillance, and (h) in the
case of Duff, to Duff & Phelps Credit Rating Company, 55 E. Monroe Street (35th
Floor), Chicago, Illinois 60603; or, as to each of the foregoing, at such other
address as shall be designated by written notice to the other parties.
SECTION 6.03. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.02, this Agreement may not be
assigned by the Seller.
SECTION 6.04. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Seller, the Issuer, the Issuer
Trustee and the Bond Trustee, on behalf of itself and the Transition
Bondholders, and nothing in this Agreement, whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in the Collateral or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
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43
SECTION 6.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 6.06. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.07. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 6.08. Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Pennsylvania, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws.
SECTION 6.09. Assignment to Bond Trustee. The Seller hereby acknowledges
and consents to any mortgage, pledge, assignment and grant of a security
interest by the
<PAGE>
44
Issuer to the Bond Trustee pursuant to the Indenture for the benefit of the
Transition Bondholders of all right, title and interest of the Issuer in, to and
under the Transferred Intangible Transition Property and the proceeds thereof
and the assignment of any or all of the Issuer's rights hereunder to the Bond
Trustee. In no event shall The Bank of New York have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Issuer, hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the Issuer.
SECTION 6.10. Nonpetition Covenant. Notwithstanding any prior termination
of this Agreement or the Indenture, but subject to the PUC's rights to order the
sequestration and payment of revenues arising with respect to the Intangible
Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the debtor, pledgor or transferor of the
Intangible Transition Property pursuant to Section 2812(d)(3)(v) of the Statute,
the Seller shall not, prior to the date which is one year and one day after the
termination of the Indenture, petition or otherwise invoke or cause the Issuer
to invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Issuer under any Federal or state
bankruptcy, insolvency or similar law or appointing a
<PAGE>
45
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or any substantial part of the property of the
Issuer, or ordering the winding up or liquidation of the affairs of the Issuer.
SECTION 6.11. Limitation of Liability of Issuer Trustee. Notwithstanding
anything contained herein to the contrary, this Agreement has been countersigned
by First Union Trust Company, National Association not in its individual
capacity but solely in its capacity as Issuer Trustee of the Issuer and in no
event shall First Union Trust Company, National Association in its individual
capacity have any liability for warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of its duties or obligations hereunder or in the performance of any
duties or obligations of the Issuer hereunder, the Issuer Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII, VIII and IX of the Trust Agreement.
SECTION 6.12. Perfection. In accordance with Section 2812(e) of the
Statute, upon the execution and delivery of this Agreement and the related Bill
of Sale, the transfer of the Initial Intangible Transition Property will
<PAGE>
46
be perfected as against all third persons, including any judicial lien
creditors, and upon the execution and delivery of a Bill of Sale and, if
applicable, a supplement to this Agreement, a transfer of Subsequent Intangible
Transition Property will be perfected against all third persons,
including any judicial lien creditors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
PECO ENERGY TRANSITION TRUST,
by First Union Trust
Company, National
Association, not in its
individual capacity but
solely as Issuer Trustee
on behalf of the Trust,
by
-------------------------
Title:
PECO ENERGY COMPANY, Seller,
by
------------------------------
Title:
<PAGE>
47
Acknowledged and Accepted:
THE BANK OF NEW YORK, not
in its individual capacity
but solely as Bond Trustee
on behalf of the Transition
Bondholders,
by
------------------------
Title:
================================================================================
AMENDED AND RESTATED
MASTER SERVICING
AGREEMENT
among
PECO ENERGY TRANSITION TRUST,
the other Issuers from
time to time party hereto
and
PECO ENERGY COMPANY
Servicer
Dated as of [ ], 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
SECTION 1.01. Definitions.................................................. 2
SECTION 1.02. Other Definitional Provisions................................ 13
ARTICLE II
Appointment and Authorization of Servicer
SECTION 2.01. Appointment of Servicer; Acceptance of Appointment........... 14
SECTION 2.02. Authorization................................................ 14
SECTION 2.03. Dominion and Control over Serviced
Intangible Transition Property......................... ....15
ARTICLE III
Billing Services
SECTION 3.01. Duties of Servicer........................................... 16
SECTION 3.02. Collection and Allocation of Intangible Transition Charges... 18
SECTION 3.03. Servicing and Maintenance Standards.......................... 20
SECTION 3.04. Servicer's Certificates...................................... 21
SECTION 3.05. Annual Statement as to Compliance; Notice of Default......... 21
SECTION 3.06. Annual Independent Certified Public Accountants' Report...... 22
SECTION 3.07. Intangible Transition Property Documentation................. 24
SECTION 3.08. Computer Records; Audits of Documentation.................... 24
SECTION 3.09. Defending Intangible Transition Property Against Claims...... 26
SECTION 3.10. Opinions of Counsel.......................................... 27
<PAGE>
Contents, p. ii
Page
----
ARTICLE IV
Services Related to Intangible
Transition Charges Adjustments
SECTION 4.01. Intangible Transition Charges Adjustments.................... 28
ARTICLE V
The Servicer
SECTION 5.01. Representations and Warranties of Servicer................... 28
SECTION 5.02. Indemnities of Servicer; Release of Claims................... 33
SECTION 5.03. Merger or Consolidation of, or Assumption
of the Obligations of, Servicer............................ 35
SECTION 5.04. Assignment of Servicer's Obligations......................... 37
SECTION 5.05. Limitation on Liability of Servicer and Others............... 38
SECTION 5.06. PECO Energy Not To Resign as Servicer........................ 39
SECTION 5.07. Monthly Servicing Fee........................................ 40
SECTION 5.08. Servicer Expenses............................................ 40
SECTION 5.09. Appointments................................................. 41
SECTION 5.10. Remittances.................................................. 41
SECTION 5.11. Servicer Advances............................................ 43
SECTION 5.12. Protection of Title.......................................... 43
ARTICLE VI
Servicer Default
SECTION 6.01. Servicer Default............................................. 44
SECTION 6.02. Notice of Servicer Default................................... 47
SECTION 6.03. Waiver of Past Defaults...................................... 48
SECTION 6.04. Appointment of Successor..................................... 48
SECTION 6.05. Cooperation with Successor................................... 50
ARTICLE VII
Miscellaneous Provisions
SECTION 7.01. Amendment.................................................... 50
SECTION 7.02. Notices...................................................... 51
SECTION 7.03. Assignment................................................... 52
SECTION 7.04. Limitations on Rights of Others.............................. 52
<PAGE>
Contents, p. iii
Page
----
SECTION 7.05. Severability................................................. 53
SECTION 7.06. Separate Counterparts........................................ 53
SECTION 7.07. Headings..................................................... 53
SECTION 7.08. Governing Law................................................ 53
SECTION 7.09. Assignment to Bond Trustee................................... 53
SECTION 7.10. Nonpetition Covenants........................................ 54
SECTION 7.11. Addition of Issuers.......................................... 55
SECTION 7.12. Termination by Issuers....................................... 55
SECTION 7.13. Limitation of Liability of Trustee........................... 55
EXHIBIT A Servicing Procedures
EXHIBIT B Supplement for Addition of Issuer
ANNEX 1 ITC Adjustment Process and Reports - PECO
Energy Transition Trust
<PAGE>
AMENDED AND RESTATED MASTER SERVICING AGREEMENT dated as of [ ],
2000, among PECO ENERGY TRANSITION TRUST, a Delaware business
trust (the "First Issuer"), the other Issuers from time to time
party hereto (together with the First Issuer, the "Issuers"), and
PECO ENERGY COMPANY, a Pennsylvania corporation, as the servicer
of the Intangible Transition Property (together with each
successor to PECO ENERGY COMPANY (in the same capacity) pursuant
to Section 5.03 or 6.02, the "Servicer").
WHEREAS the Servicer is willing to service the Intangible Transition
Property purchased from the Seller by each Issuer; and
WHEREAS each Issuer, in connection with ownership of Serviced Intangible
Transition Property, desires to engage the Servicer to carry out the functions
described herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
<PAGE>
2
ARTICLE I
Definitions
SECTION 1.01. Definitions. Whenever used in this Agreement, each of the
following words and phrases shall have the following meaning:
"Agreement" means this Amended and Restated Master Servicing Agreement, as
the same may be amended and supplemented from time to time.
"Annual Accountant's Report" has the meaning specified in Section 3.06(a).
"Basic Documents" has the meaning set forth in the Indentures.
"Bond Trustees" means, collectively, The Bank of New York, a New York
banking corporation, as bond trustee under the Indenture to which the First
Issuer is a party, and each other Person serving as a bond trustee or in a
similar capacity under any of the other Indentures, or any successors to any of
the foregoing.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York, the City of Philadelphia or
the State of Delaware are required by law or executive order to remain closed.
"Class" means, with respect to any Series, any one of the classes of
Transition Bonds of that Series.
<PAGE>
3
"Collateral" means, with respect to an Issuer, all property of such Issuer
pledged by it to secure Transition Bonds issued by such Issuer as provided in
the Indenture to which it is a party.
"Collection Period" means the period from and including the first day of a
calendar month to and including the last day of the same calendar month.
"Competitive Transition Charges" means the competitive transition charges
that PECO Energy may impose on Customers as set forth in Appendix A to the Joint
Petition for Approval of Full Settlement of PECO Energy Company's Restructuring
Plan and Related Appeals and approved in the Final Order issued on May 14, 1998
by the PUC with respect to PECO Energy's restructuring plan.
"Counterparty" means any counterparty to a Swap Agreement entered into by
any Issuer.
"Customers" means each person that (i) was a customer of PECO Energy
located within PECO Energy's retail electric service territory on January 1,
1997 or that became a customer of electric services within such territory after
January 1, 1997, (ii) is still located within such territory, and (iii) is in a
Rate Class that has been assigned stranded cost responsibility.
"Duff" means Duff & Phelps Credit Rating Company or its successor.
<PAGE>
4
"Fitch IBCA" means Fitch IBCA, Inc. or its successor.
"Formation Documents" means, collectively, the Second Amended and Restated
Trust Agreement of the First Issuer dated as of [ ], 2000, among the
Seller and the trustees named therein, and any other trust agreement,
certificate of incorporation, limited liability company agreement, partnership
agreement, or other document pursuant to which any other Issuer is formed or
governed, in each case, as the same may be amended and supplemented from time to
time.
"Holder" or "Transition Bondholder" means the Person in whose name a
Transition Bond of any Series or Class is registered as provided in the
Indenture therefor.
"Indentures" means, collectively, the indenture dated as of March 1, 1999,
between the First Issuer and The Bank of New York, and each indenture entered
into by any other Issuer in connection with the issuance of Transition Bonds, in
each case as the same may be amended and supplemented from time to time,
including by any Series Supplement.
"Initial Qualified Rate Order" means the order of the PUC issued on May 14,
1998, adopted in accordance with the Statute, which, among other things, creates
Intangible Transition Property and authorizes the imposition and
<PAGE>
5
collection of Intangible Transition Charges by PECO Energy or its assignee.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of 90 consecutive days or (b)
the commencement by such Person of a voluntary case under any applicable Federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as
<PAGE>
6
such debts become due, or the taking of action by such Person in furtherance of
any of the foregoing.
"Intangible Transition Charges" means the amounts authorized by the PUC to
be imposed on all Customer bills with respect to the Intangible Transition
Property and collected, through a non-bypassable mechanism, by the Seller or its
successor or by any other entity which provides electric service to Customers,
to recover Qualified Transition Expenses pursuant to the Qualified Rate Orders.
"Intangible Transition Charges Adjustment" means each adjustment to
Intangible Transition Charges related to the Serviced Intangible Transition
Property made in accordance with Section 4.01 and the Issuer Annexes or in
connection with the redemption by any Issuer of Transition Bonds.
"Intangible Transition Property" means the irrevocable right of the Seller
or its successor or assignee to collect Intangible Transition Charges from
Customers to recover the Qualified Transition Expenses described in the
Qualified Rate Orders, including all right, title and interest of the Seller or
its successor or assignee in such order and in all revenues, collections,
claims, payments, money or proceeds of or arising from Intangible Transition
Charges pursuant to such orders, and all proceeds of any of the foregoing.
<PAGE>
7
"Intangible Transition Property Documentation" has the meaning assigned to
that term in Section 3.07.
"Issuer Annex" means, with respect to the First Issuer, Annex 1 hereto, and
with respect to any other Issuer, an Annex hereto describing the statements and
certificates to be provided by the Servicer and the procedures regarding
Intangible Transition Charges Adjustments to be followed by the Servicer with
respect to such Issuer.
"Issuers" means, collectively, the First Issuer and each other Person from
time to time named as an Issuer in this Agreement, in each case each until a
successor replaces it and, thereafter, such successor.
"ITC Collections" means amounts collected in respect of Intangible
Transition Charges or the Intangible Transition Property.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.
"Losses" means collectively, any and all liabilities, obligations, losses,
damages, payments, costs or expenses of any kind whatsoever.
"Monthly Allocation Date" means the first day of each calendar month or, if
any such day is not a Business Day, the immediately succeeding Business Day.
<PAGE>
8
"Monthly Servicing Fee" means, with respect to any Series of Transition
Bonds, the fee payable to the Servicer on each Monthly Allocation Date for
services rendered, determined pursuant to Section 5.07.
"Moody's" means Moody's Investors Service Inc., or its successor.
"Mortgage" means the First and Refunding Mortgage, dated May 1, 1923
between the Counties Gas and Electric Company (to which PECO Energy is
successor) and Fidelity Trust Company (to which First Union National Bank is
successor), as trustee, as supplemented and amended by 96 supplemental
indentures.
"Officers' Certificate" means a certificate signed by (a) the chairman of
the board, the president, the vice chairman of the board, the executive vice
president or any vice president and (b) a treasurer, assistant treasurer,
secretary or assistant secretary, in each case of the Servicer.
"Operating Expenses" means, with respect to any Issuer, all fees, costs,
expenses and indemnity payments owed by such Issuer, including all amounts owed
by such Issuer to a Bond Trustee or any other trustee of such Issuer, the
Monthly Servicing Fee payable in respect of Transition Bonds issued by such
Issuer, legal fees and expenses of the Servicer allocated to such Issuer
pursuant
<PAGE>
9
to Section 3.09 and legal and accounting fees, costs and expenses of such Issuer
and any trustee of such Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to the Seller or the Servicer, which counsel shall
be reasonably acceptable to the Bond Trustees, the Issuers or the Rating
Agencies, as applicable, and shall be in form reasonably satisfactory to the
Bond Trustee, if applicable.
"PECO Energy" means PECO Energy Company, a Pennsylvania corporation.
"Percentage" means, with respect to any Issuer and any Collection Period,
the percentage equivalent of a fraction, the numerator of which is the aggregate
Intangible Transition Charges (as adjusted from time to time) scheduled to be
collected in such Collection Period applicable to all Series of Transition Bonds
issued by such Issuer and the denominator of which is the aggregate Intangible
Transition Charges (as adjusted from time to time) scheduled to be collected in
such Collection Period applicable to all Series of Transition Bonds issued by
all the Issuers.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), business trust, unincorporated organization or government or any
agency or political subdivision thereof.
<PAGE>
10
"PUC" means the Pennsylvania Public Utility Commission or any successor.
"PUC Regulations" means any regulations promulgated or adopted by the PUC.
"Qualified Rate Orders" means, collectively, the Initial Qualified Rate
Order and the Second Qualified Rate Order.
"Qualified Transition Expenses" has the meaning assigned to that term in
the Qualified Rate Orders.
"Rate Class" means each of the rate classes into which Customers are
divided as of the date hereof, as such rate classes may be reconfigured from
time to time.
"Rating Agency" means any rating agency rating the Transition Bonds of any
Class or Series at the time of issuance thereof at the request of the Issuer of
such Class or Series. If no such organization or successor is any longer in
existence, "Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable Person designated by an Issuer, notice of which
designation shall be given to the Bond Trustee under the Indenture to which such
Issuer is a party, any trustee of such Issuer and the Servicer.
"Rating Agency Condition" means, with respect to any action, the
notification in writing by each Rating Agency to the Seller, the Servicer, the
Bond Trustees and
<PAGE>
11
the applicable Issuer that such action will not result in a reduction or
withdrawal of the then current rating by such Rating Agency of any outstanding
Series or Class of Transition Bonds issued by such Issuer.
"Released Parties" has the meaning specified in Section 5.02(e).
"Remittance Date" means each date on which ITC Collections allocated to any
Issuer are to be remitted by the Servicer to the Bond Trustee for such Issuer
pursuant to Section 5.10.
"Sale Agreements" means, collectively, the Amended and Restated Intangible
Transition Property Sale Agreement dated [ ], 2000, between the Seller and the
First Issuer, and any other agreements between the Seller and any other Issuer
relating to the sale of Intangible Transition Property to such Issuer.
"Second Qualified Rate Order" means the order of the PUC issued on [ ],
2000, adopted in accordance with the Statute, which, among other things, creates
Intangible Transition Property and authorizes the imposition and collection of
Intangible Transition Charges by PECO Energy or its assignee.
"Seller" means PECO Energy and its successors in interest to the extent
permitted hereunder.
<PAGE>
12
"Series" means any series of Transition Bonds issued by any of the Issuers.
"Series Supplement" means an indenture supplemental to an Indenture that
authorizes a particular Series of Transition Bonds.
"Serviced Intangible Transition Property" means, collectively, all
Intangible Transition Property sold, conveyed, assigned or otherwise transferred
to any Issuer by the Seller or, with respect to an Issuer, all Intangible
Transition Property sold, conveyed, assigned or otherwise transferred to such
Issuer by the Seller.
"Servicer Default" means an event specified in Section 6.01.
"Servicing Fee Rate" means, with respect to any Series of Transition Bonds,
the per annum rate specified in the Series Supplement pursuant to which such
Transition Bonds are issued.
"Standard & Poor's" means Standard & Poor's Rating Group, or its successor.
"Statute" means the Pennsylvania Electricity Generation Customer Choice and
Competition Act, Chapter 28 of Title 66 of the Pennsylvania Consolidated
Statutes, 66 Pa. C.S., ss.2801, et seq.
<PAGE>
13
"Swap Agreement" means any interest rate swap agreement or agreement with
respect to any hedge or similar transaction entered into by any Issuer.
"Termination Notice" has the meaning specified in Section 6.01(d).
"Third Party" means any third party, including any electric generation
supplier, providing billing or metering services, licensed by the PUC pursuant
to relevant provisions of the Statute and any PUC order.
"Transfer Date" means each date on which the Seller sells, conveys, or
otherwise transfers any Intangible Transition Property to any Issuer.
"Transition Bonds" means "transition bonds" (as defined in the Statute)
issued by any Issuer.
"UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
SECTION 1.02. Other Definitional Provisions. (a) The words "hereof",
"herein", "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement; Section, Annex, Schedule and Exhibit references contained in
this Agreement are references to Sections, Annexes, Schedules and Exhibits in
<PAGE>
14
or to this Agreement unless otherwise specified; and the term "including" shall
mean "including without limitation".
(b) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
ARTICLE II
Appointment and Authorization of Servicer
SECTION 2.01. Appointment of Servicer; Acceptance of Appointment. Subject
to Section 5.04 and Article VI, each Issuer hereby appoints the Servicer, and
the Servicer hereby accepts such appointment, to perform the Servicer's
obligations pursuant to this Agreement on behalf of and for the benefit of each
Issuer in accordance with the terms of this Agreement. This appointment and the
Servicer's acceptance thereof may not be revoked except in accordance with the
express terms of this Agreement.
SECTION 2.02. Authorization. With respect to all or any portion of the
Serviced Intangible Transition Property, the Servicer shall be, and hereby is,
authorized and empowered by each Issuer to (a) execute and deliver, on behalf of
itself or such Issuer, as the case may be, any and all instruments, documents or
notices, and (b) on behalf of itself or such Issuer, as the case may be, make
any filing and participate in proceedings of any kind with any
<PAGE>
15
governmental authorities, including with the PUC. Each Issuer shall furnish the
Servicer with such documents as have been prepared by the Servicer for execution
by such Issuer, and with such other documents as may be in such Issuer's
possession, as necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder. Upon the written request of the
Servicer, each Issuer shall furnish the Servicer with any powers of attorney or
other documents necessary or appropriate to enable the Servicer to carry out its
duties hereunder.
SECTION 2.03. Dominion and Control over Serviced Intangible Transition
Property. Notwithstanding any other provision herein, the Servicer and each
Issuer agree that such Issuer shall have dominion and control over its
respective Serviced Intangible Transition Property, and the Servicer, in
accordance with the terms hereof, is acting solely as the servicing agent of
such Issuer with respect to the Serviced Intangible Transition Property owned by
such Issuer. The Servicer hereby agrees that it shall not take any action that
is not authorized by this Agreement, that is not consistent with its customary
procedures and practices, or that shall impair the rights of any Issuer in its
respective Serviced Intangible Transition Property, in each case unless such
action is required by law or court or regulatory order.
<PAGE>
16
ARTICLE III
Billing Services
SECTION 3.01. Duties of Servicer. The Servicer, as agent for each Issuer
(to the extent provided herein), shall have the following duties:
(a) Duties of Servicer Generally. The Servicer will manage, service,
administer and make collections in respect of the Serviced Intangible
Transition Property. The Servicer's duties will include (i) calculating and
billing the Intangible Transition Charges and collecting (from Customers
and Third Parties, as applicable) and posting all ITC Collections; (ii)
responding to inquiries by Customers, Third Parties, the PUC, or any
Federal, local or other state governmental authorities with respect to the
Serviced Intangible Transition Property and Intangible Transition Charges;
(iii) accounting for ITC Collections, investigating delinquencies,
processing and depositing collections and making periodic remittances,
furnishing periodic reports to the Issuers, the Bond Trustees and the
Rating Agencies; (iv) selling, as the agent for each Issuer, as its
interest may appear, defaulted or written off accounts in accordance with
the Servicer's usual and customary practices; and (v) taking action in
connection with
<PAGE>
17
Intangible Transition Charge Adjustments as set forth herein. Anything to
the contrary notwithstanding, the duties of the Servicer set forth in this
Agreement shall be qualified in their entirety by any PUC Regulations as in
effect at the time such duties are to be performed. Without limiting the
generality of this Section 3.01(a), in furtherance of the foregoing, the
Servicer hereby agrees that it shall also have, and shall comply with, the
duties and responsibilities relating to data acquisition, usage and bill
calculation, billing, customer service functions, collections, payment
processing and remittance set forth in Exhibit A hereto.
(b) Notification of Laws and Regulations. The Servicer shall
immediately notify the Issuers, the Bond Trustees and the Rating Agencies
in writing of any laws or PUC Regulations hereafter promulgated that have a
material adverse effect on the Servicer's ability to perform its duties
under this Agreement.
(c) Other Information. Upon the reasonable request of any Issuer, any
Bond Trustee or any Rating Agency, the Servicer shall provide to such
Issuer, such Bond Trustee or such Rating Agency, as the case may be, any
public financial information in respect of the Servicer, or any material
information regarding the
<PAGE>
18
Intangible Transition Property to the extent it is reasonably available to
the Servicer, as may be reasonably necessary and permitted by law for such
Issuer, such Bond Trustee or such Rating Agency to monitor the performance
by the Servicer hereunder. In addition, so long as any of the Transition
Bonds of any Series are outstanding, the Servicer shall provide each Issuer
and each Bond Trustee, within a reasonable time after written request
therefor, any information available to the Servicer or reasonably
obtainable by it that is necessary to calculate the Intangible Transition
Charges applicable to each Rate Class.
SECTION 3.02. Collection and Allocation of Intangible Transition Charges.
(a) The Servicer shall use all reasonable efforts consistent with its customary
servicing procedures to collect all amounts owed in respect of Intangible
Transition Charges as and when the same shall become due and shall follow such
collection procedures as it follows with respect to collection activities that
the Servicer conducts for itself or others. The Servicer shall not change the
amount of or reschedule the due date of any scheduled payment of Intangible
Transition Charges, except as contemplated in this Agreement or as required by
law or court or PUC order; provided, however, that the Servicer may take any of
the foregoing actions to the extent that such
<PAGE>
19
action would be in accordance with customary billing and collection practices of
the Servicer with respect to billing and collection activities that it conducts
for itself.
(b) Any amounts received by the Servicer from a Customer that represent a
partial payment toward an outstanding balance will be applied first to state tax
charges, then Intangible Transition Charges, then to Competitive Transition
Charges, then to transmission and distribution charges and finally to electric
generation charges. Notwithstanding the foregoing, when PECO Energy is providing
billing for its transmission and distribution charges which is separate from
billing for generation, any amounts received from Customers remitting partial
payments will be applied in the following priority: (i) to the outstanding
balance before direct access to electric generation from electric generation
suppliers or the installment amount for a payment agreement on such balance;
(ii) to the balance due for state tax charges; (iii) to the balance due or the
instalment amount for a payment agreement for Intangible Transition Charges;
(iv) to the balance due or the instalment amount for a payment agreement for
Competitive Transition Charges; (v) to the balance due or the instalment amount
for a payment agreement for fixed and variable utility distribution service
charges; (vi) to the current state tax charges; (vii) to the current Intangible
<PAGE>
20
Transition Charges; and (viii) to the current Competitive Transition Charges;
(ix) to the current fixed and variable utility distribution service charges; (x)
to the balance due for prior charges for energy and capacity (if PECO Energy is
the provider of last resort); (xi) to the current charges for energy and
capacity charges (if PECO Energy is the provider of last resort); and (xii) to
the non-basic service charges.
(c) Any ITC Collections received by the Servicer during any Collection
Period shall be allocated between the Issuers based on their respective
Percentages with respect to the Collection Period during which such ITC
Collections were expected to be collected.
SECTION 3.03. Servicing and Maintenance Standards. The Servicer shall, on
behalf of each Issuer, (a) 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 PUC
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; (b) follow standards, policies and
procedures in performing its duties as Servicer that are customary in the
Servicer's industry; (c) use all reasonable efforts,
<PAGE>
21
consistent with its customary servicing procedures, to enforce and maintain
rights in respect of the Intangible Transition Property; and (d) calculate
Intangible Transition Charges in compliance with the Statute, the Qualified Rate
Orders and any applicable tariffs, except where the failure to comply with any
of the foregoing would not adversely affect any Issuer's or any Bond Trustee's
interest in the Serviced Intangible Transition Property. The Servicer shall
follow such customary and usual practices and procedures as it shall deem
necessary or advisable in its servicing of all or any portion of the Serviced
Intangible Transition Property, which, in the Servicer's judgment, may include
the taking of legal action pursuant to Section 3.09 hereof or otherwise.
SECTION 3.04. Servicer's Certificates. (a) The Servicer will provide to
each Issuer, the Bond Trustee under the Indenture to which such Issuer is a
party, and each of the Rating Agencies the statements and certificates specified
in the Issuer Annex for such Issuer.
SECTION 3.05. Annual Statement as to Compliance; Notice of Default. (a) The
Servicer shall deliver to each Issuer, each Bond Trustee and each Rating Agency,
on or before March 31 of each year beginning March 31, 1999, an Officers'
Certificate, stating that (i) a review of the activities of the Servicer during
the preceding calendar
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22
year (or relevant portion thereof) and of its performance under this Agreement
has been made under such officers' supervision and (ii) to the best of such
officers' knowledge, based on such review, the Servicer has fulfilled all its
obligations under this Agreement throughout such period or, if there has been a
default in the fulfillment of any such obligation, describing each such default.
(b) The Servicer shall deliver to each Issuer, each Bond Trustee and each
Rating Agency, promptly after having obtained knowledge thereof, but in no event
later than five Business Days thereafter, written notice in an Officers'
Certificate of any event which with the giving of notice or lapse of time, or
both, would become a Servicer Default under Section 6.01.
SECTION 3.06. Annual Independent Certified Public Accountants' Report. (a)
The Servicer shall cause a firm of independent certified public accountants
(which may also provide other services to the Servicer or the Seller) to
prepare, and the Servicer shall deliver to each Issuer, each Bond Trustee and
each Rating Agency, on or before March 31 of each year, beginning March 31, 2000
to and including the March 31 succeeding the retirement of all Transition Bonds,
a report addressed to the Servicer (the "Annual Accountant's Report"), which may
be included as part of the Servicer's customary auditing activities, to the
effect that such firm
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23
has performed certain procedures in connection with the Servicer's compliance
with its obligations under this Agreement during the preceding calendar year
ended December 31 (or, in the case of the first Annual Accountant's Report, the
period of time from the first Transfer Date until December 31, 1999),
identifying the results of such procedures and including any exceptions noted.
In the event such accounting firm requires any Bond Trustee or any Issuer to
agree or consent to the procedures performed by such firm, such Issuer shall
direct the applicable Bond Trustee in writing to so agree; it being understood
and agreed that such Bond Trustee will deliver such letter of agreement or
consent in conclusive reliance upon the direction of such Issuer, and neither
such Bond Trustee nor such Issuer will make any independent inquiry or
investigation as to, and shall have no obligation or liability in respect of,
the sufficiency, validity or correctness of such procedures.
(b) The Annual Accountant's Report shall also indicate that the accounting
firm providing such report is independent of the Servicer within the meaning of
the Code of Professional Ethics of the American Institute of Certified Public
Accountants.
SECTION 3.07. Intangible Transition Property Documentation. To assure
uniform quality in servicing the
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24
Serviced Intangible Transition Property and to reduce administrative costs, the
Servicer shall keep on file, in accordance with its customary procedures, all
documents relating to the Intangible Transition Property, including copies of
the Qualified Rate Orders and all documents filed with the PUC in connection
with any Intangible Transition Charges Adjustment (collectively, the "Intangible
Transition Property Documentation").
SECTION 3.08. Computer Records; Audits of Documentation. (a) Safekeeping.
The Servicer shall maintain accurate and complete accounts, records and computer
systems pertaining to the Intangible Transition Property and the Intangible
Transition Property Documentation in accordance with its standard accounting
procedures and in sufficient detail to permit reconciliation between payments or
recoveries on (or with respect to) Intangible Transition Charges and the ITC
Collections from time to time remitted to each Bond Trustee pursuant to Section
5.10 and to enable each Issuer to comply with this Agreement and the Indenture
to which it is a party. The Servicer shall conduct, or cause to be conducted,
periodic audits of the Intangible Transition Property Documentation held by it
under this Agreement and of the related accounts, records and computer systems,
in such a manner as shall enable each Issuer and each Bond Trustee, as pledgee
of the
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25
applicable Issuer, to verify the accuracy of the Servicer's record keeping. The
Servicer shall promptly report to each Issuer and each Bond Trustee any failure
on the Servicer's part to hold the Intangible Transition Property Documentation
and maintain its accounts, records and computer systems as herein provided and
promptly take appropriate action to remedy any such failure. Nothing herein
shall be deemed to require an initial review or any periodic review by any
Issuer or any Bond Trustee of the Intangible Transition Property Documentation.
(b) Maintenance of and Access to Records. The Servicer shall maintain the
Intangible Transition Property Documentation at 2301 Market Street,
Philadelphia, Pennsylvania or at such other office as shall be specified to each
Issuer and each Bond Trustee by written notice not later than 30 days prior to
any change in location. The Servicer shall permit each Issuer and each Bond
Trustee or their respective duly authorized representatives, attorneys, agents
or auditors at any time during normal business hours to inspect, audit and make
copies of and abstracts from the Servicer's records regarding the Intangible
Transition Property and Intangible Transition Charges and the Intangible
Transition Property Documentation. The failure of the Servicer to provide access
to such information as a result of an obligation or applicable law (including
PUC
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26
Regulations) prohibiting disclosure of information regarding customers shall not
constitute a breach of this Section 3.08(b).
SECTION 3.09. Defending Intangible Transition Property Against Claims. The
Servicer shall institute any action or proceeding necessary to compel
performance by the PUC or the Commonwealth of Pennsylvania of any of their
obligations or duties under the Statute or the Qualified Rate Orders with
respect to the Intangible Transition Property. The costs of any such action
reasonably allocated by the Servicer to the Serviced Intangible Transition
Property, based on the ratio the Serviced Intangible Transition Property bears
to the total Intangible Transition Property, shall be payable from ITC
Collections as an Operating Expense in accordance with the Indentures and shall
be allocated among the Issuers based on the ratio the outstanding principal
amount of Transition Bonds issued by each such Issuer bears to the aggregate
outstanding principal amount of Transition Bonds issued by all the Issuers at
the time such costs are incurred. The Servicer's obligations pursuant to this
Section 3.09 shall survive and continue notwithstanding the fact that the
payment of Operating Expenses pursuant to the Indentures may be delayed (it
being understood that the Servicer may be required to advance its own funds to
satisfy its obligations hereunder).
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27
SECTION 3.10. Opinions of Counsel. The Servicer shall deliver to each
Issuer and each Bond Trustee:
(a) promptly after the execution and delivery of this Agreement
and of each amendment hereto, promptly after the execution of each Sale
Agreement and of each amendment thereto and on each Transfer Date, an
Opinion of Counsel either (i) to the effect that, in the opinion of such
counsel, all filings, including filings with the PUC pursuant to the
Statute, that are necessary to fully preserve and protect the interests
of each Bond Trustee in the Serviced Intangible Transition Property have
been executed and filed, and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given,
or (ii) to the effect that, in the opinion of such counsel, no such
action shall be necessary to preserve and protect such interest; and
(b) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months
after the first Transfer Date, an Opinion of Counsel, dated as of a date
during such 90-day period, either (i) to the effect that, in the opinion
of such counsel, all filings with the PUC pursuant to the Statute, have
been executed and filed that are necessary to preserve fully
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28
and protect fully the interest of each Bond Trustee in the Serviced
Intangible Transition Property, and reciting the details of such filings
or referring to prior Opinions of Counsel in which such details are
given, or (ii) to the effect that, in the opinion of such counsel, no
such action shall be necessary to preserve and protect such interest.
Each Opinion of Counsel referred to in clause (a) or (b) above shall
specify any action necessary (as of the date of such opinion) to be taken in the
following year to preserve and protect such interest.
ARTICLE IV
Services Related to Intangible
Transition Charges Adjustments
SECTION 4.01. Intangible Transition Charges Adjustments. The Servicer shall
perform the calculations and take the actions relating to revising the
Intangible Transition Charges, in each case set forth in each Issuer Annex to
this Agreement.
ARTICLE V
The Servicer
SECTION 5.01. Representations and Warranties of Servicer. The Servicer
makes the following representations and warranties as of each Transfer Date, on
which the Issuers have relied and will rely in acquiring Serviced
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29
Intangible Transition Property. The representations and warranties shall survive
the sale of any of the Serviced Intangible Transition Property to any Issuer and
the pledge thereof to any Bond Trustee pursuant to any Indenture.
(a) Organization and Good Standing. 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 to conduct its business as such properties are currently owned and such
business is presently conducted, and has the power, authority and legal
right to service the Serviced Intangible Transition Property.
(b) Due Qualification. The Servicer 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 owner ship or
lease of property or the conduct of its business (including the servicing
of the Serviced Intangible Transition Property as required by this
Agreement) requires such qualifications, licenses or approvals (except
where the failure to so qualify would not be reasonably likely to have a
material adverse effect on the Servicer's business, operations, assets,
revenues, properties or prospects or adversely affect
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30
the servicing of the Serviced Intangible Transition Property).
(c) Power and Authority. The Servicer has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms;
and the execution, delivery and performance of this Agreement have been
duly authorized by the Servicer by all necessary corporate action.
(d) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Servicer enforceable against the Servicer in
accordance with its terms subject to bankruptcy, receivership, insolvency,
fraudulent transfer, reorganization, moratorium or other laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity (regardless of whether considered in a proceeding in
equity or at law).
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof shall 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 Servicer, or any indenture,
agreement or other instrument to which the
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31
Servicer is a party or by which it shall be bound; nor result in the
creation or imposition of any Lien (other than the lien of the Mortgage on
the Servicer's interest in this Agreement) upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument;
nor violate any law or any order, rule or regulation applicable to the
Servicer of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Servicer or its properties.
(f) Approvals. Except for filings with the PUC for revised Intangible
Transition Charges pursuant to Section 4.01 and the Issuer Annexes and UCC
continuation filings, 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 Servicer of this
Agreement, the performance by the Servicer of the transactions contemplated
hereby or the fulfillment by the Servicer of the terms hereof, except those
that have been obtained or made.
(g) No Proceedings. There are no proceedings or investigations pending
or, to the Servicer's best
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32
knowledge, threatened before any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Servicer or its properties: (i) except as disclosed
by the Servicer to the 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 this Agreement or (ii) relating to the Servicer and which might
adversely affect the Federal or state income tax attributes of the
Transition Bonds.
(h) Reports and Certificates. Each report and certificate delivered in
connection with any filing made to the PUC by the Servicer on behalf of any
Issuer with respect to Intangible Transition Charges or Intangible
Transition Charges Adjustments will constitute a representation and
warranty by the Servicer that each such report or certificate, as the case
may be, is true and correct in all material respects; provided, however,
that to the extent any such report or certificate is based in part upon or
contains assumptions, forecasts or other predictions of future events, the
representation and warranty of the Servicer with respect thereto will be
limited to the representation and warranty that such assumptions,
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33
forecasts or other predictions of future events are reasonable based
upon historical performance.
SECTION 5.02. Indemnities of Servicer; Release of Claims. (a) The Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Servicer under this Agreement.
(b) The Servicer shall indemnify each Issuer and each Bond Trustee, for
itself and on behalf of the Transition Bondholders for which it acts as Bond
Trustee, and each of their respective trustees, officers, directors and agents
for, and defend and hold harmless each such Person from and against, any and all
Losses that may be imposed upon, incurred by or asserted against any such Person
as a result of (i) the Servicer's wilful misfeasance, bad faith or gross
negligence in the performance of its duties or observance of its covenants under
this Agreement or the Servicer's reckless disregard of its obligations and
duties under this Agreement or (ii) the Servicer's breach of any of its
representations or warranties in this Agreement.
(c) If any action, claim, demand or proceeding (including any governmental
investigation) shall be brought or asserted against a party (the "indemnified
party") entitled to any indemnification provided for under this Section 5.02,
such indemnified party shall promptly notify the Servicer in writing; provided,
however, that failure to
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34
give such notification shall not affect the indemnification provided hereunder
except to the extent the Servicer shall have been actually prejudiced as a
result of such failure.
(d) The Servicer shall indemnify the Bond Trustees and their respective
officers, directors and agents for, and defend and hold harmless each such
Person from and against, any and all Losses that may be imposed upon, incurred
by or asserted against any such Person as a result of the acceptance or
performance of the trusts and duties contained herein and in the Indenture,
except to the extent that any such Loss shall be due to the wilful misfeasance,
bad faith or gross negligence of the applicable Bond Trustee. Such amounts with
respect to the Bond Trustee of the First Issuer shall be deposited and
distributed in accordance with the Indenture to which such Bond Trustee is a
party.
(e) The Servicer's indemnification obligations under Section 5.02(b) and
(d) for events occurring prior to the removal or resignation of any Bond Trustee
or the termination of this Agreement with respect to any Issuer shall survive
the resignation or removal of such Bond Trustee or the termination of this
Agreement with respect to such Issuer and shall include reasonable costs, fees
and expenses of investigation and litigation (including any
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35
Issuer's and any Bond Trustee's reasonable attorneys' fees and expenses).
(f) Except to the extent expressly provided for in this Agreement, the Sale
Agreements or the Formation Documents (including the Servicer's claims with
respect to the Monthly Servicing Fees and the Seller's claim for payment of the
purchase price of Intangible Transition Property), the Servicer hereby releases
and discharges each Issuer (including its respective trustees, officers,
directors and agents, if any), and each Bond Trustee (including its respective
officers, directors and agents) (collectively, the "Released Parties") from any
and all actions, claims and demands whatsoever, which the Servicer, in its
capacity as Servicer or Seller, shall or may have against any such Person
relating to the Serviced Intangible Transition Property or the Servicer's
activities with respect thereto other than any actions, claims and demands
arising out of the wilful misconduct, bad faith or gross negligence of the
Released Parties.
SECTION 5.03. Merger or Consolidation of, or Assumption of the Obligations
of, Servicer. Any Person (a) into which the Servicer may be merged or
consolidated and which succeeds to the major part of the electric distribution
business of the Servicer, (b) which results from the division of the Servicer
into two or more Persons
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36
and which succeeds to the major part of the electric distribution business of
the Servicer, (c) which may result from any merger or consolidation to which the
Servicer shall be a party and which succeeds to the major part of the electric
distribution business of the Servicer, (d) which may succeed to the properties
and assets of the Servicer substantially as a whole and which succeeds to the
major part of the electric distribution business of the Servicer or (e) which
may otherwise succeed to the major part of the electric distribution business of
the Servicer, which Person in any of the foregoing cases executes an agreement
of assumption to perform every obligation of the Servicer hereunder, shall be
the successor to the Servicer under this Agreement without further act on the
part of any of the parties to this Agreement; provided, however, that
(i) immediately after giving effect to such transaction, no representation and
warranty made pursuant to Section 5.01 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, (ii) the
Servicer shall have delivered to each Issuer and each Bond Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
5.03 and that all conditions precedent
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37
provided for in this Agreement relating to such transaction have been complied
with, (iii) the Rating Agencies shall have received prior written notice of such
transaction, (iv) the Servicer shall have delivered to each Issuer, each Bond
Trustee and each Rating Agency an Opinion of Counsel either (A) stating that, in
the opinion of such counsel, all filings, including filings with the PUC
pursuant to the Statute, have been executed and filed that are necessary to
preserve fully and protect fully the interests of each Issuer in the Serviced
Intangible Transition Property and reciting the details of such filings or (B)
stating that, in the opinion of such counsel, no such action shall be necessary
to preserve and protect such interests. Notwithstanding anything herein to the
contrary, the execution of the above referenced agreement of assumption and
compliance with clauses (i), (ii), (iii) and (iv) above shall be conditions
precedent to the consummation of the transactions referred to in clause (a),
(b), (c), (d) or (e) above.
SECTION 5.04. Assignment of Servicer's Obligations. Pursuant to paragraph
13 of each Qualified Rate Order in which the PUC authorizes PECO Energy to
contract with an alternative party to perform PECO Energy's obligations
contemplated in such Qualified Rate Order, the Servicer may assign its
obligations hereunder to any
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38
electric distribution company (as such term is defined in the Statute) which
succeeds to the major part of PECO Energy's electric distribution business.
Prior to any such assignment, the Servicer shall provide written notice thereof
to each of the Rating Agencies.
SECTION 5.05. Limitation on Liability of Servicer and Others. The Servicer
shall not be liable to any Issuer, except as provided under this Agreement, for
any action taken or for refraining from the taking of any action pursuant to
this Agreement or for errors in judgment; provided, however, that this provision
shall not protect the Servicer against any liability that would otherwise be
imposed by reason of wilful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of obligations and
duties under this Agreement. The Servicer and any director or officer or
employee or agent of the Servicer may rely in good faith on the advice of
counsel reasonably acceptable to the Bond Trustees or on any document of any
kind, prima facie properly executed and submitted by any Person, respecting any
matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties to service the Serviced Intangible Transition Property
in
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39
accordance with this Agreement or related to its obligation to pay
indemnification, and that in its reasonable opinion may cause it to incur any
expense or liability.
SECTION 5.06. PECO Energy Not To Resign as Servicer. Subject to the
provisions of Sections 5.03 and 5.04, PECO Energy shall not resign from the
obligations and duties hereby imposed on it as Servicer under this Agreement
except upon a determination that the performance of its duties under this
Agreement shall no longer be permissible under applicable law. Notice of any
such determination permitting the resignation of PECO Energy shall be
communicated to each Issuer, each Bond Trustee and each Rating Agency at the
earliest practicable time (and, if such communication is not in writing, shall
be confirmed in writing at the earliest practicable time), and any such
determination shall be evidenced by an Opinion of Counsel to such effect
delivered to each Issuer and each Bond Trustee concurrently with or promptly
after such notice. No such resignation shall become effective until a successor
Servicer shall have assumed the servicing obligations and duties hereunder of
PECO Energy in accordance with Section 6.04.
SECTION 5.07. Monthly Servicing Fee. Each Issuer, severally and not
jointly, agrees to pay the Servicer, solely to the extent amounts are available
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therefor in accordance with the Indenture to which such Issuer is a party, the
Monthly Servicing Fees with respect to all Series of Transition Bonds issued by
such Issuer. The Monthly Servicing Fee with respect to a Series for a Monthly
Allocation Date shall equal the product of (a) 1/12, (b) the Servicing Fee Rate
for such Series and (c) the outstanding principal amount of the Transition Bonds
of such Series as of such Monthly Allocation Date. The Servicer will be entitled
to retain as additional compensation net investment income on ITC Collections
related to Serviced Intangible Transition Property received by the Servicer
prior to each Remittance Date and the late fees, if any, paid by Customers to
the Servicer. The foregoing fees constitute a fair and reasonable price for the
obligations to be performed by the Servicer.
SECTION 5.08. Servicer Expenses. Except as otherwise expressly provided
herein, the Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder, including fees and disbursements of
independent accountants and counsel, taxes imposed on the Servicer and expenses
incurred in connection with reports to Transition Bondholders.
SECTION 5.09. Appointments. The Servicer may at any time appoint a
subservicer to perform all or any portion of its obligations as Servicer
hereunder; provided, however,
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41
that the Rating Agency Condition shall have been satisfied in connection
therewith with respect to all Rating Agencies other than Moody's (and the
Servicer shall have furnished Moody's with written notice of such appointment
prior to its effectiveness); provided further that the Servicer shall remain
obligated and be liable to each Issuer for the servicing and administering of
the Serviced Intangible Transition Property in accordance with the provisions
hereof without diminution of such obligation and liability by virtue of the
appointment of such subservicer and to the same extent and under the same terms
and conditions as if the Servicer alone were servicing and administering the
Serviced Intangible Transition Property. The fees and expenses of the
subservicer shall be as agreed between the Servicer and its subservicer from
time to time, and no Issuer (or trustee thereof, if any), Bond Trustee or
Transition Bondholder shall have any responsibility therefor.
SECTION 5.10. Remittances. (a) Subject to Section 5.07, the Servicer shall
remit all ITC Collections (from whatever source) allocated to each Issuer
pursuant to Section 3.02 and all proceeds of other Collateral of such Issuer, if
any, received by the Servicer to the Bond Trustee under the Indenture to which
such Issuer is a party, for
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42
deposit pursuant to such Indenture, not later than the second Business Day after
receipt thereof.
(b) Notwithstanding the foregoing clause (a), (i) as long as PECO Energy or
any successor to PECO Energy's electric distribution business remains the
Servicer, (ii) no Servicer Default has occurred and is continuing and (iii) (A)
PECO Energy or such successor maintains a short-term rating of "A-1" or better
by Standard & Poor's, "P-1" or better 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 (B) the Rating Agency Condition shall have been satisfied (and
any conditions or limitations imposed by the Rating Agencies in connection
therewith are complied with), the Servicer need not make the daily remittances
required by such clause (a), but in lieu thereof, shall remit all ITC
Collections (from whatever source) allocated to each Issuer pursuant to Section
3.02 and all proceeds of other Collateral of such Issuer, if any, received by
the Servicer during each Collection Period and any such amounts received in
prior Collection Periods but not so remitted to the Bond Trustee under the
Indenture to which such Issuer is a party, for deposit pursuant to such
Indenture, not later than the final day of such Collection Period or, if any
such day is not a Business Day, the next succeeding Business Day.
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SECTION 5.11. Servicer Advances. The Servicer shall make advances of
interest or principal on the Transition Bonds of any Series in the manner and to
the extent, if any, specified in any Annex to this Agreement entered into in
connection with the issuance of such Transition Bonds.
SECTION 5.12. Protection of Title. The Servicer shall execute and file such
filings, including filings with the PUC pursuant to the Statute, and cause to be
executed and filed such filings, all in such manner and in such places as may be
required by law fully to preserve, maintain, and protect the interests of each
Issuer in its respective Serviced Intangible Transition Property, including all
filings required under the Statute relating to the transfer of the ownership or
security interest in the Serviced Intangible Transition Property by the Seller
to such Issuer or any security interest granted by such Issuer in its Serviced
Intangible Transition Property. The Servicer shall deliver (or cause to be
delivered) to the applicable Issuers file-stamped copies of, or filing receipts
for, any document filed as provided above, as soon as available following such
filing.
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44
ARTICLE VI
Servicer Default
SECTION 6.01. Servicer Default. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to remit to any Bond Trustee on behalf
of an Issuer any required remittance that shall continue unremedied for a
period of three Business Days after written notice of such failure is
received by the Servicer from such Issuer or Bond Trustee; or
(b) any failure by the Servicer or, so long as the Seller and the
Servicer are the same Person, the Seller, as applicable, duly to observe or
perform in any material respect any other covenant or agreement of the
Servicer or the Seller, as the case may be, set forth in this Agreement or
any other Basic Document to which it is a party, which failure shall (i)
materially and adversely affect the Intangible Transition Property and (ii)
continue unremedied for a period of 30 days after written notice of such
failure shall have been given to the Servicer or the Seller, as the case
may be, by any Issuer or any Bond Trustee or after discovery of such
failure by an officer of the Servicer or the Seller, as the case may be; or
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45
(c) any representation or warranty made by the Servicer in this
Agreement shall prove to have been incorrect when made, which has a
material adverse effect on any of the Issuers or the Transition Bondholders
and which material adverse effect continues unremedied for a period of 60
days after the date on which written notice thereof shall have been given
to the Servicer by any Issuer or any Bond Trustee; or
(d) an Insolvency Event occurs with respect to the Servicer;
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, Bond Trustees, as assignees of the applicable Issuers, with
respect to Holders of a majority of the outstanding principal amount of the
Transition Bonds, by notice then given in writing to the Servicer (a
"Termination Notice") may terminate all the rights and obligations (other than
the indemnification obligations set forth in Section 5.02 hereof and the
obligation under Section 6.02 to continue performing its functions as Servicer
until a successor Servicer is appointed) of the Servicer under this Agreement
with respect to all the Issuers. In addition, upon a Servicer Default described
in Section 6.01(a), each of the following shall be entitled to apply to the PUC
for sequestration and payment of revenues arising with respect to the Serviced
Intangible
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Transition Property: (i) each Issuer or its assignees or (ii) pledgees or
transferees, including transferees under the Statute, of the Serviced Intangible
Transition Property. On or after the receipt by the Servicer of a Termination
Notice, all authority and power of the Servicer under this Agreement with
respect to the Issuers, whether with respect to the Serviced Intangible
Transition Property, the related Intangible Transition Charges or otherwise,
shall, upon appointment of a successor Servicer pursuant to Section 6.02,
without further action, pass to and be vested in such successor Servicer and,
without limitation, each Bond Trustee is hereby authorized and empowered to
execute and deliver, on behalf of the predecessor Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such Termination Notice, whether to complete the transfer of the
Intangible Transition Property Documentation and related documents, or
otherwise. The predecessor Servicer shall cooperate with the successor Servicer,
the Bond Trustees and the Issuers in effecting the termination of the
responsibilities and rights of the predecessor Servicer under this Agreement,
including the transfer to the successor Servicer for administration by it of all
cash amounts that shall at the time be held by the predecessor
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47
Servicer for remittance, or shall thereafter be received by it with respect to
the Serviced Intangible Transition Property or the related Intangible Transition
Charges. As soon as practicable after receipt by the Servicer of such
Termination Notice, the Servicer shall deliver the Intangible Transition
Property Documentation to the successor Servicer. All reasonable costs and
expenses (including attorneys fees and expenses) incurred in connection with
transferring the Intangible Transition Property Documentation to the successor
Servicer and amending this Agreement to reflect such succession as Servicer
pursuant to this Section shall be paid by the predecessor Servicer upon
presentation of reasonable documentation of such costs and expenses. Termination
of PECO Energy as Servicer shall not terminate PECO Energy's rights or
obligations as Seller under any of the Sale Agreements.
SECTION 6.02. Notice of Servicer Default. The Servicer shall deliver to
each Issuer, each Bond Trustee and each Rating Agency promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice in an Officers' Certificate of any event or
circumstance (such as a breach of any representation or warranty made by the
Servicer in this
<PAGE>
48
Agreement) which, with the giving of notice or the passage of time, would become
a Servicer Default under Section 6.01.
SECTION 6.03. Waiver of Past Defaults. All the Bond Trustees acting
together may waive in writing any default by the Servicer in the performance of
its obligations hereunder and its consequences, except a default in making any
required remittances to any Bond Trustee of ITC Collections from Serviced
Intangible Transition Property in accordance with Section 5.10 of this
Agreement. Upon any such waiver of a past default, such default shall cease to
exist, and any Servicer Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto.
SECTION 6.04. Appointment of Successor. (a) Upon the Servicer's receipt of
a Termination Notice, pursuant to Section 6.01 or the Servicer's resignation in
accordance with the terms of this Agreement, the predecessor Servicer shall
continue to perform its functions as Servicer under this Agreement and shall be
entitled to receive the requisite portion of the Monthly Servicing Fees, until a
successor Servicer shall have assumed in writing the obligations of the Servicer
hereunder as described below. In the event of the Servicer's termination
hereunder, Bond Trustees, as assignees of the applicable Issuers, with
<PAGE>
49
respect to Holders of a majority of the outstanding principal amount of the
Transition Bonds, shall appoint a successor Servicer, and the successor Servicer
shall accept its appointment by a written assumption in form acceptable to the
Issuers and the Bond Trustees. If, within 30 days after the delivery of the
Termination Notice, a new Servicer shall not have been appointed and accepted
such appointment, any Bond Trustee may petition the PUC or a court of competent
jurisdiction to appoint a successor Servicer under this Agreement. A Person
shall qualify as a successor Servicer only if (i) such Person is permitted under
PUC Regulations to perform the duties of the Servicer pursuant to the Statute,
the Qualified Rate Orders and this Agreement, (ii) the Rating Agency Condition
shall have been satisfied with respect to all Rating Agencies other than Moody's
(and Moody's shall have been furnished with written notice of such appointment
prior to its effectiveness) and (iii) such Person enters into a servicing
agreement with the Issuers having substantially the same provisions as this
Agreement.
(b) Upon appointment, the successor Servicer shall be the successor in all
respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the predecessor Servicer and shall be entitled to
<PAGE>
50
the Monthly Servicing Fees and all the rights granted to the predecessor
Servicer by the terms and provisions of this Agreement.
(c) The successor Servicer may not resign unless it is prohibited from
serving as such by law.
SECTION 6.05. Cooperation with Successor. The Servicer covenants and agrees
with each Issuer that it will, on an ongoing basis, 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 hereunder.
ARTICLE VII
Miscellaneous Provisions
SECTION 7.01. Amendment. This Agreement may be amended by the Seller, the
Servicer and the Issuers, with the consent of all the Bond Trustees and, with
respect to any amendment which would materially adversely affect the rights of
any Counterparty under any Swap Agreement, the consent of each such Counterparty
(which consent shall not be unreasonably withheld). The Issuers shall furnish to
each of the Rating Agencies (i) prior to the execution of any such amendment or
consent, written notification of the substance thereof and (ii) promptly after
the execution of any such amendment or consent, a copy thereof.
<PAGE>
51
Prior to the execution of any amendment to this Agreement, the Issuers and
the Bond Trustees shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement and the Opinion of Counsel referred to in Section 3.10. The
Issuers and the Bond Trustees may, but shall not be obligated to, enter into any
such amendment which affects their own rights, duties or immunities under this
Agreement or otherwise.
SECTION 7.02. Notices. All demands, notices and communications upon or to
the Servicer, the Issuers, the Bond Trustees or the Rating Agencies under this
Agreement shall be in writing, delivered personally, via facsimile, reputable
overnight courier or by first class mail, postage prepaid, and shall be deemed
to have been duly given upon receipt (a) in the case of the Servicer, to PECO
Energy Company, 2301 Market Street, Philadelphia, PA 19101, Attention of Vice
President, Finance and Treasurer, (b) in the case of any Issuer or any Bond
Trustee, at the address provided for notices or communications to such Person in
the Indenture to which such Person is a party, (c) in the case of Moody's, to
Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church Street,
New York, New York 10007, (d) in the case of Standard & Poor's, to Standard &
Poor's Corporation, 26 Broadway (15th Floor), New York,
<PAGE>
52
New York 10004, Attention of Asset Backed Surveillance Department, (e) in the
case of Fitch IBCA, to Fitch IBCA, Inc., One State Street Plaza, New York, New
York 10004, Attention of ABS Surveillance, and (f) in the case of Duff, to Duff
& Phelps Credit Rating Company, 55 E. Monroe Street (35th Floor), Chicago,
Illinois 60603; or, as to each of the foregoing, at such other address as shall
be designated by written notice to the other parties.
SECTION 7.03. Assignment. Notwithstanding anything to the contrary
contained herein, except as pro vided in Sections 5.03 and 5.04 and as provided
in the provisions of this Agreement concerning the resignation of the Servicer,
this Agreement may not be assigned by the Servicer.
SECTION 7.04. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Servicer, the Issuers (including
their respective trustees, if any) and the Bond Trustees, on behalf of
themselves and the Transition Bondholders, and nothing in this Agreement,
whether express or implied, shall be construed to give to any other Person any
legal or equitable right, remedy or claim in any Collateral or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.
<PAGE>
53
SECTION 7.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 7.06. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 7.07. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 7.08. Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Pennsylvania, without reference
to its conflict of law provisions, and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws.
SECTION 7.09. Assignment to Bond Trustee. The Servicer hereby acknowledges
and consents to any mortgage,
<PAGE>
54
pledge, assignment and grant of a security interest by any Issuer to any Bond
Trustee pursuant to any Indenture for the benefit of any Transition Bondholders
of all right, title and interest of such Issuer in, to and under the Serviced
Intangible Transition Property owned by such Issuer and the proceeds thereof and
the assignment of any or all of such Issuer's rights hereunder to such Bond
Trustee. In no event shall any Bond Trustee have any liability for the
representations, warranties, covenants, agreements or other obligations of any
Issuer, hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the applicable Issuer.
SECTION 7.10. Nonpetition Covenants. Notwithstanding any prior termination
of this Agreement or the Indenture, but subject to the PUC's rights to order the
sequestration and payment of revenues arising with respect to the Serviced
Intangible Transition Property notwithstanding any bankruptcy, reorganization or
other insolvency proceedings with respect to the debtor, pledgor or transferor
of the Serviced Intangible Transition Property pursuant to Section 2812(d)(3)(v)
of the Statute, the Servicer shall not, prior to the date which is one year and
one day after the termination of the applicable Indenture, petition or otherwise
invoke or cause any Issuer to invoke
<PAGE>
55
the process of any court or government authority for the purpose of commencing
or sustaining a case against any Issuer under any Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of any Issuer or any
substantial part of the property of any Issuer, or ordering the winding up or
liquidation of the affairs of any Issuer.
SECTION 7.11. Addition of Issuers. Upon execution and delivery by the
Servicer and a Person which owns Intangible Transition Property sold to such
Person by the Seller of an instrument in the form of Exhibit B hereto, such
Person shall become an Issuer hereunder with the same force and effect as if
originally named as an Issuer herein. The execution and delivery of any such
instrument shall not require the consent of any Issuer hereunder. The rights and
obligations of each Issuer hereunder shall remain in full force and effect
notwithstanding the addition of any new Issuer as a party to this Agreement.
SECTION 7.12. Termination by Issuers. This Agreement shall terminate with
respect to any Issuer when all Transition Bonds issued by such Issuer have been
retired, redeemed or defeased in full.
SECTION 7.13. Limitation of Liability of Trustee. Notwithstanding anything
contained herein to the contrary,
<PAGE>
56
this Agreement has been countersigned by First Union Trust Company, National
Association, not in its individual capacity but solely in its capacity as
trustee of the First Issuer and in no event shall First Union Trust Company,
National Association, in its individual capacity have any liability for
warranties, covenants, agreements or other obligations of the First Issuer
hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the First Issuer. For all purposes of this Agreement, in the performance of
its duties or obligations hereunder or in the performance of any duties or
obligations of the First Issuer hereunder, First Union Trust Company, National
Association, shall be subject to, and entitled to
<PAGE>
57
the benefits of, the applicable terms and provisions of the Formation Documents
relating to the First Issuer.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
PECO ENERGY TRANSITION TRUST,
by First Union Trust Company,
National Association, not in
its individual capacity but
solely as Issuer Trustee on
behalf of PECO Energy
Transition Trust,
by
------------------------------
Title:
PECO ENERGY COMPANY, Servicer,
by
------------------------------
Title:
Acknowledged and Accepted:
THE BANK OF NEW YORK, not
in its individual capacity
but solely as Bond Trustee
on behalf of the Holders of
Transition Bonds issued by
the First Issuer,
by
-----------------------------
Title:
<PAGE>
EXHIBIT B
Supplement for Addition of Issuer
SUPPLEMENT NO. __ dated as of [ ], to the Amended and
Restated Master Servicing Agreement dated as of [ ], 2000,
between [ ], a [state of formation] [type of entity] (the
"New Issuer") and PECO ENERGY COMPANY, a Pennsylvania
corporation as Servicer (the "Servicer").
A. Reference is made to the Amended and Restated Master Servicing Agreement
dated as of [ ], 2000 (as amended, supplemented or otherwise modified from time
to time, the "Servicing Agreement"), among PECO ENERGY TRANSITION TRUST, a
Delaware business trust (the "First Issuer"), the other Issuers from time to
time party thereto (together with the First Issuer, the "Issuers") and the
Servicer.
B. Capitalized terms used herein and not other wise defined herein shall
have the meanings assigned to such terms in the Servicing Agreement.
C. The Issuers have entered into the Servicing Agreement in order to
provide for servicing of the Serviced Intangible Transition Property. Section
7.11 of Servicing Agreement provides that additional Persons may become Issuers
under the Servicing Agreement by execution and delivery of an instrument in the
form of this Supplement. The New Issuer is executing this Supplement in
accordance
<PAGE>
2
with the requirements of the Servicing Agreement to become an Issuer under the
Servicing Agreement in order to provide for the servicing of the Serviced
Intangible Transition Property owned by the New Issuer.
Accordingly, the Servicer and the New Issuer agree as follows:
SECTION 1. In accordance with Section 7.11 of the Servicing Agreement, the
New Issuer by its signature below becomes an Issuer under the Servicing
Agreement with the same force and effect as if originally named therein as an
Issuer and the New Issuer hereby agrees to all the terms and provisions of the
Servicing Agreement applicable to it as an Issuer thereunder. Each reference to
an "Issuer" in the Servicing Agreement shall be deemed to include the New
Issuer. The Servicing Agreement is hereby incorporated herein by reference.
SECTION 2. The New Issuer represents and warrants to the Servicer that this
Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
SECTION 3. This Supplement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same
<PAGE>
3
agreement. This Supplement shall become effective when the Servicer shall have
received counterparts of this Supplement that, when taken together, bear the
signatures of the New Issuer and the Servicer.
SECTION 4. Except as expressly supplemented hereby, the Servicing Agreement
shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 6. Any provision of this Supplement that is prohibited or
unenforceable in any jurisdiction shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
<PAGE>
4
SECTION 7. All communications and notices here under shall be in writing
and given as provided in Section 7.02 of the Servicing Agreement.
IN WITNESS WHEREOF, the New Issuer and the Servicer have duly executed this
Supplement to the Servicing Agreement as of the day and year first above
written.
[Name Of New Issuer],
by
-----------------------------
Title:
PECO ENERGY COMPANY, Servicer,
by
------------------------------
Title:
<PAGE>
ANNEX 1
to
MASTER SERVICING AGREEMENT
The Servicer agrees to comply with the following with respect to PECO Energy
Transition Trust (the "First Issuer"):
SECTION 1. Definitions. (a) Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Amended and Restated Master
Servicing Agreement dated as of [ ], 2000 (the "Servicing Agreement"), among the
First Issuer, the other Issuers from time to time party thereto and PECO ENERGY
COMPANY, as Servicer.
(b) Whenever used in this Annex 1, the following words and phrases shall
have the following meanings:
"Adjustment Date" has the meaning specified in the Indenture.
"Adjustment Request" means an application filed by the Servicer with the
PUC for revised Intangible Transition Charges pursuant to Section 6(b) of this
Annex.
"Available Reserve Amount" means, as of any date, the amount on deposit in
the Reserve Subaccount less the product of (a) the Prepayment Amount and (b) the
difference, expressed as a percentage, between 100% and the Expected
Amortization Percentage for the immediately following Regulatory Year.
<PAGE>
2
"Bond Trustee" has the meaning specified in the Indenture.
"Calculation Date" means, with respect to any Series of Transition Bonds,
such date or dates specified as such in the Series Supplement therefor.
"Calculated Overcollateralization Level" has the meaning set forth in the
Indenture.
"Class" has the meaning specified in the Indenture.
"Expected Amortization Percentage" means, with respect to any Regulatory
Year, the percentage equivalent of a fraction, the numerator of which is the
aggregate amount of Transition Bonds of all Series to be amortized during such
Regulatory Year as set forth in Expected Amortization Schedules therefor and the
denominator of which is the Projected Transition Bond Balance on the first day
of such Regulatory Year.
"Expected Amortization Schedule" has the meaning set forth in the
Indenture.
"Expected Final Payment Date" has the meaning set forth in the Indenture.
"Holder" or "Transition Bondholder" has the meaning set forth in the
Indenture.
"Indenture" means the Indenture dated as of March 1, 1999, between the
First Issuer and The Bank of
<PAGE>
3
New York, as amended and supplemented from time to time, including any Series
Supplement.
"Overcollateralization Subaccount" has the meaning set forth in the
Indenture.
"Payment Date" has the meaning specified in the Indenture.
"Prepayment Amount" means, as of any date, the sum of all amounts currently
on deposit in the Reserve Subaccount arising from prepayment by customers
allocable to Intangible Transition Charges.
"Projected Transition Bond Balance" has the meaning specified in the
Indenture.
"Regulatory Period" means with respect to any Series (i) the period from
the Series Issuance Date therefor through and including the first Adjustment
Date (the "Initial Regulatory Period") and (ii) following the Initial Regulatory
Period until December 31, 2010, each period from and including each Adjustment
Date through but excluding the following Adjustment Date.
"Reserve Subaccount" has the meaning set forth in the Indenture.
"Sale Agreement" has the meaning set forth in the Indenture.
"Schedule Revision Date" has the meaning set forth in the Indenture.
<PAGE>
4
"Series" has the meaning specified in the Indenture.
"Series Issuance Date" has the meaning specified in the Indenture.
"Series Supplement" has the meaning specified in the Indenture.
"Transferred ITP" has the meaning specified in the Sale Agreement.
"Transition Bonds" has the meaning specified in the Indenture.
"Transition Bond Balance" has the meaning specified in the Indenture.
SECTION 2. Calculation Date Statements. For each Calculation Date, the
Servicer will provide to the First Issuer and the Bond Trustee a statement
indicating (i) the Transition Bond Balance and the Projected Transition Bond
Balance for each Series as of the immediately preceding Payment Date, (ii) the
amount on deposit in the Overcollateralization Subaccount and the Calculated
Overcollateralization Level as of the immediately preceding Payment Date, (iii)
the Projected Transition Bond Balance for each Payment Date prior to the next
Adjustment Date and the Servicer's projection of the Transition Bond Balance as
of each Payment Date prior to the next Adjustment Date, (iv) the Calculated
Overcollateralization Level for each
<PAGE>
5
Payment Date prior to the next Adjustment Date and the Servicer's projection of
the amount on deposit in the Overcollateralization Subaccount for each Payment
Date prior to the next Adjustment Date and (v) the projected ITC Collections
from the Payment Date immediately preceding the next Adjustment Date through
such Adjustment Date.
SECTION 3. Remittance Date Statements. On or before each Remittance Date,
the Servicer will prepare and furnish to the First 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 such Remittance Date pursuant to
ss.5.10 of the Servicing Agreement and the Indenture.
SECTION 4. Monthly Allocation Date Statements. At least three Business Days
before each Monthly Allocation Date, the Servicer will prepare and furnish to
the First Issuer, the Bond Trustee, each Counterparty and the Rating Agencies a
statement setting forth the transfers and payments to be made on such Monthly
Allocation Date pursuant to Section 8.02(d) of the Indenture and the amounts
thereof.
SECTION 5. Payment Date Statements. At least three Business Days before
each Payment Date for each Series of Transition Bonds, the Servicer will
calculate the interest due on any floating rate Transition Bonds of such Series
and will prepare and furnish to the First Issuer and
<PAGE>
6
the Bond Trustee a statement setting forth the amounts to be paid to Holders of
Transition Bonds of such Series pursuant to Section 8.02(e) of the Indenture.
SECTION 6. Intangible Transition Charges Adjustments. (a) Prior to each
Calculation Date, the Servicer shall calculate (i) the Transition Bond Balance
as of the Payment Date immediately preceding such Calculation Date (a written
copy of which shall be delivered by the Servicer to the Bond Trustee within five
days following such Calculation Date) and (ii) the revised Intangible Transition
Charges with respect to the Transferred Intangible Transition Property for the
then-current Regulatory Period and any subsequent Regulatory Periods until a
Payment Date occurs, such that the Servicer projects that ITC Collections
therefrom allocable to the First Issuer will be sufficient so that (x) the
outstanding principal balance of each outstanding Series will equal the amount
provided for in the Expected Amortization Schedule therefor and the amount on
deposit in the Overcollateralization Subaccount will equal the Calculated
Overcollateralization Level, by the next Adjustment Date or the immediately
succeeding Payment Date after such Adjustment Date as specified in the Series
Supplement therefor or, if earlier with respect to any Series or Class of
Transition Bonds, by the Expected Final
<PAGE>
7
Payment Date therefor, taking into account the Available Reserve Amount.
(b) On each Calculation Date, the Servicer shall (i) file an Adjustment
Request with the PUC for such revised Intangible Transition Charges with respect
to the Transferred Intangible Transition Property to remain in effect until the
earlier of (A) the effective date of the next Intangible Transition Charges
Adjustment with respect to the Transition Bonds, (B) the Expected Final Payment
Date for any Series or Class of Transition Bonds and (C) December 31, 2010, (ii)
take all reasonable actions and make all reasonable efforts in order to
effectuate such revision to such Intangible Transition Charges and (iii)
promptly send to the Bond Trustee copies of all material notices and documents
relating to such revision.
SECTION 7. Servicer Advances. The Servicer shall not make any advances of
interest or principal on the Transition Bonds of any Series.
SECTION 8. Loss Calculations. Upon notice from the Seller, the Servicer
shall perform the calculations specified in Sections 5.01(c)(ii)(x) and
5.01(c)(ii)(y) of the Sale Agreement in the manner specified in such Sections
and notify the Issuer and the Bond Trustee thereof.
SECTION 9. Schedule Revision Date Schedules. Prior to each Schedule
Revision Date, the Servicer shall
<PAGE>
8
deliver to the First Issuer a replacement Schedule 1 to the Indenture and
replacement Schedules A and B to each Series Supplement to which such Schedule
Revision Date applies, adjusted to reflect the event giving rise to such
Schedule Revision Date and setting forth the Expected Amortization Schedule for
each Payment Date and the Monthly Allocated Interest Balance and Monthly
Allocated Principal Balance for each Monthly Allocation Date applicable thereto;
provided, however, that no such replacement Schedules A and B shall be required
with respect to a Series if the event giving rise to such Schedule Revision Date
is a redemption of the Transition Bonds of such Series in whole.
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Application of PECO Energy Company for :
Approval of its Restructuring Plan Under : Docket Nos. R-00973953
Section 2806 of the Public Utility Code, et al. : and P-00971265
JOINT PETITION FOR FULL SETTLEMENT
OF PECO ENERGY COMPANY'S
RESTRUCTURING PLAN AND RELATED APPEALS
AND APPLICATION FOR A QUALIFIED RATE ORDER AND
APPLICATION FOR TRANSFER OF GENERATION ASSETS
April 29, 1998
<PAGE>
TABLE OF CONTENTS
I. SUMMARY OF SETTLEMENT.....................................................3
II. BACKGROUND...............................................................5
III. TERMS AND CONDITIONS...................................................10
A. Rate Reductions and Rate Unbundling..............................10
B. Rate Caps and Transmission and Distribution Charges..............13
C. Competitive Metering and Billing.................................15
D. Securitization...................................................17
E. Reconciliation and Projected Sales ..............................18
F. LILR and EER and Rule 4.6 Contracts..............................19
G. Phase-In.........................................................22
H. Transfer Of Generation Assets....................................23
I. Recovery Of Stranded ............................................25
J. Universal Service................................................26
K. Consumer Education and Information ..............................32
L. Provider of Last Resort and Generation Supply Obligations
And Opportunities.............................................32
M. Market Share Thresholds .........................................37
N. Code of Conduct..................................................39
O. Renewable Energy Development ....................................39
i
<PAGE>
P. Sustainable Development Fund....................................40
Q. Resolution of Other Issues......................................41
R. Promotion of Settlement.........................................42
S. Withdrawal Of Pending State And Federal Court Cases.............42
T. Effectiveness, Duration And Enforcement Of Settlement...........44
U. Complete Agreement; No Alterations Or Modifications.............45
IV. PUBLIC INTEREST CONSIDERATIONS..........................................46
V. CONCLUSION...............................................................49
[APPENDICES NOT ATTACHED]
ii
<PAGE>
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Application of PECO Energy Company for :
Approval of its Restructuring Plan Under : Docket Nos. R-00973953
Section 2806 of the Public Utility Code, et al. : and P-00971265
JOINT PETITION FOR FULL SETTLEMENT
OF PECO ENERGY COMPANY'S
RESTRUCTURING PLAN AND RELATED APPEALS
AND APPLICATION FOR A QUALIFIED RATE ORDER AND
APPLICATION FOR TRANSFER OF GENERATION ASSETS
PECO Energy Company ("PECO" or the "Company"); Senator Vincent J. Fumo;
the Office of Consumer Advocate ("OCA"); the Office of Small Business Advocate
("OSBA"); the Office of Trial Staff ("OTS"); the Philadelphia Area Industrial
Energy Users Group ("PAIEUG"); Lance S. Haver; the Consumers Education and
Protective Association, et al. ("CEPA");/1 the Environmentalists; the Delaware
Valley Energy Consortium; Pennsylvania Retailers' Association; U.S. Department
of the Navy; Action Alliance of Senior Citizens of Greater Philadelphia;
Pennsylvania Department of Aging; Southeastern Pennsylvania Transportation
Authority ("SEPTA"); Enron Power Marketing, Inc. ("Enron"); NEV East LLC
("NEV"); Conectiv Energy; Mid-Atlantic Power Supply Assoc. ("MAPSA"); Skipping
Stone; NorAm Energy Management, Inc. and Electric Clearinghouse, Inc.;
Pennsylvania Petroleum Association and Pennsylvania Association of Plumbing,
Heating, Cooling
- --------
1 As used herein, CEPA refers collectively to several intervenors represented
by common counsel, including the Consumers Education and Protective
Association, the Tenant Action Group, ACORN and John W. Long, Jr.
1
<PAGE>
Contractors, Inc.; Allegheny Power System, Inc. ("APS"); GPU Energy Inc.
("GPU"); PP&L, Inc. ("PP&L"); Pennsylvania Rural Electric Assoc. ("PREA") and
other parties as designated on the signature pages (all such parties
collectively referred to as the "Joint Petitioners"), by their counsel,
respectfully submit this Joint Petition for Full Settlement of PECO Energy
Company's Proposed Restructuring Plan and Related Appeals and Application for a
Qualified Rate Order and Application for Transfer of Generation Assets ("Joint
Petition").
The terms and conditions of the Joint Petition represent a comprehensive
settlement which resolves all issues on appeal before the Commonwealth Court and
all issues before the U.S. District Court arising from challenges by the Joint
Petitioners to the Commission's final order, reconsideration order and
compliance orders regarding PECO's Application for Approval of its Restructuring
Plan Under Section 2806 of the Public Utility Code. The Joint Petitioners aver
that this comprehensive settlement is in the public interest and, therefore,
request that the Commission: (1) approve without modification the proposed
settlement as set forth in the Joint Petition; (2) amend the Commission's final
order, reconsideration order and compliance filing orders as necessary to
implement the full settlement; (3) approve the tariff supplements necessary to
implement the proposed settlement as appended hereto; (4) issue a Qualified Rate
Order authorizing PECO to securitize up to $4.0 billion of stranded assets and
costs as agreed to herein; and (5) approve PECO's transfer of generation assets
as set forth herein./2
- --------
2 The Joint Petitioners recognize that pursuant to the Public Utility Code,
the Commission is obligated to provide notice and an opportunity to be
heard before it may amend a prior order or issue a Qualified Rate Order.
The Joint Petitioners
(continued...)
2
<PAGE>
In support of their request, the Joint Petitioners state as follows:
I. SUMMARY OF SETTLEMENT
The Joint Petitioners have agreed to the proposed settlement terms and
conditions set forth in this document as a means to resolve, finally and
equitably, all issues arising from PECO's proposed restructuring plan and
application for a qualified rate order, in lieu of further protracted and
expensive litigation in state and federal courts.
In particular, the Joint Petitioners have agreed to terms and conditions
that fairly balance the interests of all parties affected by PECO's
restructuring plan and that foster the creation of a vibrant competitive market.
All PECO customers will receive a guaranteed 8% rate reduction effective January
1, 1999, the start date for retail electric generation competition in PECO's
service territory, through December 31, 1999, and a 6% rate reduction from
January 1 to December 31, 2000. In addition to the guaranteed rate decreases of
8% and 6%, customers shall receive a system-average shopping credit of 4.46
cents per KWH on January 1, 1999. Customers that elect to shop for generation
shall receive total rate reductions in 1999 equal to an 8% rate decrease and in
2000 equal to a 6% rate decrease, plus savings produced by the difference
between their generation purchase price and their shopping credit. Moreover,
given the system average shopping credit of 4.46 cents per KWH for the years
1999 and 2000 called for in the proposed settlement as well as
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(continued)
agree: (1) that PECO will provide written notice by letter to its
customers; (2) that PECO will post notice in its office and on its Internet
web page; and (3) that PECO will provide notice by news release.
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other specific components agreed to herein, the Joint Petitioners expect
the development of a vibrant competitive market with many alternative electric
generation suppliers.
In addition, PECO shall (1) recover a substantially smaller amount of
stranded cost recovery than it claimed before the Commission; (2) transfer its
generation assets and liabilities and wholesale power contracts subject to
competitive safeguards to insure fair dealing; (3) expand its current universal
service programs; (4) accelerate the phase-in to customer choice for all
customer classes; (5) educate consumers about restructuring; (6) facilitate
funding of sustainable energy and economic development; (7) encourage small
renewable energy technologies; and (8) withdraw all of its appeals before
Commonwealth Court and its civil complaint before the U.S. District Court
challenging the Commission's restructuring orders at Docket Nos. R-00973953 and
P-00971265.
The other Joint Petitioners, in turn, agree to resolve all objections to
PECO's Restructuring Plan, as set forth herein, and to withdraw (1) all cases
pending before the Commonwealth Court which challenge the constitutionality of
the Electric Competition Act and the Commission's May 22, 1997 Order at Docket
No. R-00973877 in PECO's securitization proceeding and (2) all appeals pending
before Commonwealth Court which challenge the Commission's restructuring orders
at Docket Nos. R-00973953 and P-00971265, as set forth in Part S herein.
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II. BACKGROUND
1. On December 3, 1996, Governor Ridge signed into law the Electricity
Generation Customer Choice and Competition Act (66 Pa. C.S. ss.2801 et
seq.)(the "Electric Competition Act"). The Electric Competition Act
fundamentally restructures the provision of retail electric service in
Pennsylvania by mandating the introduction of customer choice of generation
supplier commencing January 1, 1999.
2. On April 1, 1997, PECO submitted a comprehensive Restructuring Plan in
which it requested the Commission to approve (1) the imposition of unbundled
rates, Competitive Transition Charges ("CTCs") and specific tariff provisions to
ensure customers direct access to all licensed electric generation suppliers;
(2) the recovery of $6.8 billion/3 of transition and stranded costs; (3) the
implementation of a plan to meet its universal service obligations, including a
mechanism to recover the costs of those obligations; and (4) the implementation
of a proposed Consumer Education Program.
3. PECO provided notice of its Restructuring Plan filing to all customers
by bill insert. In addition, notice of the filing was published in newspapers of
general circulation in PECO's service territory. Copies of the filing were
served on all parties to PECO's securitization proceeding at Docket No.
R-00973877 and on all active participants in PECO's last general base rate
investigation at Docket No. R-891364.
4. PECO's filing was assigned to Administrative Law Judges Marlane R.
Chestnut and Charles E. Rainey, Jr. (the "ALJs"). Thereafter, over thirty
parties intervened
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3 In its April 1, 1997 Restructuring Filing, PECO claimed stranded assets and
costs totaling $6.8 billion. That figure increased to $7.5 billion in
PECO's rebuttal case submission on July 18, 1997.
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in the proceeding and, on June 20, 1997, thirteen parties filed extensive
testimony challenging various aspects of PECO's Restructuring Plan. In response,
PECO, on July 18, 1997, submitted the rebuttal testimony and supporting exhibits
of twenty-two witnesses.
5. On July 30, 1997, PECO and a number of other parties submitted a Motion
for Continuance of Hearings in which they advised the ALJs that settlement
negotiations were underway. As a consequence, by Orders issued July 31, 1997 and
August 14, 1997, the ALJs suspended the due date for the filing of surrebuttal
testimony and continued the hearing schedule to allow the settlement discussions
to proceed.
6. On August 27, 1997, PECO and other parties filed with the ALJs and the
Commission a Joint Petition for Partial Settlement of PECO Energy Company's
Proposed Restructuring Plan And Application For A Qualified Rate Order (the
"August Partial Settlement").
7. Several parties opposed the August Partial Settlement. As a result, the
ALJs established a schedule for the filing of direct and responsive testimony by
both those supporting the August Partial Settlement and those opposing it.
Public input hearings on the August Partial Settlement were convened on October
9 and 10, 1997 and technical, evidentiary hearings were held on October 14-16,
1997. In addition, by Order entered October 2, 1997, the Commission directed
that the evidentiary record be certified and the case briefed directly to the
Commission without issuance by the ALJs of a Recommended Decision.
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8. On October 7, 1997, Enron Energy Services Power, Inc. ("Enron") filed a
Petition with the Commission at P-00971265 requesting that it: (1) approve an
alternative restructuring proposal (the "Choice Plan") in lieu of the August
Partial Settlement; (2) designate Enron the provider of last resort in PECO's
service territory; and (3) direct PECO to issue to Enron transition bonds
totaling $5.461 billion (the "Enron Petition"). Enron also filed a Motion to
Consolidate its Petition and the August Partial Settlement.
9. At its public meeting two days later, on October 9, 1997, the Commission
set the Enron Petition for hearings and consolidated its consideration with the
ongoing proceedings involving the August Partial Settlement. Thereafter, in
accordance with a schedule established by the ALJs, extensive direct and
responsive testimony was submitted by both Enron and by those opposing the
Choice Plan. Technical evidentiary hearings on the Choice Plan were held on
November 17-19, 1997.
10. On November 6, 1997, the Commission issued an Order, clarifying and
reinforcing an earlier directive that the parties concurrently present for the
record and brief to the Commission their positions regarding (1) the August
Partial Settlement, (2) the Choice Plan and (3) PECO's original Restructuring
Plan. The Commission established December 2, 1997 as the due date for all
parties' Initial Briefs and directed that Reply Briefs would not be entertained.
11. On December 2, 1997, Initial Briefs (or letter comments in lieu of
briefs) and proposed Findings of Fact and Conclusions of Law were filed by 21
different parties. That same day, the ALJs issued an Order certifying the
evidentiary record to the Commission.
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12. At its public meeting on December 11, 1997, the Commission, by a vote
of 3-2, adopted an 88-page motion which rejected the August Partial Settlement
and the Choice Plan and substantially modified PECO's proposed Restructuring
Plan. Thereafter, the Commission, on December 23, 1997, issued a 164-page
Opinion and Order (the "Restructuring Order") which, among other things,
determined that PECO's proven net stranded costs were $5.024 billion and that
unbundling of PECO's rates resulted in a customer shopping credit of 4.46 cents
per KWH.
13. On January 7, 1998, PECO and five other parties filed petitions
requesting that the Commission rehear, reconsider, clarify and amend certain
aspects of its Restructuring Order. By Secretarial letter dated January 8, 1998,
the Commission directed that Answers to the foregoing Petitions, if any, be
submitted on or before January 13, 1998. Answers were filed by PECO and eight
other parties.
14. At its public meeting on January 15, 1998, the Commission, by a vote of
3-2, adopted a 14-page motion which denied many of the changes requested by the
parties but adjusted PECO's stranded cost allowance to $4.935 billion. The
following day, the Commission issued a 27-page Opinion and Order (the
"Reconsideration Order"). In its January 16, 1998 Reconsideration Order, the
Commission directed PECO to make a compliance filing on or before January 20,
1998 and indicated that interested parties could file comments to the compliance
filing on or before January 27, 1998.
15. PECO submitted its compliance filing on January 20, 1998. On January
27, 1998, nine parties submitted over 150 pages of comments to PECO's
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compliance tariff. Three days later, on January 30, 1998, PECO responded to
the opposing parties' comments.
16. Thereafter, the Commission issued two additional Orders, one on
February 5, 1998 in response to PECO's Proposed Compliance Filing (the
"Compliance Order"), and another on February 26, 1998, in response to PECO's
Revised Compliance Filing (the "Second Compliance Order"). PECO's Proposed
Compliance Filing was rejected, and its Revised Compliance Filing was modified
and/or accepted on all but one issue. Further, on February 26, 1998, the
Commission ordered that a new proceeding be initiated at Docket No. R-00984298
(the "Supplier Tariff" docket) to investigate and approve finally a tariff
setting forth all the terms and conditions associated with PECO/supplier
interactions.
17. In response to the Restructuring Order entered December 23, 1997, the
Reconsideration Order entered January 16, 1998, the Compliance Order entered
February 5, 1998 and the Second Compliance Order entered February 26, 1998
(hereinafter referred to collectively as the "PECO Restructuring Orders"), PECO
has filed appeals to Commonwealth Court, as well as a civil complaint action in
the U.S. District Court. In addition, appeals to Commonwealth Court challenging
various aspects of the Commission's orders have been filed by CEPA, Indianapolis
Power and Light Company, Conectiv Energy, OCA, Enron and NEV.
17a. On April 14, 1998, ALJ Chestnut issued a recommended decision
concerning the issues in the Supplier Tariff docket. On April 20, 1998, parties
filed exceptions to ALJ Chestnut's decision and the matter is presently pending
before the Commission for decision.
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18. On and after March 5, 1998, the Joint Petitioners signed a
"Pre-Settlement Agreement" designed to set forth the procedural ground rules for
participation in settlement negotiations aimed at resolving the matter in lieu
of further litigation in state and federal courts. This Joint Petition is the
product of these negotiations.
III. TERMS AND CONDITIONS
The Joint Petitioners, intending to be legally bound and for due
consideration given, agree as follows:
A. Rate Reductions and Rate Unbundling
19. On January 1, 1999, PECO will reduce its retail electric rates by 8%
from the levels that existed as of December 31, 1996. That 8% rate decrease will
continue in effect until January 1, 2000, when the rate reduction will become
6%. The 6% rate reduction will continue in effect until December 31, 2000. The
January 1, 1999, and January 1, 2000, rate decreases will apply to all retail
rate classifications and all customers within those rate classifications as set
forth on a system-average basis in Schedule 1 (excluding the components of LILR,
EER and Rule 4.6 contract charges that do not contain discounts off of Rate
Schedules HT, EP, GS, and PD tariffed component charges).
20. On January 1, 1999, PECO will unbundle its retail electric rates and
special contracts into the following components: (1) distribution charges, (2)
transmission charges, (3) a Competitive Transition Charge ("CTC") and, if
applicable, an Intangible Transition Charge ("ITC") and (4) a shopping credit.
The system-wide average values for these
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components for the years indicated are set forth in the following Schedule 1.
Attached as Appendix A and incorporated as part of this settlement are tariff
sheets setting forth for each rate class the rates, subject to reconciliation as
set forth in Part E, that will be effective from January 1, 1999 to December 31,
2010. The tariffs set forth in Appendix A are the tariffs that implement this
settlement except as specifically set forth herein.
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<TABLE>
<CAPTION>
Schedule 1
SCHEDULE OF SYSTEM-WIDE AVERAGE RATES (a)
Effective T&D Shopping Generation
Date Transmission Distribution Rate Cap CTC or ITC Credit Rate Cap
---- ------------ ------------ -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
(b) (1) (2) (3) = (4) (5) (6)=
(1) + (2) (4) + (5)
(cent)/kWh (cent)/kWh (cent)/kWh (cent)/kWh (cent)/kWh (cent)/kWh
January 1, 0.45(cent) 2.53(cent) 2.98(cent) 1.72(cent) 4.46(cent) 6.18(cent)
1999
January 1, 0.45(cent) 2.53(cent) 2.98(cent) 1.92(cent) 4.46(cent) 6.38(cent)
2000
January 1, 0.45(cent) 2.53(cent) 2.98(cent) 2.51(cent) 4.47(cent) 6.98(cent)
2001
January 1, 0.45(cent) 2.53(cent) 2.98(cent) 2.51(cent) 4.47(cent) 6.98(cent)
2002
January 1, 0.45(cent) 2.53(cent) 2.98(cent) 2.47(cent) 4.51(cent) 6.98(cent)
2003
January 1, 0.45(cent) 2.53(cent) 2.98(cent) 2.43(cent) 4.55(cent) 6.98(cent)
2004
January 1, 0.45(cent)(d) 2.53(cent)(d) 2.98(cent)(d) 2.40(cent) 4.58(cent) 6.98(cent)
2005
January 1, (c) (c) N/A 2.66(cent) 4.85(cent) 7.51(cent)
2006
January 1, (c) (c) N/A 2.66(cent) 5.35(cent) 8.01(cent)
2007
January 1, (c) (c) N/A 2.66(cent) 5.35(cent) 8.01(cent)
2008
January 1, (c) (c) N/A 2.66(cent) 5.35(cent) 8.01(cent)
2009
January 1, (c) (c) N/A 2.66(cent) 5.35(cent) 8.01(cent)
2010
</TABLE>
(a) All prices reflect average retail billing for all classes of service
(including gross receipts tax). Detail of actual individual rates for each
class of service is provided in Appendix A. The average prices as presented
in this Schedule 1 reflect the profile of service contained in PECO's proof
of revenue set forth in Appendix A.
(b) The Transmission prices listed are for unbundling only. The Pennsylvania
Public Utility Commission does not regulate the rates for transmission
service.
(c) The cap on PECO's transmission and distribution rates under Section 2804(4)
of the Electric Competition Act will be extended until June 30, 2005.
(d) Effective until June 30, 2005.
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Schedule 1, Column 3 sets forth the cap on system-wide average transmission and
distribution charges that will be in effect from January 1, 1999 through June
30, 2005, provided, however, PECO may if necessary request recovery of
additional nuclear decommissioning expense after January 1, 2004, and such
expense recovery will not be subject to any rate cap. The tariffed rates in
Appendix A underlying the system-wide average figures for CTC/ITC from 1999
through 2010 set forth in Schedule 1, Column 4, and the shopping credits set
forth in Schedule 1, Column 5 are fixed for each year, except as provided for in
paragraph 24 pertaining to periodic reconciliation of the CTC/ITC. The
generation rate caps shown on a system-wide average basis for each year are set
forth in Schedule 1, column 6 above from 1999 through 2010.
B. Rate Caps and Transmission and Distribution Charges
21. The Joint Petitioners agree that the rate cap exceptions set forth in
Section 2804(4) of the Electric Competition Act shall apply to the rates set
forth in this settlement, except as otherwise specifically set forth herein. If
at any time during the CTC Recovery Period, PECO requests and is granted a rate
increase pursuant to Section 2804(4) of the Act (Rate Cap Exceptions) such
increase shall not reduce the shopping credits listed in Schedule 1 and such
increases shall be allocated to the appropriate unbundled rate category in
accordance with determinations of the Commission. As set forth in Schedule 1,
the generation rate cap is extended from 2005 to 2010, five years beyond the
statutory rate cap period provided in the Electric Competition Act. Customer
savings may be greater if, for
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example, customers obtain lower prices from a competitive supplier or if
PECO's provider of last resort residential generation rates, as provided in Part
L, result in a lower rate.
The cap on PECO's transmission and distribution charges, which otherwise
would expire on June 30, 2001 under Section 2804(4) of the Electric Competition
Act (66 Pa. C.S. ss.2804(4)), will be extended until June 30, 2005, provided,
however, that PECO may, if necessary, request recovery of additional nuclear
decommissioning expense after January 1, 2004 and such expense recovery will not
be subject to any rate cap and will be treated as an exception to the rate cap
under Section 2804(4) and such increases shall not reduce the shopping credits
listed in Schedule 1 and such increases shall be allocated to the appropriate
unbundled rate category in accordance with determinations of the Commission. The
Joint Petitioners shall not file a complaint with the Commission or otherwise
challenge PECO's current transmission or distribution rate structure, or the
current level of PECO's transmission rates or the current level of PECO's
distribution rates as set forth in Appendix A hereto until the expiration of the
transmission and distribution cap on June 30, 2005, provided, however, that any
Joint Petitioner may participate as a complainant or otherwise in any future
transmission rate proceeding in which an increase in PECO's current transmission
rates or change in rate structure is proposed and, further, may file a complaint
or otherwise participate in any proceeding before the Commission to adjust
PECO's distribution rates as a result of any increase in PECO's transmission
rates or change in rate structure in effect as of April 29, 1998. The
transmission and distribution rate cap of 2.98 cents per KWH includes 2.97 cents
for all existing costs and services and .01 cents for the sustainable
development fund during the transmission and distribution rate cap period. No
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new fees shall be proposed or charged during the transmission and distribution
rate cap period for a cost or service that is included in the bundled
transmission and distribution rate.
Pursuant to this Settlement, PECO agrees to cap the sum of its transmission
and distribution charges, as described above. If, during the period that this
rate cap is in effect PECO's transmission charges or rates (including but not
limited to ancillary charges) are increased, then PECO's distribution rates will
be reduced in a non-discriminatory manner sufficiently to avoid exceeding the
transmission and distribution rate cap.
C. Competitive Metering and Billing
22. On January 1, 1999, PECO will unbundle its retail electric rates for
its metering, meter reading, and billing and collection services to provide
credits for those customers that elect to have their alternative suppliers
perform these services. The credits for metering, meter reading and billing for
each customer class are set forth in Appendix B.
Effective January 1, 1999, subject to the ability of an Electric Generation
Supplier ("EGS") to comply with the terms and conditions of "Competitive Billing
and Collection Service" as set forth in Appendix C to this Joint Petition, a
Commission-licensed EGS may (in addition to any other rights to act as agent for
the customer set forth in PECO's tariffs) act as agent to provide a single bill
and provide associated billing and collection services to its retail customers
located in PECO service territory. Effective January 1, 1999, subject to the
ability of an Electric Generation Supplier ("EGS") to comply with the terms and
conditions of "Competitive Metering Service" as set forth in Appendix C to this
Joint
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Petition, a Commission-licensed EGS may provide, finance, install, own,
maintain, calibrate and remotely read advanced meters for service to its retail
customers located in PECO service territory.
By June 1, 1998, the Joint Petitioners agree to develop standards related
to "Competitive Billing and Collection Service" and "Competitive Metering
Service" consistent with Appendix C.
By July 1, 1998, the Commission shall establish metering and billing
standards for the PECO service territory, including the specific applicability
of provisions contained within 52 Pa. Code Ch. 56 (relating to standards and
billing practices for residential services) to EGSs performing consolidated
billing. These Commission standards shall also include, at a minimum, data
exchange and billing format standards to facilitate the efficient, speedy and
non-discriminatory exchange of information between PECO and EGSs necessary to a
properly functioning competitive market for retail electric generation services.
An EGS that bills on behalf of an EDC must comply with all billing and
disclosure requirements applicable to an EDC, absent waiver by the Commission,
including the unbundling of transmission and distribution rates.
Only PECO EDC can physically disconnect or reconnect a customer's
distribution service. Physical termination of service may only be permitted for
failure to pay for EDC or PLR service.
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D. Securitization
23. The rates and rate reductions described in paragraphs 19 and 20 and
Schedule 1 above include, but are not contingent upon, the anticipated benefits
of securitization of $4.0 billion of stranded costs. The savings from
securitization are incorporated to fund the rates and rate reductions provided
for in paragraphs 19 and 20 Schedule 1, and no further rate adjustment upon sale
of transition bonds is required other than establishment of an ITC to replace an
equal amount of CTC. The effectiveness of this settlement is contingent upon the
issuance by the Commission simultaneous with approval of this settlement of an
irrevocable Qualified Rate Order as set forth in Appendix D under Section 2812
of the Electric Competition Act (66 Pa. C.S. ss.2812) authorizing the issuance
of up to $4.0 billion of Transition Bonds at any time after the issuance of such
Qualified Rate Order, provided that the ITC charges to customers terminate no
later than December 31, 2010. PECO hereby applies for the issuance of a
Qualified Rate Order as set forth in Appendix D which is incorporated as a part
of this settlement. The Joint Petitioners agree not to oppose PECO's application
for a Qualified Rate Order and PECO's securitization of its stranded assets and
costs in accordance with this agreement. The Joint Petitioners agree that, to
the extent necessary, the testimony, exhibits, applications and other documents
submitted by the parties and the record from the hearings in this proceeding and
in PECO Energy's securitization proceeding at Docket No. R-00973877 form the
basis for this settlement and PECO's Application for a Qualified Rate Order.
PECO assumes the risk
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that securitization may not be accomplished and such fact shall not be grounds
for adjustment of the rates or CTC set forth in Schedule 1.
E. Reconciliation and Projected Sales
24. The CTC/ITC rates set forth in Appendix A are designed to recover $5.26
billion of PECO's stranded assets and costs. The CTC recovery period begins on
January 1, 1999 and continues until December 31, 2010 at which point the CTC
will terminate. To insure recovery of no more or no less than $5.26 billion over
this 12 year recovery period, the CTC/ITC shall be subject to an annual
reconciliation within each customer class in accordance with the procedures
adopted in the PECO Restructuring Orders. The shopping credits shall be adjusted
to reflect the CTC/ITC reconciliation. The reconciliation during calendar year
2010 will be done quarterly or, if necessary, monthly in order to insure full
CTC/ITC recovery and termination by December 31, 2010. As required by the
Electric Competition Act, the ITC will be subject to periodic adjustment to
provide adequate debt service of the transition bonds. Any increase in the ITC
pursuant to such a periodic adjustment will result in a corresponding reduction
in the CTC set forth in Appendix A or the Company's other regulated revenues.
For purposes of determining the annual revenue that should be recovered
each year by the system-average CTCs contained in Schedule 1, a sales level of
33,569,358 Mwh will be used for the 12 months ending December 31, 1999, which
will be increased each year during the CTC recovery period after 1999 by 0.8%
over the projected sales level of the
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preceding year in accordance with the CTC reconciliation provisions in
Appendix A. The sales levels to be used for reconciliation of the annual
revenues for each major rate class (residential, commercial and large
industrial) are set forth on Appendix E attached. For calendar year 2000 only,
reconciliation will be as follows: If and to the extent sales growth exceeds
0.8% in 1999 (as set forth by class in Appendix E), the CTC/ITC figures for 2000
will be decreased accordingly, the generation rate caps for 2000 will be reduced
by a commensurate amount, and the shopping credits for 2000 will remain
unchanged. This will have the effect of increasing the guaranteed rate
reductions for customers in 2000 from 6% to a higher percentage, depending on
the level of sales growth and corresponding CTC/ITC overcollection in 1999.
Appendix E also sets forth the annual amortization of stranded costs and the
return allowed. Other than for reconciliation, the CTC/ITC and shopping credit
figures will not be changed.
F. LILR and EER and Rule 4.6 Contracts
25. The Joint Petitioners agree that the Large Interruptible Load Rider
("LILR") will continue to be available through at least December 31, 2010 to
current LILR customers. All LILR customers' unbundled charges will be: (i) for
on-peak usage, 0.5(cent)kWh for distribution plus Gross Receipts Tax ("GRT"),
and 0.5(cent)kWh for transmission plus GRT/4; and (ii) for off-peak usage, the
Rate HT CTC/ITC, transmission, and distribution charges calculated using the
customers' billing demand. PECO will assess no CTC/ITC charges
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4 This transmission charge is not subject to the Commission's jurisdiction;
shall it increase or decrease, the distribution charge will be adjusted
accordingly.
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with respect to the on-peak portion of an LILR customer's interruptible
load. PECO will also not impose any additional CTC/ITC charge on an LILR
customer that obtains supply from a competitive supplier. For LILR customers
that after January 1, 1999 choose to remain with PECO in its role as PLR/default
supplier for their energy supply, the energy charges will be the individual
customer's Locational Marginal Price, as calculated by PJM, or its replacement,
for all on-peak energy associated with the customer's interruptible load, and
applicable unbundled Rate HT charges for all other energy usage.
The Joint Petitioners agree that the Economic Efficiency Rider ("EER") and
Rule 4.6 contracts will continue to be available to prospective and current EER
and Rule 4.6 customers in accordance with the terms and conditions of the EER,
Rule 4.6 and the customer's contract. If the customer's contract is silent with
respect to the customer's right to access competitive generation supply, then
the customer may obtain competitive supply. For those customers with EER or Rule
4.6 contracts that contain discounts to the Rate HT capacity charge and the
first two price blocks of Rate HT, the unbundled charges will be, starting
January 1, 1999: (i) the Rate HT unbundled distribution and transmission
charges, and (ii) the Rate HT CTC/ITC charges discounted by the negotiated
percentage discount presently reflected in the customer's contract.
With respect to those EER contracts and Rule 4.6 contracts that contain
language regarding access rights and unbundling, the customers' right to access
competitive generation supply and the unbundling of the customer's contract will
be governed by the terms and conditions of the customers' contracts.
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All Rate HT industrial customers, LILR customers, and Rule 4.6 and EER
customers shall have the right to pay all applicable CTC/ITC charges in one lump
sum. For customers exercising this option, PECO and the customers will negotiate
a mutually acceptable lump sum using the customer's most recent 12 months of
demand and energy usage as billing determinants, unless such demand and energy
usage will not be representative of the customer's likely demand and energy
consumption during the CTC/ITC recovery period (in which case representative
values will be used), applied to the CTC/ITC charges for the entire CTC/ITC
recovery period, discounted using PECO's after-tax cost of capital. Exercise of
the rights in this paragraph and paragraph 26 below shall impose no additional
burdens on any other customer classes. Prior to agreeing to such lump sum
payment, PECO shall submit for Commission approval a proposal for determining
how the lump sum payment of CTC/ITC will affect reconciliation.
26. Recovery of CTC/ITC from industrial and commercial customers that
significantly reduce their purchases through installation of on-site generation
will be as fully set forth in Appendix F hereto, which is incorporated as a part
of this settlement; provided, however, that existing industrial and commercial
customers whose peak load during 1996 was at least four (4) megawatts, and who
can document that they were actively self generating or considering
self-generation as of December 31, 1996 or earlier, will pay CTC/ITC charges
following full start-up of any self-generation facility they install before
December 31, 2010 as follows:
(a) PECO will calculate the customer's average billing demand and energy
usage for calendar year 1996;
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(b) Using those billing determinants PECO will determine the dollar amount
that would be charged were the customer billed for CTC/ITC using the
prevailing Rate HT CTC/ITC charges;
(c) PECO will bill the customer one-third of the dollar amount determined
in accordance with step b.
G. Phase-In
27. Direct access to electric generation suppliers will be phased in
for all customers located in PECO's service territory in accordance with the
PECO Restructuring Orders, in three steps -- one-third of the non-coincident
peak load of each customer class of service will have access on January 1, 1999,
two-thirds of the non-coincident peak load of each customer class on January 2,
1999, and the remainder on January 2, 2000. With respect to Rate HT, PD, and EP
customers and Rate GS customers above 40kW only, if the individual customer peak
load subscriptions exceed the class peak load limitation for one or more of
these first two steps, then each customer's subscription will be reduced pro
rata to meet the class peak load limitation, provided that customers with
multiple locations in the PECO service territory shall be permitted to allocate
their allotted share of their load to their multiple locations at their
discretion. For purposes of this section, a customer shall be defined to include
those customers which are affiliated with each other including, but not limited
to, divisions, separate business units, etc. The entity which nominates for
customers as defined herein with multiple locations shall designate the pro rata
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load for each multiple location. The Rate GS class will be divided into two
classes of service for phase-in purpose only - a large customer class and a
small customer class. All Rate GS customers with an average monthly demand for
1996 of 40kW or less will be in the small customer class, and all others will be
in the large customer class.
H. Transfer Of Generation Assets
28. PECO and its subsidiaries are permitted to transfer or assign all of
their generating assets and liabilities, as those assets and liabilities are
delineated in its Restructuring Plan filing and included at the date of transfer
in the accounts set for in Appendix I hereto, and any other assets necessary for
the operation of the generating plants, and their wholesale power contracts to a
separate corporate entity or entities. The entity or entities may, at PECO's
discretion, be an affiliate or subsidiary of PECO or a non-affiliate. The
wholesale power contracts transferred will exclude those wholesale power
contracts that PECO utilizes to satisfy its provider of last resort obligations
and those wholesale power contracts that PECO-affiliated or divisional EGSs
enter into; provided, however, that if the generation sold under such contracts
is provided by PECO's generating assets, then the sales obligations under those
contracts will be transferred or assigned and the purchase obligations will
remain with PECO or its affiliated or divisional EGSs. The generating assets and
liabilities shall be transferred at their net book value at the date of
transfer. Once the transfer is completed, the generation entity, if an affiliate
of PECO, will be regulated by the Commission only if it makes retail sales, and
then only as an EGS.
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PECO hereby requests, and the effectiveness of this Settlement is
conditioned upon, the Commission's approval, without addition, condition or
modification, of all aspects of PECO's transfer of its generation assets and
liabilities and wholesale power contracts under this settlement and the
Commission's issuance of such orders and certificates of public convenience as
are necessary to implement those transfers. The Commission approval includes,
but is not limited to, approval under Chapters 5, 11, 19, 21, and 28 of the
Public Utility Code (66 Pa.C.S.).
The Joint Petitioners expressly acknowledge that such transfers may require
various regulatory approvals or waivers, including, without limitation, the
FERC, the Nuclear Regulatory Commission ("NRC") and perhaps other agencies and
third parties not subject to PECO's control, and therefore the Joint Petitioners
will neither oppose, nor support any opposition to, PECO's requests to obtain
such approvals. If such authorizations or waivers (other than approval by this
Commission) are not obtained in a manner acceptable to PECO, then PECO will not
transfer the generation assets or liabilities or contracts affected, provided,
however that if a generating asset, liability or contract is not transferred,
PECO will separate that asset, liability or contract and its operation from its
regulated transmission and distribution functions by organizing generation
assets, liabilities or contracts into a functionally separate business unit or
units. Failure to obtain such authorization or waiver will not affect any other
aspects of this settlement.
PECO and its affiliates and subsidiaries agree to be bound by the
competitive safeguard provisions set forth in Appendix G. Upon request of a
Joint Petitioner the information referenced in paragraph 6 of Appendix G shall
be provided directly to the Joint
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Petitioner, who shall not disclose or use the information in a manner that
violates the Commission's standard rules governing proprietary information.
Complaints under these provisions shall be filed with the Commission and finally
adjudicated by the Commission within sixty days of filing.
I. Recovery Of Stranded
29. PECO shall be permitted to recover from its retail electric customers
$5.26 billion of stranded assets and costs through either a CTC (to remain in
effect from January 1, 1999 to December 31, 2010) and/or, at the Company's
discretion, an ITC (to be put in place any time after the effective date of this
settlement and the issuance of transition bonds and to remain in effect up to
December 31, 2010). PECO requests the Commission to declare that good cause has
been shown under Section 2808 of the Electric Competition Act to permit PECO to
recover the stranded assets and costs set forth below through a CTC or ITC
extending to December 31, 2010. PECO also requests that the Commission expressly
find that the transition and stranded cost recovery and level of CTC/ITC charges
provided herein is just and reasonable and that securitization of up to $4.0
billion of stranded costs is just and reasonable and in the public interest. The
other Joint Petitioners do not object to these findings. The total authorized
recovery of $5.26 billion includes all amounts previously approved for recovery
by the Commission in its May 22, 1997 Order at Docket No. R-00973877.
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Under the terms of this settlement, PECO shall be permitted to recover
$5.26 billion for transition and stranded costs through a CTC and/or, at PECO's
discretion, an ITC as set forth in Schedule 1, Appendix A and paragraphs 19, 20,
21, 23, 24, 25 and 26. This total authorized recovery of $5.26 billion
constitutes full and final satisfaction of all transition and stranded costs
that PECO has claimed or could have claimed before the Commission pursuant to
Section 2808 of the Electric Competition Act.
J. Universal Service
30. PECO will transfer all customers currently enrolled in its Customer
Assistance Program ("CAP") to its pilot CAP Rate by December 31, 1998. The
prepayment metering option provided to customers under the CAP Rate pilot will
not apply, unless regulatory or legislative provisions are adopted to provide a
prepayment metering option. When all such customers have been successfully
transferred, the CAP will be discontinued and the CAP Rate will become the
vehicle by which PECO ensures that its customers receive universal service. CAP
Rate will remain in effect through December 31, 2010. This settlement does not
address, and the Joint Petitioners make no commitment regarding, any other
issues regarding CAP Rate after December 31, 2010 including the existence or
closure of CAP Rate. The Joint Petitioners, in consultation with other
interested parties, agree to review and consider any recommendations for changes
in the CAP Rate program identified in the current evaluation of the CAP Rate
program being conducted for PECO. This settlement does not abrogate the joint
stipulation reached by the parties in PECO's current
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CAP Rate pilot proceeding. If that joint stipulation and this settlement
are inconsistent, this settlement shall control.
31. In order to be eligible for CAP Rate, customers must demonstrate that
their annual household gross incomes are at or below 150% of Federal poverty
income guidelines and that they have an inability to pay their electric bills,
as evidenced by failure to make at least two payments of their electric bill or
having met other criteria. These other criteria shall be determined by mutual
agreement of the Joint Petitioners in consultation with other interested parties
and shall become effective upon Commission approval. Within six months after
this settlement becomes effective, the Joint Petitioners will determine what
these criteria should be. For purposes of this settlement, failure to make a
payment shall include partial or late payment. Applicants whose income records
cannot be found in tax or public assistance databases will be provided a
personal interview to establish eligibility. Individual customer eligibility for
CAP Rate will be reviewed annually. The percentage rate discounts provided to
current CAP Rate customers, as set forth in PECO's existing tariff (i.e., either
nominal 25.0% or 50.0% depending on income status) will be deducted from the
residential rates then in effect and will remain in place, unless the Joint
Petitioners in consultation with other interested parties mutually agree to
modifications to the discounts, including additional discount tiers.
32. All CAP rate generation discounts shall be portable and customers'
access to the benefits of universal service programs shall not be affected by
whom the customer selects as its generation supplier or by whom the Commission
directs shall be the customers' provider of last resort-default supplier.
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33. The Joint Petitioners agree that the current annual level of universal
service costs reflected in residential distribution rates is $50.0 million. PECO
will recover its universal service costs in excess of $50.0 million, as set
forth below, through a separate Section 1307 mechanism established by the
Commission that will adjust distribution rates applicable to customers. Such
increases in PECO's universal service costs shall be deferred for recovery until
after January 1, 2002. On or after January 1, 2002, recovery of any increases
shall not be subject to the rate cap under this settlement or the Electric
Competition Act nor shall it impact the shopping credit. This settlement does
not address or resolve the manner in which universal service costs will be
allocated to customer classes if and when PECO incurs, and seeks recovery of,
universal service costs in excess of $50.0 million. PECO will recover from its
customers the universal service costs for those customers served by the CDS
supplier and credit the CDS supplier for its provision of customer care services
as set forth in Part L, paragraph 38c, and Appendix J.
34. Participation in the CAP Rate henceforth will be on an open
enrollment basis for all eligible customers, with an initial maximum
participation level of 100,000 customers subject to revision and adjustment as
set forth below. If and when CAP Rate enrollment reaches the 80,000 customer
mark, the Joint Petitioners agree to review and, as necessary, to propose
adjustments to program parameters with the dual intent of (1) maintaining total
CAP Rate program costs at or below the $50.0 million level and (2) ensuring that
all eligible customers are able to participate in the program. In the event that
such adjustments are not made to program parameters such that program costs are
maintained at or below the $50.0 million level and in the event that CAP rate
enrollment exceeds 90,000 customers, the costs
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recovered under the universal service mechanism will be increased to ensure
the recovery by PECO of total annual CAP Rate costs in excess of $50.0 million.
To determine the recoverable amount, prior to January 1, 2002, PECO will be
entitled to a $650 cost credit for each CAP Rate customer, with proportional
credit being given for a partial year's participation. The $650 cost credit
covers administration, credit and collection costs, CAP Rate revenue shortfalls
and LIURP costs. If the CAP Rate costs are reduced to $50.0 million or less, as
a result of program adjustments, the $650 annual cost credit will be adjusted to
reflect actual costs incurred. Absent earlier adjustment, on January 1, 2002,
the costs recovered under the universal service cost recovery mechanism will be
increased to ensure the recovery by PECO of total annual CAP Rate costs in
excess of $50.0 million, including administration, credit and collection costs,
CAP Rate revenue shortfalls and LIURP costs. PECO will direct $5.6 million of
the annual Universal Service budget of up to $50 million to LIURP funding, and
will make LIURP program changes consistent with the PECO Restructuring Orders.
35. The Joint Petitioners agree to establish a LIURP Advisory Committee
made up of representatives of Joint Petitioners and other interested consumer
and public representatives. The Committee will periodically review PECO's LIURP
program design and delivery, and PECO will consider all Committee
recommendations. The Committee shall meet as needed, but not less than twice a
year, and PECO will prepare written minutes of each meeting and shall distribute
those minutes to all Committee members within thirty days following each
meeting.
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PECO, with the help of the LIURP Advisory Committee, shall design and
implement the following LIURP program changes:
(a) Eligibility for LIURP services will be expanded to those customers
with usage over 110% of class average. PECO and the LIURP Advisor
Committee will determine what services and the priority of such
services to be delivered to customers with usage below 800kWh per
month.
(b) The program should audit for all electric energy usage in a dwelling
that could be reduced cost-effectively.
(c) The list of eligible measures will be expanded to include, when
cost-effective, refrigerator replacement and air conditioner
replacement, and to include energy education.
(d) A renewable energy pilot consisting of a solar hot water heater
program in 1999 and 2000, a photovoltaic program involving 50
installations in 1999 and 100 installations in 2000. The total 1999
budget would be $525,000 and the total 2000 budget would be $787,500.
(e) The cause of high customer non-participation levels in the "Could Not
Contact Customer" category should be determined and steps taken to
reduce this loss of participation.
PECO shall contract out the delivery of LIURP services to qualified
organizations including community based organizations experienced in low-income
energy conservation and other services. Such organizations will be selected by
means of an open, competitive process. Any Advisory Committee member whose
organization has a potential direct
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interest in providing any LIURP service must (1) disclose that interest at
the time the member joins the Committee, and at any time the Committee addresses
the LIURP service and (2) refrain from any Committee vote on such LIURP service.
PECO, its subsidiaries and/or its affiliates shall not be eligible to deliver
LIURP services.
36. The Joint Petitioners agree to review and, as appropriate, to recommend
changes to Commission regulations and procedures in order to facilitate the
efficient and full recovery of revenues from customers, while at the same time
protecting customers. Specific items that may be addressed include those
regarding the payments of outstanding balances, winter termination procedures,
medical certification, termination of service pending the resolution of a
dispute, and payment arrangements.
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K. Consumer Education and Information
37. In accordance with the PECO Restructuring Orders, the Joint Petitioners
will cooperate with one another and share control in developing and proposing,
for Commission approval, the local component of the Consumer Education Program
for PECO. Moreover, PECO specifically agrees, as part of the settlement, to
fully comply and cooperate with all Commission-directed Consumer Education
efforts and orders, including the PECO Restructuring Order and the Commission's
March 30, 1998 Secretarial Letter. The total costs of PECO's Consumer Education
Program, including its participation in the Statewide Program, shall not exceed
$24.0 million, which amount represents $4,183,365 as allowed expenses incurred
during 1997 and up to $19,816,635 in customer education expenses for 1998-2000.
L. Provider of Last Resort and Generation Supply Obligations And
Opportunities
38. PECO agrees that, for the duration of the CTC/ITC recovery period, it
will serve as the provider of last resort for all retail electric customers in
its service territory that do not choose or cannot choose to purchase power from
alternative suppliers, subject to the following terms, conditions and
qualifications:
a. On January 1, 2001, 20% of all of PECO's residential customers --
determined by random selection, including low-income and inability-to-pay
customers, and without regard to whether such customers are obtaining generation
service from an EGS --
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shall be assigned to a provider of last resort-default supplier other than PECO
that will be selected on the basis of a Commission-approved energy and capacity
market price bidding process. This service shall be referred to as Competitive
Default Service ("CDS").
b. For purposes of this bidding process, all of the customers selected
shall constitute a single bidding block. To qualify for the CDS bidding process
an EGS must, among other Commission-approved requirements, agree to provide in
2001 at least 2.0% of its offered energy supply for CDS service from renewable
resources of solar, wind, sustainable biomass (including landfill gas but
excluding incineration of Municipal Solid Waste), geothermal or ocean power. The
renewable energy increment shall increase by annual increments of 0.5%
thereafter. The requirement to include these levels of renewable energy in the
resource mix may be lowered by the Commission if the cost of the power from the
renewable energy sources increases the cost of the entire block by more than 2%
over what the cost would be without the renewable energy sources.
c. Terms and conditions of CDS shall be established, maintained, and
modified by the Commission. Competitive Default Service bids will require a term
that will be established by the Commission. Bids will provide a fixed rate for
the term, unless an alternative rate structure is approved by the Commission.
Any bid that exceeds the generation rate cap will be rejected. PECO EDC or
divisions or PECO divisional or affiliated EGSs may not bid (either directly or
as a partner or participant in any business combination with a bidder) on CDS
service. Any non-affiliated EGS or consortium of EGSs that are licensed by the
Commission and that meet applicable terms and conditions and standards for CDS
service could bid to provide CDS service. A customer assigned to CDS
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retains the right to elect a competitive EGS or return to PECO default
provider of last resort service at any time at no charge. If a consumer returns
to CDS for any reason, the consumer will receive service from its CDS on the
same terms and conditions and at the same rate available to other CDS customers.
The CDS provider will, at the customer's option, provide a single bill, subject
to the same standards for EGS consolidated billing as provided in Appendix C and
as established by the Commission. The CDS will include all customer care
functions, including processing customer accounts in accordance with all
applicable regulations (Chapter 56). Chapter 56 billing and collection costs,
uncollectible expense, and universal service costs shall be unbundled by PECO as
set forth in Appendix J. Revenues equal to the amount of these unbundled costs
shall be portable with customers randomly assigned to the CDS and shall be
provided to the CDS provider to the extent it is providing services funded by
these unbundled costs. The CDS will be rebid annually, unless an alternative
bidding term is approved by the Commission. If, 30 days prior to the annual bid
the number of residential customers served by the CDS has fallen below 17%, a
further random selection of customers shall be assigned to CDS service to
restore the number of customers for the 20% level. The further random selection
shall be chosen from the customers (not already assigned to CDS service) served
by EGSs other than PECO. The Commission will develop qualifications for an EGS
to bid on CDS, including credit worthiness and increased bond amount.
d. The EGS selected as the CDS provider will assume all responsibilities
and obligations associated with provider of last resort service that are
specified by the Commission. By January 1, 1999, the Commission will issue final
standards for PECO
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governing the responsibilities and obligations of the competitively determined
provider of last resort in PECO service territory.
e. PECO's distribution company shall satisfy its obligation as provider
of last resort by purchasing required amounts of energy and capacity at
wholesale from other generation suppliers including, in its sole discretion, its
affiliated generation entity, and reselling that energy and capacity. On and
after January 1, 2001 PECO as provider of last resort-default supplier will
price its service to residential customers at its sole discretion with the
following limitations. PECO will establish a single rate established for each
rate schedule. The rate will be:
(i) no less than (1) the price charged by the CDS selected to be the
alternative provider of last resort-default supplier in the 20% bid;
and
(ii) no higher than (2) 111% of the market price of energy and capacity
(determined by rate class) calculated as follows: energy will be at
the average PECO-PJM market clearing price as posted on the PJM
website for the prior 12 months (adjusted for line losses, on/off peak
usage and GRT); capacity shall be at the average PJM penalty price for
capacity for the prior 12 months (adjusted for line losses, reserve
margin, load factor and GRT). Such annualized rates will be computed
monthly.
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If (i) is higher than (ii) above, PECO will price its service at (i) above
(the competitive PLR winning bid). In no event will the price exceed the
shopping credit. Residential customers that remain with PECO provider of last
resort default service will pay the annualized rate as set by PECO during
January of each year. Residential customers returning to PECO provider of last
resort service who agree to take such service for a minimum of 12 months will
pay the annualized rate as set by PECO during the month they return. Returning
residential customers shall also have the option of receiving service on a
monthly published generation market rate basis without the benefit of the
generation rate cap, but such rate may not be less than the prices charged by
the CDS.
PECO as provider of last resort-default supplier will price its service to
industrial and commercial customers at tariffed rates or at special contract
rates as set forth in Appendix A.
f. The Joint Petitioners agree that through December 31, 2010, customers
may choose to purchase power from alternative suppliers and later return to take
generation service from PECO's EDC distribution company, or to their assigned
provider of last resort default supplier.
g. This Settlement does not address, and the Joint Petitioners make no
commitment regarding, PECO's obligation to serve after December 31, 2010, or the
continuance or discontinuance of the right to choose an alternative supplier and
later return after December 31, 2010.
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M. Market Share Thresholds
39. The following are the market share thresholds for random assignment of
non-shopping customers to alternative EGSs and PECO-affiliated or divisional
EGSs:
a. If, on January 1, 2001, less than 35% of all PECO's residential and
commercial customers by class are obtaining generation service from an alternate
EGS or PECO-Supplier affiliate or division (including those customers assigned
to the CDS pursuant to the competitive bid under Part L above), then the number
of remaining customers, necessary to reach the 35% target, determined by random
selection, by class, shall be assigned an EGS on the basis of a one-time,
Commission-approved process in which PECO-affiliated EGSs may participate. No
such assignment shall be made until after all customers have been notified in
advance of this process and have been given the option to remain with PECO
default service or select an EGS of their choice. The 35% will be determined for
residential and small commercial customers on the basis of the number of
customers and large commercial customer classes on the basis of peak load. For
purposes of applying this provision, the customers assigned to a provider of
last resort other than PECO pursuant to Part L above shall be counted as
customers receiving service from an EGS.
b. If, on January 1, 2003, less than 50% of all PECO's residential and
commercial customers are obtaining generation service from an alternate EGS or
PECO-supplier affiliate or division (including those customers assigned to the
CDS pursuant to the competitive bid under Part L above and those customers
assigned to an EGS under paragraph 39(a) above pertaining to market share
thresholds), then the number of remaining
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customers necessary to reach the 50% target, determined by random selection,
by class, shall be assigned to an EGS on the basis of a one-time,
Commission-approved process in which PECO-affiliated EGSs may participate. No
such assignment shall be made until after all customers have been notified in
advance of this process and have been given the option to remain with PECO
default service or select an EGS of their choice. The 50% will be determined for
residential and small commercial customers on the basis of the number of
customers and large commercial customer classes on the basis of peak load. For
purposes of applying this provision, the customers assigned to a provider of
last resort or EGS other than PECO pursuant to Part L above shall be counted as
customers receiving service from an EGS.
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N. Code of Conduct
39a. PECO further agrees that it will be subject to and governed by the
Code of Conduct set forth in Appendix H to this Joint Petition. The Code of
Conduct set forth in Appendix H shall remain applicable to PECO until the later
of January 1, 2001, or the date when the statewide generic code of conduct
established by the Commission in its rulemaking becomes effective.
O. Renewable Energy Development
40. PECO hereby files for Commission approval Rate RS Tariff sheet attached
in Appendix A to allow all customers to install and operate renewable energy
generation, including appropriate provisions for self-generation and net
metering. Renewable energy installations include solar, wind, biomass, and
methane field generation.
The interconnection requirements for the inverter portion of photovoltaic
systems, as presently set forth in the document entitled "Requirements for
Parallel Operation of Non-Utility Generation" (the "Grey Book"), shall be
expanded to incorporate, as appropriate, IEEE Standard 929-1988 and UL
Publication 1741 ("Power Conditioning Units for Use in Residential Photovoltaic
Power Systems"). PECO further agrees to continue good faith technical
discussions with the Environmentalists' members to determine what changes, if
any, should be made to the interconnection requirements and process under Rate
R-S and to promptly seek Commission approval to implement any changes mutually
agreed upon.
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The Joint Petitioners also agree that the current "engineering" review of
the inverters in new photovoltaic systems will be replaced with a simplified
inspection designed to confirm that the systems meet IEEE and UL standards. PECO
will continue to review the other auxiliary equipment associated with
photovoltaic installations to ensure compliance with the Grey Book requirements.
PECO will agree to reduce its processing fee for Rate R-S applications to
$300 for non-photovoltaic installations and to $100 for photovoltaic
installations. For multiple installations of the same photovoltaic equipment
covering contiguous properties, and inspected in the same time frame, the
application and processing fee will be reduced to $50 per installation for the
second and subsequent installations. PECO further agrees that it will not charge
for the additional distribution expenses incurred, up to a maximum of $1,000, to
accept a new Rate R-S installation. Customers will bear the responsibility of
any cost in excess of $1,000.
P. Sustainable Development Fund
40a. PECO will also establish a sustainable energy and economic
development fund which shall be funded from the 2.98 cents per kWh transmission
and distribution rate at .01 cents per kWh (less applicable gross receipts tax)
on all power sold for all customers beginning on January 1, 1999 ending on June
30, 2005 or until the Commission establishes new distribution rates, whichever
is later. The .01 cent per kWh shall not automatically be
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considered a cost of service element upon expiration of the transmission
and distribution rate cap on June 30, 2005.
50% of these funds shall be administered by the Delaware Valley Community
Reinvestment Fund overseen by a seven-member board of directors to be nominated
by the Joint Petitioners and approved by the Commission. This portion of the
funds shall be used to promote the development and use of renewable energy and
clean energy technologies, energy conservation and efficiency, and economic
developments projects which promote clean energy.
The remaining 50% of these funds shall be allocated to the Delaware Valley
Regional Economic Development Corporation. This portion of the funds shall be
used for economic development projects which have a job impact.
PECO agrees to include bill inserts twice a year describing the activities
of these funds. PECO will have final review and approval of the content of the
messages and will be reimbursed from the funds for its incremental costs related
to the bill inserts.
Q. Resolution of Other Issues
41. Any issue not specifically addressed in this settlement shall be
treated and resolved in accordance with the resolution of that issue adopted by
the Commission at this docket in the Restructuring Order entered December 23,
1997, the Reconsideration Order entered January 16, 1998, the Compliance Order
entered February 5, 1998 and the Second Compliance Order entered February 26,
1998.
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R. Promotion of Settlement
The Joint Petitioners agree that they shall make all reasonable and good
faith efforts necessary (a) to obtain final approval of this settlement by the
Commission and (b) to insure full implementation and enforcement of all of the
terms and conditions set forth in this settlement, including those providing for
an orderly transition from the current regulated structure to a structure under
which retail customers will have direct access to a competitive market for the
generation of electricity and a fair and reasonable recovery of PECO's
transition and stranded costs created by this transition to a competitive
market.
S. Withdrawal Of Pending State And Federal Court Cases
42. Within ten days of the execution of this Joint Petition by all of the
Joint Petitioners, the Petitioners in the following cases with the concurrence
and support of the Commission and other parties and intervenors that are Joint
Petitioners hereto, shall petition the Commonwealth Court to continue generally
further consideration of their respective appellate actions:
- -------------------------------------------------------------------------------
No. 269 M.D. 1997 CEPA Original Jurisdiction Action
- -------------------------------------------------------------------------------
No. 1600 C.D. 1997 CEPA Securitization Appeal
- -------------------------------------------------------------------------------
No. 1613 C.D. 1997 Sen Fumo Securitization Appeal
- -------------------------------------------------------------------------------
No. 1622 C.D. 1997 Environmentalists Securitization Appeal
- -------------------------------------------------------------------------------
No. 1633 C.D. 1997 OCA Securitization Appeal
- -------------------------------------------------------------------------------
No. 264 C.D. 1998 CEPA Restructuring Order and
Reconsideration Order Appeal
- -------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------
No. 382 C.D. 1998 Conectiv Restructuring Order and
Reconsideration Order Appeal
- -------------------------------------------------------------------------------
No. 398 C.D. 1998 Enron Restructuring Order and
Reconsideration Order Appeal
- -------------------------------------------------------------------------------
No. 445 C.D. 1998 NEV Restructuring Order and
Reconsideration Order Appeal
- -------------------------------------------------------------------------------
No. 394 C.D. 1998 OCA Reconsideration Order Appeal
- -------------------------------------------------------------------------------
No. 395 C.D. 1998 OCA Restructuring Order Appeal
- -------------------------------------------------------------------------------
No. 245 C.D. 1998 PECO Restructuring Order Appeal
- -------------------------------------------------------------------------------
No. 246 C.D. 1998 PECO Reconsideration Order Appeal
- -------------------------------------------------------------------------------
No. 706 C.D. 1998 PECO Compliance Filing Order Appeal
- -------------------------------------------------------------------------------
No. 898 C.D. 1998 PECO Second Compliance Filing Order
Appeal
- -------------------------------------------------------------------------------
(The foregoing are hereafter referred to collectively as the "Commonwealth Court
Actions.")
Within ten days of the execution of this Joint Petition by all of the Joint
Petitioners, PECO shall petition the United States District Court to continue
generally its action filed at Civil Docket No. 98-CV-335.
In addition, within ten days after the Commission's approval of this
Joint Petition becomes final and no longer subject to administrative or judicial
challenge, PECO shall withdraw with prejudice (a) all of its pending appeals
before Commonwealth Court and (b) its pending civil action before the US.
District Court, and the other Joint Petitioners shall similarly withdraw with
prejudice all of their Commonwealth Court Actions. The Joint Petitioners agree
that they shall not initiate or join in any court challenge to the
constitutionality or legality of the Electric Competition Act such that would
prevent or preclude implementation of this settlement or any of its terms,
PECO's securitization of stranded costs, this Joint Petition for Settlement or
any order approving this Joint Petition, except as provided in paragraph 44
provided that nothing in this Joint Petition shall prevent
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any Joint Petitioner that is a party to the restructuring proceedings of
another utility from initiating any court challenge, including a challenge to
the constitutionality or legality of the Electric Competition Act, arising from
such proceedings.
T. Effectiveness, Duration And Enforcement Of Settlement
43. The settlement proposed herein will go into effect upon the
Commission's issuance of a final order approving this Joint Petition and all the
settlement terms and conditions without modification. The terms of this
settlement shall be implemented and enforceable notwithstanding the pendency of
a legal challenge to the Commission's approval of this Joint Petition or to
actions taken by another regulatory agency or Court, unless such implementation
and enforcement is stayed or enjoined by the Commission, another regulatory
agency, or a Court having jurisdiction over the matter.
The obligations under this settlement that apply for a specific term set
forth herein shall expire automatically in accordance with the term specified,
and shall require no further action for their expiration. This settlement,
including all of the terms and conditions set forth above, shall expire on
December 31, 2010.
The Joint Petitioners may enforce this Joint Petition through any
appropriate action before the Commission or through any other available remedy.
Joint Petitioners shall consider any final Commission order related to the
enforcement or interpretation of this Joint Petition as an appealable order to
Commonwealth Court. This shall be in addition to any other available remedy at
law and equity.
44
<PAGE>
If a court grants a legal challenge to the Commission's approval of this
Joint Petition and settlement and issues a final non-appealable order which
prevents or precludes implementation of any material term of the settlement, or
if some other legal bar has the same effect, then this settlement is voidable,
upon written notice by any Joint Petitioner.
U. Complete Agreement; No Alterations Or Modifications
44. This settlement resolves, with prejudice, all of the issues
specifically addressed herein and precludes the Joint Petitioners from asserting
contrary positions with respect to any such issue during subsequent litigation
provided, however, that this settlement is made without admission against or
prejudice to any factual or legal positions which any of the Joint Petitioners
may assert (i) in the event that the Commission does not issue a final,
non-appealable Order approving this settlement without modification; or (ii) in
other Pennsylvania utilities' Restructuring proceedings before the Commission
under Section 2806(D) of the Electric Competition Act and related appeals; or
(iii) other proceedings before the Commission or other forums as long as such
positions are not in derogation of this settlement. The Joint Petitioners agree
that this Settlement shall not constitute or be cited as controlling precedent
in any other proceedings, including Pennsylvania utilities' restructuring
proceedings before the Commission under Section 2806(D). This settlement is
determinative and conclusive of all of the issues addressed herein and
constitutes a final adjudication as to the Joint Petitioners of the matters
thereof.
45
<PAGE>
In addition, this settlement is expressly conditioned upon the Commission's
approval of all of the specific terms and conditions contained herein without
modification. If the Commission should fail to grant such approval, or should
modify any of the terms and conditions herein, this settlement will terminate
and be of no force and effect. The Joint Petitioners will make best efforts to
support this settlement and to secure its approval by the Commission.
It is expressly understood and agreed that this settlement constitutes a
negotiated resolution solely of PECO's restructuring proceedings at Docket Nos.
R-00973877, R-00973953 and P-00971265 and the related court appeals and other
actions listed in Part S herein.
IV. PUBLIC INTEREST CONSIDERATIONS
The Joint Petitioners submit that this settlement is in the public interest
and should be approved in full for the following reasons:
45. Customers Will Receive Rate Reductions. The settlement enables all
customers to receive significant guaranteed rate reductions.
45a. Competition will be promoted. Customers will receive substantial
shopping credits that will allow shopping customers to achieve significant bill
savings in addition to the guaranteed rate cut and that will promote
competition. Moreover, the size of the shopping credit and other provisions of
this settlement will insure that a fully competitive market for electricity will
be created and functioning by January 1, 1999.
46
<PAGE>
46. Transmission And Distribution Charges Will Be Capped For An Additional
Four Years. The settlement provides that the cap on PECO's transmission and
distribution charges, which otherwise would expire on June 30, 2001, will be
extended until June 30, 2005.
47. Generation Rates Will Be Capped For An Additional Five Years. The
settlement provides that a cap on PECO's generation rates, which otherwise would
expire on December 31, 2005, will be in place, at somewhat higher levels than
provided in the Electric Competition Act (66 Pa. C.S. ss.2804(4)), until
December 31, 2010. In addition to the guaranteed rate cuts, non-shopping
customers shall be served by providers of last resort or default service that
will offer electric service at market-determined prices on January 1, 2001.
48. Universal Service Coverage Will Be Expanded. The settlement builds upon
PECO's CAP Rate pilot and provides for open enrollment for eligible customers in
that program, subject to an initial maximum participation level of 100,000
customers which will be reviewed when it is reached. As such, PECO's existing
customer assistance programs could more than double their enrollment in the next
several years. In addition, the budget for the Low-Income Usage Reduction
Program is doubled which will promote energy conservation and affordable
service.
49. Economic Development and the Environment Will Benefit. Vigorous
competition unleashed by the shopping credits and the guaranteed rate reductions
will be of benefit to business and industry as well as to residential consumers.
The settlement also
47
<PAGE>
provides for a sustainable development fund, an expanded Rate RS, and a
renewable pilot program.
50. The Securitization Of Stranded Assets Will Be Facilitated. The
settlement provides for the Commission to issue a Qualified Rate Order
authorizing PECO to securitize up to $4.0 billion of its recoverable stranded
assets and costs.
51. Substantial Litigation And Associated Costs Will Be Avoided. The
settlement amicably resolves a number of important and contentious issues raised
in the proceeding and, at the same time, provides for the withdrawal of various
actions currently pending before state and federal courts. The administrative
and appellate burden and costs to litigate these matters, including likely
future appeals, to conclusion would be substantial.
52. The Settlement Is Consistent With Commission Policies Promoting
Negotiated Settlements. The Joint Petitioners arrived at the settlement terms
after conducting extensive discovery, submitting comprehensive testimony and
engaging in in-depth discussions. The settlement terms and conditions constitute
a carefully crafted package representing reasonable negotiated compromises on
the issues addressed herein. Thus, this settlement is consistent with the
Commission's rules and practices encouraging negotiated settlements (see 52 Pa.
Code ss.5.231, 69.391, 69.401).
48
<PAGE>
V. CONCLUSION
WHEREFORE, the Joint Petitioners, intending to be legally bound,
respectfully request that the Commission: (1) approve the settlement terms and
conditions set forth in the Joint Petition without modification; (2) amend the
Commission's Restructuring Order, Reconsideration Order, Compliance Order and
Second Compliance Order as necessary to implement the proposed settlement; (3)
approve the Tariff Supplements attached as Appendix A to become effective
pursuant to the terms set forth therein; (4) issue the Qualified Rate Order set
forth in Appendix D hereto; and (5) approve PECO's transfer of generating assets
as set forth herein.
49
<PAGE>
The undersigned counsel or representatives certify that they have full
authority to enter into this settlement and to act on behalf of their respective
parties, and each is executing this agreement as a duly authorized
representative of such party.
- ----------------------------------------------- ---------------
Paul R. Bonney, Esquire April 29, 1998
Counsel for PECO Energy Company
- ----------------------------------------------- ---------------
Christopher B. Craig, Esquire April 29, 1998
Counsel for Senator Vincent J. Fumo
- ----------------------------------------------- ---------------
Irwin A. Popowsky, Esquire April 29, 1998
Counsel for Office of Consumer Advocate
- ----------------------------------------------- ---------------
Bernard Ryan, Esquire April 29, 1998
Counsel for Office of Small Business Advocate
- ----------------------------------------------- ---------------
Kenneth L. Mickens, Esquire April 29, 1998
Counsel for Office of Trial Staff
- ----------------------------------------------- ---------------
David Kleppinger, Esquire April 29, 1998
Counsel for Philadelphia Area
Industrial Energy Users Group
- ----------------------------------------------- ---------------
Lance S. Haver April 29, 1998
50
<PAGE>
- ----------------------------------------------- ---------------
Steven P. Hershey, Esquire April 29, 1998
Philip A. Bertocci, Esquire
Counsel for CEPA
- ----------------------------------------------- ---------------
Roger Clark, Esquire April 29, 1998
Counsel for Environmentalists
- ----------------------------------------------- ---------------
Paul L. Zeigler, Esquire April 29, 1998
Counsel for Delaware Valley Energy Consortium
- ----------------------------------------------- ---------------
Kenneth Zielonis, Esquire April 29, 1998
Counsel for Pennsylvania Retailers' Association
- ----------------------------------------------- ---------------
Audrey Van Dyke, Esquire April 29, 1998
Counsel for U.S. Department of the Navy
- ----------------------------------------------- ---------------
Joe Inabinet April 29, 1998
For Action Alliance of Senior
Citizens of Greater Philadelphia
- ----------------------------------------------- ---------------
John Earwood April 29, 1998
For Department of Aging
- ----------------------------------------------- ---------------
Kenneth G. Hurwitz, Esquire April 29, 1998
Counsel for Southeastern Pennsylvania
Transportation Authority
51
<PAGE>
- ----------------------------------------------- ---------------
Daniel Clearfield, Esquire April 29, 1998
Counsel for Enron Power Marketing, Inc.
- ----------------------------------------------- ---------------
Joseph A. Dworetzky, Esquire April 29, 1998
Counsel for NEV, East LLC
- ----------------------------------------------- ---------------
Craig A. Doll, Esquire April 29, 1998
Counsel for Conectiv Energy
- ----------------------------------------------- ---------------
William T. Hawke, Esquire April 29, 1998
Counsel for Mid-Atlantic Power
Supply Association
- ----------------------------------------------- ---------------
Albert Benincasa April 29, 1998
For Skipping Stone
- ----------------------------------------------- ---------------
Douglas F. John, Esquire April 29, 1998
NorAm Energy Management, Inc. and
Electric Clearinghouse, Inc.
- ----------------------------------------------- ---------------
Usher Fogel, Esquire April 29, 1998
Counsel for Pennsylvania Petroleum Association
and Pennsylvania Association of Plumbing,
Heating, Cooling Contractors, Inc.
52
<PAGE>
- ----------------------------------------------- ---------------
Otto F. Hofmann, Esquire April 29, 1998
Counsel for Pennsylvania Rural
Electric Association
53
<PAGE>
The undersigned counsel or representatives certify that they have full
authority to enter into this settlement and to act on behalf of their respective
parties, and each is executing this agreement as a duly authorized
representative of such party.
- ----------------------------------------------- ---------------
April 29, 1998
- ----------------------------------------------- ---------------
April 29, 1998
- ----------------------------------------------- ---------------
April 29, 1998
- ----------------------------------------------- ---------------
April 29, 1998
- ----------------------------------------------- ---------------
April 29, 1998
54
<PAGE>
The undersigned counsel certify that they have full authority to act on
behalf of their respective parties in this proceeding and they do not object to,
and will abide by, the terms of this settlement of the PECO restructuring
proceedings and related appeals.
- ----------------------------------------------- ---------------
Paul E. Nordstrom, Esquire April 29, 1998
Counsel for Allegheny Power System, Inc.
- ----------------------------------------------- ---------------
Terrance J. Fitzpatrick, Esquire April 29, 1998
Counsel for GPU Energy, Inc.
- ----------------------------------------------- ---------------
Paul E. Russell, Esquire April 29, 1998
Counsel for Pennsylvania Power &
Light Co.
55
<PAGE>
The undersigned counsel certify that they have full authority to act on
behalf of their respective parties in this proceeding and they do not object to,
and will abide by, the terms of this settlement of the PECO restructuring
proceedings and related appeals.
- ----------------------------------------------- ---------------
April 29, 1998
- ----------------------------------------------- ---------------
April 29, 1998
- ----------------------------------------------- ---------------
April 29, 1998
- ----------------------------------------------- ---------------
April 29, 1998
- ----------------------------------------------- ---------------
April 29, 1998
56
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
---------------------------- -------------------
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
---------------
PECO ENERGY TRANSITION TRUST
---------------------------------------------------
(Exact name of obligor as specified in its charter)
Delaware 51-0382130
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
c/o First Union Trust Company National Association
One Rodney Square, 920 King Street
Wilmington, Delaware 19801
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
---------------
Transition Bonds
-----------------------------------
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza,
New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 28th day of February, 2000.
THE BANK OF NEW YORK
By: /s/ VAN K. BROWN
-------------------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1999, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
In Thousands
--------------
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........................... $ 6,394,412
Interest-bearing balances.................................................... 3,966,749
Securities:
Held-to-maturity securities.................................................. 805,227
Available-for-sale securities................................................ 4,152,260
Federal funds sold and Securities purchased under agreements to resell.......... 1,449,439
Loans and lease financing receivables:
Loans and leases, net of unearned income..................................... 37,900,739
LESS: Allowance for loan and lease losses.................................... 572,761
LESS: Allocated transfer risk reserve........................................ 11,754
Loans and leases, net of unearned income, allowance, and reserve............. 37,316,224
Trading Assets.................................................................. 1,646,634
Premises and fixed assets (including capitalized leases)........................ 678,439
Other real estate owned......................................................... 11,571
Investments in unconsolidated subsidiaries and associated companies............. 183,038
Customers' liability to this bank on acceptances outstanding.................... 349,282
Intangible assets............................................................... 790,558
Other assets.................................................................... 2,498,658
-----------
Total assets.................................................................. $60,242,491
===========
LIABILITIES
Deposits:
In domestic offices.......................................................... $26,030,231
Noninterest-bearing.......................................................... 11,348,986
Interest-bearing............................................................. 14,681,245
In foreign offices, Edge and Agreement subsidiaries, and IBFs................ 18,530,950
Noninterest-bearing.......................................................... 156,624
Interest-bearing............................................................. 18,374,326
Federal funds purchased and Securities sold under agreements to repurchase...... 2,094,678
Demand notes issued to the U.S.Treasury......................................... 232,459
Trading liabilities............................................................. 2,081,462
Other borrowed money:
With remaining maturity of one year or less.................................. 863,201
With remaining maturity of more than one year through three years............ 449
With remaining maturity of more than three years............................. 31,080
Bank's liability on acceptances executed and outstanding........................ 351,286
Subordinated notes and debentures............................................... 1,308,000
Other liabilities............................................................... 3,055,031
-----------
Total liabilities............................................................... 54,578,827
===========
EQUITY CAPITAL
Common stock.................................................................... 1,135,284
Surplus......................................................................... 815,314
Undivided profits and capital reserves.......................................... 3,759,164
Net unrealized holding gains (losses) on available-for-sale securities.......... (15,440)
Cumulative foreign currency translation adjustments............................. (30,658)
-----------
Total equity capital............................................................ 5,663,664
-----------
Total liabilities and equity capital............................................ $60,242,491
===========
</TABLE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi }
Alan R. Griffith } Directors
Gerald L. Hassell }
PENNSYLVANIA
PUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held May 14, 1998
Commissioners Present:
John M. Quain, Chairman, Statement attached
Robert K. Bloom, Vice Chairman
John Hanger Statement attached
David W. Rolka
Nora Mead Brownell
Application of PECO Energy Company for Docket Nos. R-000973953
Approval of its Restructuring Plan Under Section and P-0971265
2806 of the Public Utility Code, et al.
F I N A L O R D E R
BY THE COMMISSION:
On April 29, 1998, PECO Energy Company ("PECO" or the "Company"); Senator
Vincent J. Fumo; the Office of Consumer Advocate ("OCA"); the Office of Small
Business Advocate ("OSBA"); the Office of Trial Staff ("OTS"); the Philadelphia
Area Industrial Energy Users Group ("PAIEUG"); Lance S. Haver; the Consumers
Education and Protective Association, et al. ("CEPA") (which includes the
Consumers Education and Protective Association, the Tenant Action Group, ACORN
and John W. Long, Jr.); Community Legal Services; the Environmentalists; the
Delaware Valley Energy Consortium; Pennsylvania Retailers' Association; U.S.
Department of the Navy; Action Alliance of Senior Citizens of Greater
Philadelphia; Pennsylvania Department of Aging; Enron Power Marketing, Inc.
("Enron"); NEV East LLC ("NEV"); Conectiv Energy;
1
<PAGE>
Mid-Atlantic Power Supply Assoc. ("MAPSA",); Skipping Stone; Pennsylvania
Petroleum Association and Pennsylvania Association of Plumbing, Heating, Cooling
Contractors, Inc.; Allegheny Power System, Inc. ("APS"); GPU Energy Inc.
("GPU"); PP&L, Inc. ("PP&L"); Pennsylvania Rural Electric Assoc. ("PREA") (all
such parties collectively referred to as the "Joint Petitioners") submitted a
Joint Petition for Full Settlement of PECO Energy Company's Proposed
Restructuring Plan and Application for a Qualified Rate Order and Application
for Transfer of Generation Assets ("Joint Petition").
The proposed terms and conditions of the Joint Petition represent a
comprehensive settlement which resolves all issues on appeal before Commonwealth
Court and all issues before the U.S. District Court arising from challenges by
the Joint Petitioners to the Commission's final order, reconsideration order and
compliance orders regarding PECO's Application for Approval of its Restructuring
Plan Under Section 2806 of the Public Utility Code(1).
The Joint Petitioners aver that this comprehensive settlement is in the
public interest and, therefore, request that this Commission: (1) approve
without modification the proposed settlement as set forth in the Joint Petition;
(2) amend our final order, reconsideration order and compliance filing orders as
necessary to implement the full settlement; (3) approve the tariff supplements
necessary to implement the proposed
- ----------------
(1) As noted in the certificate of service, copies of the joint Petition and
appendices were served by PECO on all parties to the proceeding by overnight
mail or hand delivery. In addition,
2
<PAGE>
settlement; (4) issue a Qualified Rate Order authorizing PECO to securitize up
to $4.0 billion of stranded assets and costs as proposed in the full
settlement; and (5) approve PECO's transfer of generation assets. The Joint
Petitioners recognized, however, that pursuant to the provisions of Section
703(g) of the Public Utility Code, the Commission is obligated to provide notice
of and opportunity to be heard before it may amend a prior order. In our
tentative order approving the proposed settlement issued April 30, 1998, we
provided for a comment period which closed on May 12, 1998.
In the proposed settlement, all PECO customers will receive a guaranteed 8%
rate reduction effective January 1, 1999, the start date for retail electric
generation competition in PECO's service territory through December 31, 1999,
and 6% rate reduction from January to December 31, 2000. In addition to the
guaranteed rate decreases of 8% and 6%, customers shall receive a system-average
shopping credit of 4.46 cents per KWH on January 1, 1999. Customers that elect
to shop for generation shall receive total rate reductions in 1999 and 2000
equal to the above referenced rate decreases plus savings produced by the
difference between their generation purchase price and their shopping credit.
Moreover, given the 4.46 cents per KWH shopping credit for the years 1999 and
2000 called for in the proposed settlement as well as other specific components
of the proposed settlement, the Joint Petitioners expect the development of a
vibrant competitive market with many alternative electric generation suppliers.
- --------------------------------------------------------------------------------
PECO provided written notice of the proposed settlement by letter to its
customers, posted notices in its office and on its internet web page, and
provided notice by news release.
3
<PAGE>
In addition, the settlement terms and conditions provide that PECO will (1)
recover a substantially smaller amount of stranded cost recovery than it claimed
before the Commission; (2) transfer its generation assets and liabilities and
wholesale power contracts to separate corporate affiliate subject to competitive
safeguards to insure fair dealing; (3) expand its current universal service
programs; (4) accelerate the phase-in to customer choice for all customer
classes; (5) educate consumers about restructuring; (6) facilitate funding of
sustainable energy and economic development; (7) encourage small renewable
energy technologies; and (8) withdraw all of its appeals before Commonwealth
Court and its civil complaint before the U.S. District Court challenging the
Commission's restructuring orders at Docket No. R-00973953.
The Joint Petitioners, in turn, agree to resolve all objections to PECO's
Restructuring Plan and to withdraw (1)all cases pending before the Commonwealth
Court which challenge the constitutionality of the Electric Competition Act and
the Commission's May 22, 1997 Order at Docket No. R-00973877 in PECO's
securitization proceeding and (2) all appeals pending before Commonwealth Court
which challenge the Commission's restructuring orders at Docket No. R-00913953,
provided that the Joint Petitioners are not barred from raising any factual,
legal or contrary positions in other proceedings as long as such positions are
not in derogation of this settlement.
Comments
We received a number of timely comments as discussed below.
4
<PAGE>
Indianapolis Power & Light Company (IPALCO), a party to this proceeding
which was not a signatory to this settlement, filed an objection to the
settlement, reiterating its position, as advanced before us and before the
Commonwealth Court of Pennsylvania that stranded cost recovery is
unconstitutional. This position was decisively rejected by the Court in
Indianapolis Power & Light Co. v. Pa. P.U.C., -- A.2d --, 1998 Pa. Commw.
LEXIS 328 (May 7, 1998) and we therefore dismiss IPALCO's objections on the
basis of our earlier orders in this case and on the basis of the well reasoned
opinion of the Commonwealth Court of Pennsylvania.
The Office of Consumer Advocate (OCA), a party to this proceeding and
signatory to the settlement, filed four pages of comments supporting the
settlement and urging the Commission to approve it. It urges the Commission to
closely monitor the Philadelphia market to ensure that no "redlining" practices
arise by electric generation companies to the detriment of consumers and also
urges the Commission to continue the consumer protections and information
requirements it has already established. OCA also indicates that it has a
continuing concern that competitive default supplier (CDS) service must be
sufficiently attractive to produce truly competitive bids from a number of
suppliers, since the bid price will serve not only as the price at which CDS
customers are served, but also as the floor at which PECO can provide default
service to its own residential customers. OCA states that it intends to take an
active role in Commission proceedings dealing with CDS issues.
5
<PAGE>
PECO filed comments by letter indicating that a technical review of the
appendices it conducted with settlement co-signatories indicated the need for
some minor technical modifications and corrections to proposed tariff language,
rate summary sheets and proof of revenues which were agreed to by all settlement
participants. It filed revised appendices on May 12, 1998. The rate summary
sheets and proof of revenues reflect a slightly different method of allocating
the settlement-based shopping credit among the customer rate classes on a
proportionally consistent basis. We find that the changes are in the public
interest and in accordance with the provisions of the joint settlement and
Chapter 28. We have reviewed these technical changes (including the proposed
tariff sheets) and hereby approve them.(2) PECO also points out a deficiency
with the ordering paragraph in our tentative order regarding the irrevocability
of the QRO provisions. The tentative order appeared to make a grant of
irrevocability which was overly broad. We have corrected the provision, which
now appears as paragraph 17.
We have also received comments from John M. Alvarez, Albert J. Paiste,
Lawrence G. Spielvogel and Storb Incorporated, none of whom were active parties
or filed briefs in the case before us. Messrs. Alvarez and Paiste and Storb
Incorporated generally ask us to deny PECO any stranded cost recovery, something
that we cannot do under the provisions of the Electric Competition Act. Mr.
Spielvogel objects to a variety of minor tariff issues, but does not identify
how the proposed tariff changes violate any
- -----------------
(2) The Commission, however, has jurisdiction to insure that the rates and
tariff sheets accurately implement the settlement in future years, and will
resolve any disputes that may arise regarding implementation of the settlement
terms.
6
<PAGE>
provision of the Public Utility Code or are not in the public interest. We shall
deny the relief sought by these commentors.
Lastly, on May 13, 1998, several of the joint petitioners(3) filed a
stipulation, for Commission approval, dealing with (1) line loss percentages
in PECO's Electric Generation Supplier Tariff; (2) timely provision of
information by PECO to facilitate Locational Marginal Pricing; and (3) tariff
language clarifying the present extent of competitive metering service, an
agreement to discuss systems, procedures and timelines to expand the extent of
competitive metering, and PECO's agreement to a "T&D flex down" information
filing requirement (set forth as Attachment A to the stipulation). Upon review
and consideration of the stipulation and its Attachment A, the Commission hereby
approves the stipulation as filed.
Conclusion
The proposed settlement set forth in the Joint Petition and its appendices
constitutes a comprehensive resolution of the broad array of issues raised by
PECO's restructuring plan under the Electric Competition Act. Consistent with
the fundamental goals of that historic legislation, the settlement provides for
an orderly transition from the current regulated electric utility structure for
generation to a structure under which retail customers will have direct access
to a competitive market for the generation of electricity; moreover, and also
consistent with the legislation, the settlement provides for a fair and
- --------------------------------------------------------------------------------
(3) The stipulation was filed by PECO, Conectiv, NEV, Enron and MAPSA.
7
<PAGE>
reasonable recovery of PECO's transition and stranded costs created by this
transition to a competitive market. In particular, the settlement contains the
following benefits:
o customers will receive a guaranteed rate decrease of 8% during 1999
and 6% during 2000;
o customers will receive a substantial shopping credit (4.46 cents/KWH
on during 1999 and 2000) that will allow shopping customers to achieve
significant bill savings in addition to the guaranteed rate cuts;
o the size of the shopping credit and other provisions of the settlement
will insure that a fully competitive market for electricity will be
created and functioning by January 1, 1999;
o transmission and distribution rates will be capped for an additional
four years (to June 30, 2005);
o the generation rate cap will be extended for an additional five years
(to December 31, 2010);
o provisions that provide for competitive metering, meter reading, and
billing and collection services;
o provisions for codes of conduct and competitive safeguards to insure
fair and non-discriminatory competition;
o universal service programs will be expanded, and economic development
and the environment will benefit;
8
<PAGE>
o substantial litigation and its associated costs and uncertainties will
be avoided (the settlement lists 15 Commonwealth Court actions and 1
Federal Court action to be withdrawn as a part of this proposed
settlement).
We recognize and appreciate the uncounted hours spent by the participants
in preparing this Joint Petition, which presents a negotiated resolution of
important and conflicting interests in a practical and enforceable manner. We
believe that this settlement represents a difficult, but important step in the
advancement of the economies of the greater Philadelphia area and the
Commonwealth, and an historic breakthrough in the creation of retail electric
competition in the Commonwealth. At the same time, the Joint Petition continues
necessary and important safeguards for utility customers which must be preserved
in the public interest.
Upon consideration of the proposed settlement and appendices, and the
comments thereto, we find that the proposed settlement is the public interest;
THEREFORE,
IT IS ORDERED:
1. That in consideration of and reliance upon the representations, mutual
promises and undertakings of the parties to this proposed settlement, including
the express agreement of each signatory to be legally bound by its terms and the
certification of each signatory that he or she has full authority to enter into
the settlement and to act on behalf of their respective parties, the terms of
the proposed full settlement set forth in the Joint Petition and its appendices,
including the technical revisions thereto filed on May 12, 1998 and stipulation
filed May 13, 1998, shall be and are hereby approved as to each and every one of
its terms and conditions and we hereby reconsider and amend our prior orders in
these proceedings as necessary to implement the terms of the full settlement.
Any issue not specifically addressed in the settlement shall be treated and
resolved in accordance with the resolution of that issue adopted by the
Commission at this docket in the Restructuring Order entered December 23, ]997,
the Reconsideration Order entered January 16, 1998,
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the Compliance Order entered February 5, 1998 and the Second Compliance Order
entered February 26, 1998.
2. That the Commission hereby approves without condition all aspects of
PECO's transfer or assignment of its generation assets and liabilities and the
wholesale power contracts as set forth in the settlement. The transfer or
assignment may be, in PECO's discretion, to an entity that is an affiliate or
subsidiary of PECO, or a non-affiliate. We hereby grant and issue all approvals
and certificates of public convenience required under the Public Utility Code
regarding the transfer or assignment of PECO's generating assets and liabilities
and wholesale power contracts under the settlement, including but not limited to
approvals under Chapters 5, 11, 19, 21 and 28 of the Public Utility Code.
3. That PECO's recovery of the transition and stranded costs as set forth
in the settlement is just and reasonable and in the public interest and that
securitization of up to $4.0 billion of stranded costs as set forth in the
settlement is just and reasonable and in the public interest.
4. That the application of PECO Energy Company (the "Company") for the
Issuance of a Qualified Rate Order under Sections 2808 and 2812 of the Public
Utility Code, 66 Pa. C.S. ss.2808 and 2812 contained in the Joint Petition for
the Settlement of PECO Energy Company's Proposed Restructuring Plan, filed on
April 22, 1998 (the "Joint Petition"), be, and hereby is, granted, consistent
with this Qualified Rate Order.
5. That, to the extent specified this Qualified Rate Order, PECO Energy
Company's filings, testimony and exhibits submitted to the Commission in
conjunction with PECO Energy Company's January 22, 1997 Application for a
Qualified Rate Order, at Docket No. R-00973877 (the "January QRO Application"),
and its Proposed Restructuring Plan, at Docket No. R-00973953 (the
"Restructuring Filing"), are hereby incorporated herein by reference.
6. That this Commission determines that it is just and reasonable and in
the public interest for PECO Energy Company to recover from its customers,
through intangible Transition Charges as and to the extent authorized in
paragraph 8 of this Qualified Rate Order, $4.0 billion of the $5.26 billion of
the Company's Transition or Stranded Costs approved by the Commission for
recovery from customers.
7. That this Commission authorizes the issuance of Transition Bonds in an
aggregate principal amount not to exceed $4 billion and finds that the issuance
of such amount of Transition Bonds is in the public interest. Provided that the
rate reductions specified in the Joint Petition are implemented as provided in
paragraph 9 of this Qualified Rate Order, this Commission hereby determines that
all savings that may be
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accomplished through securitization will be passed on to customers through the
rate reductions in paragraph 9, and the PECO Energy Company is not required to
pass on additional savings to customers at the time of issuance of any
Transition Bonds authorized by this Qualified Rate Order or the refinancing
thereof.
8. That this Commission authorizes PECO Energy Company to impose on, and
collect from its customers, either directly or through bills rendered by
electric generation suppliers or any subsequently selected providers of last
resort, through non-bypassable charges applied to the bill of every customer of
electric services within the geographic area that comprised the Company's
certificated service territory on the effective date of the Electric Competition
Act, whether such customer was a customer on the effective date of the Electric
Competition Act or became a customer after that effective date (i) Competitive
Transition Charges as provided in the Joint Petition in an amount sufficient to
permit the Company to recover the full amount of its Transition or Stranded
Costs as authorized for recovery in the Joint Petition, and (ii) Intangible
Transition Charges in an amount sufficient to recover the aggregate principal
amount of 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 (the
Transition or Stranded Costs, which includes principal of or interest on
Transition Bonds, costs for credit enhancement, servicing fees and other related
costs and expenses permitted to be recovered in (ii) above through the
Intangible Transition Charges collectively, the "Qualified Transition
Expenses"). The Commission finds that such recovery and the imposition of such
Competitive Transition Charges and Intangible Transition Charges is in the
public interest and is just and reasonable. The Commission finds that good cause
has been shown to extend the payment period for imposing the Competitive
Transition Charges and the Intangible Transition Charges to December 31, 2010.
The Intangible Transition Charges shall be collected over periods of time and
in such amounts as are necessary to amortize each series of Transition Bonds in
accordance with the terms thereof, but in no event shall be charged to customers
after December 31, 2010. Notwithstanding anything else in this Qualified Rate
Order, but subject to the terms of the Joint Petition, the Intangible Transition
Charges shall be collected from customers in an amount sufficient to discharge
the Transition Bonds in accordance with their terms.
9. Upon the successful issuance of Transition Bonds authorized by this Qualified
Rate Order and the imposition of Intangible Transition Charges related thereto,
PECO Energy Company is directed to implement the following adjustments to its
rates: (A) if the Transition or Stranded Costs for which Transition Bonds are
issued are then recovered through the Competitive Transition Charges authorized
under paragraph 8 hereof, the Company shall reduce the Competitive Transition
Charges imposed on its customers by an amount equal to the Intangible Transition
Charges associated with such
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Transition Bond issuance; (B) if the Transition or Stranded Costs for which
Transition Bonds are issued are not then being recovered through the Competitive
Transition Charges, (i) the Company shall reduce its base rates by an amount
equal to the Intangible Transition Charges associated with such Transition Bond
issuance and (ii) the aggregate amount of Competitive Transition Charges
authorized in paragraph 7 of this Qualified Rate Order that the Company may in
the future impose on its customers shall be reduced by an amount equal to the
Intangible Transition Charges associated with such Transition Bond issuance. The
reductions specified in (A) and (B) above shall be implemented on the following
terms: (a) if the Transition Bonds are issued in one or more series, a
corresponding reduction shall be calculated and implemented corresponding to
each such series; (b) the rate reduction shall be applied to bills using the
method and allocation set forth in the Company's QRO Filing and Restructuring
Filing, as adjusted by the Joint Petition; and (c) the Intangible Transition
Charges associated with the Transition Bonds issued on that date shall be
applied to bills simultaneously with the rate reduction or reduction of the
Competitive Transition Charges.
10. That the Competitive Transition Charges and the Intangible Transition
Charges shall be applied to customer bills using the methodology and allocation
set forth in the Company's QRO Filing and its Restructuring Filing, as adjusted
by the Joint Petition. Pursuant to 66 Pa. C.S. ss.2808(f) and ss.2812(b)(5), the
Commission authorizes the Company to make annual adjustments (each, an "Annual
Adjustment") to the Intangible Transition Charges if collections of such
Intangible Transition Charges fall below the amount necessary to ensure the
receipt by the Transition Bond trustee of revenues sufficient to recover fully
the Qualified Transition Expenses consistent with this Commission's Order,
provided, however, that adjustments during the final calendar year of ITC
collection for any series of Transition Bonds shall be done quarterly or
monthly, if necessary, in order to ensure full recovery of Intangible Transition
Charges. The revenues received by the Transition Bond trustee through the
Intangible Transition Charges shall be determined to be sufficient for this
purpose if and only if the revenues so received through the Intangible
Transition Charges are sufficient to amortize the Transition Bonds, fund any
reserves and to pay premiums, if any, thereon (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 thereof
and as consistent with the terms of this Qualified Rate Order and the Joint
Petition. For each Annual Adjustment, the Company shall file with this
Commission: (a) an accounting of Intangible Transition Charges received by the
Transition Bond trustee for the previous annual period; (b) a statement of any
over- or under-receipts; (c) the charge or credit to be added to Intangible
Transition Charges to ensure that the Intangible Transition Charges revenue
received by the Transition Bond trustee will be sufficient to amortize the
Qualified Transition Expenses in accordance with the amortization schedule for
Transition Bonds to be determined at the time of issuance of each series of
Transition
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Bonds, and the corresponding reduction or increase in the Competitive Transition
Charges or, if Competitive Transition Charges have not been imposed, the
Company's distribution rates; and (d) any proposal by the Company to modify the
reconciliation methodology. Pursuant to 66 Pa. C.S. ss.2812(b)(5), this
Commission shall approve all Annual Adjustments within 90 days of the Company's
Annual Adjustment filing.
11. That this Commission determines that the methodology under which the
Company will recover the Intangible Transition Charges authorized by this
Qualified Rate Order satisfies the provisions of 66 Pa. C.S. ss.2812(g), which
require that the methodology not shift inter-class or intra-class and that the
methodology maintains consistency with the allocation methodology for utility
production plant used by the Commission in the Company's last base rate
proceeding.
12. That this Commission concludes that it is in the public interest to,
and authorizes the Company and any Assignee to (a) assign, sell, transfer or
pledge Intangible Transition Property in an amount sufficient to recover all its
Qualified Transition Expenses (such term includes all right, title and interest
of the Company or any Assignee in this Qualified Rate Order) and in all
revenues, collection, claims, payments, money or proceeds arising from
Intangible Transition Charges pursuant to this Qualified Rate Order to the
extent this Qualified Rate Order and the rates and other charges authorized
hereunder are declared irrevocable and (b) issue, sell and refinance, in
reliance on this Qualified Rate Order, one or more series of Transition Bonds,
each series in one or more classes secured by the Intangible Transition Property
created by this Qualified Rate Order; provided that the final maturity of any
series of Transition Bonds shall not exceed 10 years from the date of issuance
and in no event shall any Transition Bond have a final maturity after December
31, 2010. Notwithstanding the foregoing, the Company retains sole discretion
regarding whether to assign, sell or otherwise transfer Intangible Transition
Property created hereby or to issue or cause the Transition Bonds to be issued
or refinanced.
13. That the Company or any Assignee may refinance the Transition Bonds in
a face amount not to exceed the unamortized principal thereof. That, if the
Company or any Assignee refinances the Transition Bonds, the Intangible
Transition Charges authorized in this Qualified Rate Order shall be adjusted in
accordance with the true-up mechanism described in paragraph 10 of this
Qualified Rate Order to ensure the receipt by the Transition Bond Trustee of
revenues sufficient to pay all principal, interest, redemption premiums, if any,
credit enhancement, reserves, servicing fees, and other costs and expenses with
respect to Transition Bonds issued in that refinancing. The revenues received by
the Transition Bond Trustee through the Intangible Transition Charges shall be
determined to be sufficient for this purpose if and only if the revenues so
received through the Intangible Transition Charges provide for the amortization
of
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Transition Bonds in accordance with any amortization schedule set forth in any
prospectus or other offering document provided to the holders of the refinanced
bonds after payment of interest, reserves, fees and expenses.
14. That this Commission directs that PECO Energy Company use the proceeds
from the assignment, sale, transfer or pledge of Intangible Transition Property
and the issuance and sale of Transition Bonds principally to reduce the
Company's Transition or Stranded Costs set forth in paragraph 6 of this Order
and in the Joint Petition and to reduce related capitalization. The Commission
authorizes the Company to reduce the Company's existing capitalization through
retirement of outstanding debt and preferred stock and through stock buybacks,
dividends and market purchases of common stock in such proportions as the
Company determines.
15. That PECO Energy Company shall file with this Commission, no later than
120 days after the issuance or refinancing of Transition Bonds, a description of
the final structure of each issuance or refinancing of such Transition Bonds,
including the principal amount, the price at which each such series and/or class
of Transition Bonds were sold, payment schedules, the interest rate and other
financing costs, and the final plans for the Company's use of the proceeds of
such offering. Notwithstanding such filing, the final structure of each such
issuance or refinancing shall not be subject to change or revision by this
Commission after the date of such issuance or refinancing.
16. That, to the extent that the Company, or any Assignee, assigns, sells,
transfers, or pledges any interest in the Intangible Transition Property created
hereby, this Commission authorizes the Company to contract, for a specified fee,
with such Assignee for the Company to continue to operate the system to provide
electric services to the Company's customers, to impose and collect the
applicable Intangible Transition Charges for the benefit and account of the
Assignee, to make periodic adjustments of Intangible Transition Charges
contemplated under paragraph 10 of this Qualified Rate Order, and 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). This Commission also
authorizes the Company to contract with the Assignee and an alternative party,
which may be a trustee, that the alternative party will replace the Company
under its contract with the Assignee and perform the obligations of the Company
contemplated in this Qualified Rate Order. The obligations of the Company (a)
shall be binding upon the Company, its successors and assigns and (b) shall be
required by this Commission to be undertaken and performed by the Company and
any other entity which provides transmission and distribution services to a
person that was a customer of the Company located within the Company's
certificated territory on January 1, 1997, or that became a customer of electric
services within such territory after January 1, 1997, and is still located
within such territory, as a
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condition to providing service to such customer or municipal entity providing
such services in place of the Company by the Company or other entity.
17. That this Commission hereby declares that paragraphs 4 through 19 of
this Qualified Rate Order shall be irrevocable for purposes of Section 2812 of
the Public Utility Code, 66 Pa. C.S. ss.2812, and accordingly agrees that it
will not directly or indirectly, by any subsequent action, reduce, postpone,
impair or terminate this Qualified Rate Order or the Intangible Transition
Charges authorized to be imposed or collected under this Qualified Rate Order.
This Commission further declares that the right, title and interest of the
Company and any Assignee in this Qualified Rate Order and the Intangible
Transition Charges, the rates and other charges authorized hereby and all
revenues, collections, claims, payments, money or proceeds of or arising from
the same constitutes Intangible Transition Property. PECO Energy Company shall
have the irrevocable right to issue Transition Bonds in accordance with this
Qualified Rate Order until December 31, 2010.
18. That PECO Energy may apply to the Commission for supplements to this
Qualified Rate Order, not inconsistent with the terms and provisions hereof and
the Joint Petition, as PECO Energy Company deems necessary to enable the
issuance of Transition Bonds authorized hereunder.
19. That during some or all of the period during which the Intangible
Transition Charges and the Competitive Transition Charges approved by this
Qualified Rate Order are being collected, the generation component of the
Company's charges to customers will be limited by the provisions of 66 Pa. C.S.
ss.2804(4) (pertaining to rate caps) and the provisions of the Joint Petition.
For purposes of 66 Pa. C.S. ss.2804(4)(ii), the generation component of the
Company's charges includes Competitive Transition Charges, Intangible Transition
Charges, and other generation charges. If the combined total of these elements
would cause the generation component of the Company's charges to exceed the rate
cap specified in 66 Pa. C.S. ss.2804(4) and the Joint Petition, the Company
shall retain whatever right it may have under the existing provisions of the
statute as limited by the Joint Petition to request relief from the rate cap,
but if it does not seek such relief or that relief is denied, the Company shall
adjust the non-securitized elements of its generation charges, rather than the
Intangible Transition Charges approved by this Qualified Rate Order, to bring
the charges into compliance with the rate cap provisions of 66 Pa. C.S.
ss.2804(4) and the Joint Petition.
20. That pursuant to 52 Pa. Code ss.1.2(c), the Commission hereby waives
the requirements of its regulations at 52 Pa. Code as necessary and appropriate
to implement the joint petition and this final order.
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21. That a copy of this final order shall be served upon all parties to
PECO's restructuring proceeding at Docket Nos. R-00973953 and P-00971265.
BY THE COMMISSION
James J. McNulty
Acting Secretary
(SEAL)
ORDER ADOPTED. May 14, 1998
ORDER ENTERED: MAY 14, 1998
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Internal Revenue Service Department of the Treasury
Index Numbers: Washington, DC 20224
61.00-00 61.03-00
61.43-00 451.01-00
Person to Contact:
Thomas M. Preston
Thomas P. Hill, Jr. Telephone Number:
Vice President & Controller 202-622-4443
PECO Energy Company Refer Reply To:
2301 Market Street CC:DOM:FI&P:2/PLR-105800-97
Philadelphia, PA 19101 Date: DEC 19 1997
Legend
Company = PECO Energy Company
EIN: 23-0970240
Trust = Business Trust
State A = Pennsylvania
State B = Delaware
Statute = Title 66 Pa. Consolidated Statutes,
Section 2801, Electricity
Generation Customer Choice and
Competition Act
Date 1 January 1, 1999
Date 2 January 1, 2000
Date 3 January 1, 2001
Date 4 = January 22, 1997
a = $3.877 billion
b = $3.6 billion
c = $23.8 million
d = $149.4 million
e = .5%
Dear Mr. Hill:
This letter is in reply to the letter dated March 21, 1997, as well as
other correspondence, requesting a ruling on the proposed transaction described
below.
FACTS
Company, a calendar year taxpayer using the accrual method of accounting,
is an investor-owned electric utility in State A engaged in the generation,
transmission, distribution and
<PAGE>
sale of electricity and the distribution and sale of natural gas within a
designated territory. As such, Company has a monopoly within a designated
territory and is subject to regulation by both the State A Public Utility
Commission (PUC) and the Federal Energy Regulatory Commission (FERC).
State A is deregulating its electric utility industry. As a result,
Company's customers will be allowed to contract directly with alternative
suppliers of electricity, and Company will compete with other parties to sell
electricity.
The Statute was enacted in December, 1996, to provide for the restructuring
of the electric utility industry in State A through the unbundling of electric
services into separate generation, transmission and distribution services with
open retail competition for generation. Electric distribution and transmission
services will remain regulated by the PUC. Full electric generation competition
will be phased in, in three steps. Direct retail access is to be phased in for
one-third of each customer class by Date 1 for an additional one-third by Date
2, and for all remaining customers by Date 3.
The Statute requires utilities to submit to the PUC restructuring plans
that address the "stranded costs" that will result from competition. Stranded
costs include regulatory assets, nuclear decommissioning costs and long-term
purchased power commitments, for which full recovery is allowed, and other
costs, including investment in generating plants, spent-fuel disposal,
retirement costs and reorganization costs, for which an opportunity for recovery
is allowed in an amount determined by the PUC as just and reasonable. These
costs, after mitigation by the utility, are to be recovered through the
competitive transition charge (CTC) approved by the PUC and collected from
distribution customers for up to nine years.
As a mechanism for the mitigation of CTCs and the reduction of customer
rates, the Statute authorizes an electric utility to securitize its stranded
costs through the issuance of Transition Bonds either directly by the utility,
or by a finance subsidiary or third party assignee of the utility. To facilitate
this securitization, the Statute authorizes the creation of a property right to
collateralize the Transition Bonds. This property right, called intangible
transition property (ITP), represents the right to collect from customers
amounts sufficient to recover the utility's stranded costs, pay the expenses of
issuing and servicing the Transition Bonds, and fund any necessary reserve
accounts. The amounts are collected by imposing intangible transition charges
(ITCs). ITP is created upon the issuance by the PUC of an irrevocable qualified
rate order (QRO) authorizing the ITCs. An irrevocable QRO may not be modified by
the Company, the PUC, the State or any instrumentality thereof.
ITCs are imposed on customers located in the utility's certificated
territory and must be paid whether or not the customers purchase electricity
from the utility. ITCs are calculated as a percentage of expected total base
rate revenue to be collected by customer rate class, the collection of which
will, likely be dependent on, inter alia, a utility's ability to forecast the
usage, delinquencies, charge-offs, and payment lags of customers in each rate
class. The PUC may approve periodic adjustments to the ITC, but only in
accordance with the Statute and the QRO.
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Company will assign its ITP to the Trust, a newly-formed,
bankruptcy-remote, wholly owned State B business trust formed by the Company
solely for this purpose. The Trust will not elect to be treated as an
association taxable as a corporation under section 301.7701-3(b)(1) of the
Procedure and Administration Regulations. Under the Statute, the transfer of ITP
to a subsidiary or assignee of the utility, pursuant to an irrevocable QRO,
shall be treated as an absolute transfer of the utility's right, title and
interest as in a true sale, and not as a pledge or other financing other than
for state income and franchise tax purposes.
For each QRO declared irrevocable by the PUC, the Trust will issue
Transition Bonds in the form of debt securities in one or more series, and one
or more tranches of each series. Different series may have different maturities
and coupon rates. The Transition Bonds will be recourse to the Trust and will be
secured on a pari passu basis by the ITP and the equity and assets of the Trust.
It is anticipated that the Transition Bonds will receive a AAA rating from at
least two nationally recognized statistical rating agencies.
PROPOSED TRANSACTION
On Date 4, the Company filed an application with the PUC for an irrevocable
QRO authorizing the issuance of Transition Bonds in the aggregate principal
amount of a in one or more series. The issuance of this amount of Transition
Bonds by the Trust will return to the Company proceeds sufficient to recover b
of stranded costs, estimated issuance expenses of c and estimated costs
associated with using the proceeds of d. The Trust will establish an Equity
Reserve Account funded in cash by Company or an affiliate in an amount equal to
at least e of the initial aggregate principal amount of Transition Bonds.
Pursuant to a sale and servicing agreement between the Company and the
Trust, Company will act as the servicer of the ITC revenue stream as part of
normal collections and, in this capacity, will bill customers and make
collections on behalf of the Trust, and will make applications to the PUC to
maintain the ITC at a level which allows for full recovery of QTEs in accordance
with the amortization schedule for each series of Transition Bonds. The ITC will
be used by the Trust to make semi-annual payments of principal and interest on
the Transition Bonds and to pay related servicer, trustee and other fees.
Amounts collected by Company in respect of the ITC will be deposited into
its accounts and remitted monthly, or more frequently, to a "Collection Account"
maintained by a bond trustee for the benefit of Transition Bondholders. Company
shall be entitled to arms-length compensation for its servicing activities and
reimbursement for certain of its expenses in the manner set forth in the
documentation applicable to each series. Any investment earnings with respect to
funds collected but not yet remitted to the Collection Account may be applied
toward servicing compensation or paid directly to the Company. Any investment
earnings with respect to funds on deposit in the Collection Account will be
distributed to the Trust and transferred to the Company.
The ITC collected from customers will include an amount attributable to
overcollateralization, which will be equal to at least e of the initial
principal balance of each series
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<PAGE>
of Transition Bonds. That amount will be collected on a pro rata basis over the
term of the Transition Bonds and deposited into an Overcollateralization Reserve
Account. Collections of ITC in excess of the amounts necessary to pay interest
and principal on the Transition Bonds and to fund both the Overcollateralization
Reserve Account and the Equity Reserve Account, will be deposited into an
Overcollections Reserve Account which will be available to pay principal and
interest on the Transition Bonds to the extent future ITC collections are
insufficient. Any amounts remaining in the Overcollections Reserve Account after
payment in full of the Transition Bonds will be returned to the Trust and
transferred to the Company.
The Trust will allocate collections of the ITC (net of expenses) in the
following order: to interest and scheduled principal payments on the Transition
Bonds (Debt Service); to the Overcollateralization Reserve Account (up to the
Overcollateralization Reserve Required Amount); to the Equity Reserve Account
(up to the Equity Reserve Required Amount); and to the Overcollections Reserve
Account. Once amounts on deposit in the Overcollateralization Reserve Account
and the Equity Reserve Account have reached their respective required amounts,
income on any investment will be distributed to the Trust on each Payment Date
and transferred to Company. Investment income on amounts in the Overcollections
Reserve Account will be distributed to the Trust on each Payment Date and
transferred to Company. If ITC collections are insufficient to pay Debt Service
the shortfall will be paid from the following accounts in the following order:
the Overcollections Reserve Account; the Overcollateralization Reserve Account;
and the Equity Reserve Account. Payments will be allocated among the outstanding
series of Transition Bonds pro rata based on the payments required to be made on
each such series in accordance with the amortization schedule for each series.
Company represents that the transfer of the ITP to the Trust will be
regarded as a true sale for bankruptcy purposes.
ISSUES
Does the issuance of the QRO result in gross income to Company?
Are the Transition Bonds obligations of the Company?
LAW
Section 61 of the Internal Revenue Code generally defines gross income as
"income from whatever source derived", except as otherwise provided by law.
Gross income includes income realized in any form, whether in money, property,
or services. Section 1.61-l(a) of the Income Tax Regulations. This definition
encompasses all "accessions to wealth, clearly realized, and over which the
taxpayers have complete dominion." Commissioner v. Glenshaw Glass Co., 348 U.S.
426, 431 (1955), 1955-1 C.B. 207.
The right to collect the CTC is of significant value in producing income
for Company, and State A's action in making the CTC rights transferable has
enhanced that value. Generally, the granting of a transferable right by the
government does not cause the realization of income. Rev.
4
<PAGE>
Rul. 92-16, 1992-1 C.B. 15 (allocation of air emission rights by the
Environmental Protection Agency does not cause a utility to realize gross
income); Rev. Rul. 67-135, 1967-1 C.B. 20 (fair market value of an oil and gas
lease obtained from the government through a lottery is not includible in
income).
The economic substance of a transaction generally governs its federal tax
consequences. Greqory v. Helvering, 293 U.S. 465 (1935), XIV-1 C.B. 193.
Affixing a label to an undertaking does not determine its character. Rev. Rul.
97-3, 1997-2 I.R.B. 5. An instrument secured by property may be an obligation of
the taxpayer or, alternatively, may be a disposition of the underlying property
by the taxpayer. Cf. id. (the Small Business Administration is the primary
obligor of certain guaranteed payment rights that are created under its
participating security program).
CONCLUSIONS
Based on the facts as represented, we rule as follows:
(1) The issuance of the QRO does not result in gross income to Company.
(2) The Transition Bonds are obligations of the Company.
Except as specifically ruled on above, no opinion is expressed or implied
regarding the federal tax aspects of the transaction.
This ruling is directed only to Company. Under section 6110(j)(3) of the
Code, this ruling may not be used or cited as precedent.
5
<PAGE>
A copy of this letter should be attached to the federal income tax return
of Company for the taxable years that include the transaction described in this
letter.
Sincerely yours,
Assistant Chief Counsel
(Financial Institutions & Products)
By:
--------------------------------
Marshall Feiring
Senior Technician Reviewer, Branch 2
cc: Louis W. Ricker
Robert E. McQuiston
Penny S. Indictor
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, PA 19103
6
