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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to______
Commission Registrant, State of I.R.S. Employer
File Number Incorporation, Identification No.
Address, and Telephone Number
CPL Transition Funding LLC
333-91273 (a Delaware limited liability company 74-2935495
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
(214) 777-1338
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
Documents incorporated by reference: Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrants were
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 20, 2003 is $0.
Registrant is a wholly owned subsidiary of AEP Texas Central Company. Registrant
meets the conditions set forth in General Instruction I (1)(a) and (b) of Form
10-K and is filing this Annual Report on Form 10-K with the reduced disclosure
format authorized by General Instruction I.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business 4
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder 6
Item 6. Selected Financial Data 6
Item 7. Management's Narrative Analysis of Financial Condition 6
Item 7A. Qualitative and Quantitative Disclosures About Market Risk 7
Item 8. Financial Statements and Supplementary Data 7
Statement of Income 7
Statements of Member's Equity 7
Balance Sheets 8
Statement of Cash Flows 9
Notes to Financial Statements 10
Independent Auditors' Report 13
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrants 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
Item 14. Controls and Procedures 14
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 15
Signatures 16
Certification 17
Index to Exhibits 18
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of that
term in the Private Securities Litigation Reform Act of 1995 found in Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Statements contained in this report concerning expectations, beliefs,
plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are not historical facts are
forward-looking statements. Although we and AEP Texas Central Company ("TCC")
believe that the expectations and the underlying assumptions reflected in these
statements are reasonable, we cannot assure you that these expectations will
prove to be correct. The forward-looking statements involve a number of risks
and uncertainties and actual results may differ materially from the results
discussed in the forward-looking statements. The following are among the
important factors that could cause actual results to differ materially from the
forward-looking statements:
o state or federal legislative or regulatory developments,
o national or regional economic conditions,
o the accuracy of the servicer's estimates of market demand
and prices for energy,
o the accuracy of the servicer's estimates of industrial, commercial and
residential growth in TCC's service territory, including related
estimates of conservation and electric usage efficiency,
o weather variations and other natural phenomena affecting
retail electric customer energy usage,
o acts of war or terrorism or other catastrophic events,
o the speed, degree and effect of continued electric industry
restructuring,
o the operating performance of TCC's facilities and
third-party suppliers of electric energy in TCC's service
territory,
o the accuracy of the servicer's estimates of the payment
patterns of retail electric customers, including the rate
of delinquencies and any collections curves, and
o the operational and financial ability of retail electric providers
("REPs") to bill and collect transition charges and make timely payments
of amounts billed by the servicer to the REPs for transition charges.
Any forward-looking statements should be considered in light of these
important factors and in conjunction with the other documents filed by us and by
TCC with the Securities and Exchange Commission.
New factors that could cause actual results to differ materially from those
described in forward-looking statements may emerge from time to time. It is not
possible for us or TCC to predict all of these factors, or the extent to which
any factor or combination of factors may cause actual results to differ from
those contained in any forward-looking statement. You should not place undue
reliance on forward-looking statements. Any forward-looking statement speaks
only as of the date on which the statement is made and neither we nor TCC
undertakes any obligation to update the information contained in the statement
to reflect subsequent developments or information.
PART I
ITEM 1. BUSINESS
CPL Transition Funding LLC ("Transition Funding") is a special purpose
Delaware limited liability company located at 1616 Woodall Rodgers Freeway,
Dallas, Texas 75202 and was formed solely to purchase and own transition
property, a property right established under Subchapter G of Chapter 39 of the
Texas Utilities Code and created through a financing order issued by the Public
Utility Commission of Texas (the "PUCT"). Transition Funding is a
bankruptcy-remote financing entity and is a direct wholly-owned special purpose
consolidated subsidiary of AEP Texas Central Company ("TCC"), an electric
utility providing retail service in southern Texas. TCC is an operating
subsidiary of American Electric Power Company, Inc.
In June 1999, the State of Texas enacted the Texas Electric Choice Plan
(the "Act") to govern the restructuring of the electric industry in Texas and to
provide competition for retail electric service beginning on January 1, 2002.
Deregulation of the Texas retail electric utility industry under the Act
requires electric utilities to unbundle their generation, transmission,
distribution and retail electric services. While transmission and distribution
services will continue to be provided by electric utilities, the statute
authorizes retail electric providers ("REPs"), certified by the PUCT, to provide
electric energy and related services, including billing and collecting. The Act
permits electric utilities to recover the loss in value of generation-related
assets caused by the transition from a regulated environment to competition for
retail electric generation services, as determined by the PUCT. Under the
portion of the Act providing for securitization, the PUCT may authorize an
electric utility to use securitization financing to recover generation-related
regulatory assets and stranded costs through the issuance by the utility or its
designee of transition bonds secured by or payable from transition property.
Transition property is comprised of the right to impose, collect and receive
irrevocable nonbypassable transition charges payable by TCC's existing and
future retail customers in TCC's certificated service area as it existed on May
1, 1999. Pursuant to the Act, the PUCT issued a financing order (the "Financing
Order") on March 27, 2000 authorizing, among other things, TCC to cause
Transition Funding to issue transition notes in an aggregate principal amount
not to exceed $797,334,897, including up-front qualified costs not to exceed
$33,600,408 in the aggregate.
On February 7, 2002, Transition Funding issued $797,334,897 of transition
notes in five classes with final legal maturities ranging from 5 years to 15
years. The net proceeds of the issuance were utilized to acquire TCC's property
right in the transition property and pay expenses of issuance. The transition
notes are collateralized by the transition property created under the Act and
the related Financing Order. The transition property represents the irrevocable
right to impose, collect and receive transition charges in an amount sufficient
to pay:
o the interest, fees, expenses, costs, charges, credit
enhancement and premiums, if any, associated with the
transition notes, and
o the aggregate principal amount of the transition notes.
Transition charges will be assessed by the servicer for Transition
Funding's benefit as owner of the transition property. The servicer manages,
services, administers, bills and collects payments in respect of, the transition
property under the terms of a servicing agreement. Transition charges generally
will be based on a retail customer's actual usage of electricity. However,
transition charges for demand customers will be based on the maximum amount of
electricity that such customers are expected to consume based on their actual
consumption during the prior year. Transition charges will be collected by the
servicer indirectly from the REPs that collect transition charges from retail
customers as part of its normal collection activities.
On each payment date, principal and interest on the transition notes will
be paid from:
o Amounts received from the servicer with respect to
transition charges collected during the prior collection
period; and
o Amounts available from trust accounts held by the indenture trustee.
Transition Funding has no employees. Under the servicing agreement entered
into by Transition Funding and TCC concurrently with the issuance of the first
series of transition notes, TCC, as servicer, will be required to collect the
transition charges on behalf of Transition Funding. For so long as TCC is
servicer, Transition Funding will pay an annual servicing fee to TCC equal to
0.05% of the aggregate initial principal amount of all outstanding series of
transition notes. The servicing fee will also be recovered through the
transition charges.
ITEM 2. PROPERTIES
Transition Funding does not own any tangible property, other
than books and records. The primary asset of Transition Funding
is the transition property described in Item 1. Business.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to conditions set forth in General Instruction I(2)(c) of
Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
All outstanding equity interests in Transition Funding are owned by TCC.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to conditions set forth in General Instruction I(2)(a) of
Form 10-K.
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following analysis of Transition Funding's financial condition is in an
abbreviated format pursuant to General Instruction I(2)(a) of Form 10-K. Such
analysis should be read in conjunction with the financial statements attached
hereto.
Transition Funding was organized on October 28, 1999 under the laws of the
State of Delaware for the sole purpose of purchasing and owning transition
property to be acquired from TCC. Transition Funding had no operations until
February 7, 2002, on which date Transition Funding issued $797,334,897 of
transition notes in five classes with final legal maturities ranging from 5
years to 15 years. Transition Funding used the net proceeds of the issuance to
purchase the transition property from TCC and to pay certain costs of issuing
the transition notes (see Item 1. Business). Transition Funding will use
collections of the transition charges to make scheduled principal and interest
payments on the transition notes, to pay certain fees and expenses and to fund
any required credit enhancement for the transition notes.
Results of Operations
For the year ended December 31, 2002, Transition Funding recorded
transition charge revenue of approximately $90.6 million consisting of billings
to REPS and investment revenue of $484,000; amortization expense of
approximately $31.0 million; servicing fees and miscellaneous expenses of
approximately $376,000; bad debt expense of approximately $224,000; and interest
expense of approximately $38.7 million. Additionally, expenses include
Over-recovery of Transition Charges of approximately $20.9 million for the year
ended December 31, 2002.
Liquidity and Capital Resources
Collections of transition charges will be used to make principal and
interest payments on the transition notes on the specified payment dates and pay
miscellaneous costs associated with the transaction. These costs include debt
issuance expenses and the discount on the transition notes; bad debt expense;
and the fees related to the transaction including fees charged by TCC as
servicer. Amounts collected through transition charges, and the investment
income thereon, are recorded as restricted funds on the balance sheet.
Restricted funds will be used to make future interest payments, pay
miscellaneous transaction costs, and applied toward the redemption of transition
notes on scheduled maturity dates. The balance of restricted funds was
$82,472,952 as of December 31, 2002.
Bondholders could suffer payment delays or losses if Transition Funding is
unable to pay interest or the scheduled principal of the transition notes. Funds
for payments on the transition notes are dependent upon the right to collect the
transition charges over a period limited by Texas law to 15 years, with
collections dependent on the amount of electricity consumed by customers within
TCC's service territory.
The PUCT reviews and adjusts transition charges at least once a year. This
review is used to adjust any over or under-collections during the preceding 12
months and to provide for recovery of amounts sufficient to pay all debt service
and other required amounts and charges in connection with the transition notes.
New transition charge rates designed to increase projected overall annual
revenues by 1.3% went into effect with the February 2003 billing cycles as a
result of the first true-up proceeding.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CPL TRANSITION FUNDING LLC
STATEMENT OF INCOME
Year
Ended
Dec. 31, 2002
Operating Revenues:
Transition Charge Revenue $90,643,471
Investment Revenue 483,917
-----------
Total Operating Revenues 91,127,388
Operating Expenses:
Interest Expense 38,661,221
Amortization of Transition
Property 29,143,150
Amortization of Transition
Notes Discounts
And Issuance Costs 1,852,853
Other Operating Expense 600,268
Over-recovery of Transition
Charges 20,869,896
----------
Total Operating Expenses 91,127,388
Net Income $ -
===========
CPL TRANSITION FUNDING LLC
STATEMENTS OF MEMBER'S EQUITY
Year Year Year
Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31,
2002 2001 2000
---- ---- ----
Member's Equity:
Member's Equity at beginning
of period $ - $ - $ -
Net Income - - -
Contributed Capital 3,986,675 - -
--------- --------- ---------
Member's Equity at end
of period 3,986,675 - -
========= ========= =========
See "Notes to Financial Statements."
CPL TRANSITION FUNDING LLC
BALANCE SHEETS
(Unaudited)
December 30, 2002 December 31, 2001
Assets:
Current Assets
Transition Charge Receivable --
Related Party $ 12,416,758 $ -
------------ ------------
Current Assets 12,416,758 -
------------ ------------
Other Assets
Restricted Funds Held by Trustee 82,472,952 -
Unamortized Debt Issuance
and Other Qualified Costs 31,047,514 5,405,749
Intangible Transition Property
Net of Accumulated Amortization
of $20,968,852 734,591,339 -
------------ ------------
Other Assets 848,111,805 5,405,749
------------ ------------
Total Assets 860,528,563 5,405,749
============ ============
Liabilities and Member's Equity:
Current Liabilities
Current Portion of Long-Term Debt 51,012,778 -
Accrued Interest 38,661,221 -
Accounts Payable --
Related Party 375,915 5,405,749
------------ -----------
Current Liabilities 90,049,914 5,405,749
------------ -----------
Other Liabilities
Transition Notes, net of
unamortized discount of $707,371 745,622,078 -
Over-recovery of Transition Charges 20,869,896 -
------------ -----------
Other Liabilities 766,491,974 -
------------ -----------
Total Liabilities 856,541,888 5,405,749
------------ -----------
Member's Equity
Member's Equity 3,986,675 -
------------ -----------
Total Member's Equity 3,986,675 -
------------ -----------
Total Liabilities and
Member's Equity $860,528,563 $ 5,405,749
============ ===========
See "Notes to Unaudited Financial Statements."
CPL TRANSITION FUNDING LLC
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2002
(Unaudited)
Cash Flows from Operating Activities:
Net Income $ -
Adjustments for non-cash items
Amortization of Transition Notes
Discounts and Issuance Costs 1,852,853
Amortization of Transition Property 29,143,150
Changes in Other Assets and Liabilities
Transition Charge Receivables (12,416,758)
Accrued Interest 38,661,221
Accounts Payable - Related Party (5,029,834)
Over-recovery of Transition Charges 20,869,896
-----------
Net Cash From Operating
Activities 73,080,528
-----------
Cash Flows from Investing Activities:
Purchase of Transition Property (763,734,489)
------------
Net Cash Used by Investing
Activities (763,734,489)
------------
Cash Flows from Financing Activities
Proceeds from issuance of Transition
Notes, net of issuance costs of
$27,468,485 and
original issue discount of $726,174 769,140,238
Deposit of Restricted Funds with Trustee (82,472,952)
Equity Contribution from Member 3,986,675
-----------
Net Cash From
Financing Activities 690,653,961
------------
Net Increase in Cash and Cash Equivalent -
Cash and Cash Equivalents, Beginning of
Period -
------------
Cash and Cash Equivalents, End of Period $ -
============
See "Notes to Unaudited Financial Statements."
CPL TRANSITION FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
CPL Transition Funding LLC ("Transition Funding") is a special purpose
Delaware limited liability company, whose sole member is AEP Texas Central
Company ("TCC"), and is a direct wholly-owned consolidated subsidiary of TCC.
TCC is engaged in the generation, sale, purchase, transmission and distribution
of electric power in southern Texas. TCC is an operating subsidiary of American
Electric Power Company, Inc. ("AEP").
In June 1999, the State of Texas enacted the Texas Electric Choice Plan
(the "Act") to govern the restructuring of the electric industry in Texas and to
provide competition for retail electric service beginning on January 1, 2002.
Deregulation of the Texas retail electric utility industry under the Act
requires electric utilities to unbundle their generation, transmission and
distribution and retail electric services. While transmission and distribution
services will continue to be provided by electric utilities, the statute
authorizes retail electric providers ("REPs"), certified by the Public Utility
Commission of Texas ("PUCT"), to provide electric energy and related services,
including billing and collecting. The Act permits electric utilities to recover
the loss in value of generation-related assets caused by the transition from a
regulated environment to competition for retail electric generation services, as
determined by the PUCT. Under the portion of the Act providing for
securitization, the PUCT may authorize an electric utility to use securitization
financing to recover generation-related regulatory assets and stranded costs
through the issuance by the utility or its designee of transition bonds secured
by or payable from transition property. Transition property is comprised of the
right to impose, collect and receive irrevocable nonbypassable transition
charges payable by TCC's existing and future retail customers in TCC's
certificated service area as it existed on May 1, 1999. Pursuant to the Act, the
PUCT issued a financing order on March 27, 2000 authorizing, among other things,
TCC to cause Transition Funding to issue transition notes in an aggregate
principal amount not to exceed $797,334,897, including up-front qualified costs
not to exceed $33,600,408 in the aggregate.
Transition Funding was organized on October 28, 1999, under the laws of the
State of Delaware for the sole purpose of acquiring and holding transition
property acquired from TCC. Transition Funding had no operations until February
7, 2002. In connection with the acquisition of the transition property,
Transition Funding agreed to (a) issue and register one or more series of
transition notes; (b) pledge its interests in the transition property and other
transition note collateral to secure the transition notes; (c) make debt service
payments on the transition notes; and (d) perform other activities that are
necessary, suitable or convenient to accomplish these purposes. The purchase
price of such transition property was paid from the proceeds of transition notes
issued by Transition Funding pursuant to an Indenture, dated as of February 7,
2002, between Transition Funding and U.S. Bank National Association, as
indenture trustee, and secured by the transition property and other collateral.
Transition Funding was organized with the sole purpose of limited business
activities as are necessary or reasonably related to the issuance of the
transition notes. Transition Funding is structured and is operated in a manner
such that even in the event of bankruptcy proceedings against TCC, the assets of
Transition Funding will not be consolidated into the bankruptcy estate of TCC.
The assets of Transition Funding consist of the transition property and the
other collateral, including capital transferred by TCC which is sufficient to
meet certain requirements of the indenture between Transition Funding and the
indenture trustee.
2. Summary of Significant Accounting Policies
Revenue. Transition charges are billed to REPs on behalf of Transition
Funding by TCC as servicer. These transition charges are recorded as revenue by
Transition Funding under the accrual method of accounting which generally
recognizes revenue as earned, and includes revenues actually billed plus an
estimate of revenue earned but not yet billed at the end of the period.
Investment Income. Transition Funding earns investment revenue on funds
held by the indenture trustee which funds are invested as allowed by the
Indenture. Currently, all such funds are invested in money market funds having
ratings in the highest investment category granted by the rating agencies.
Investment revenue on transition charge collections is recognized as earned and
serves to increase the Over-recovery of Transition Charges by a corresponding
amount since it will be used to make payments on the transition notes.
Investment income on the capital account (Member's Equity) is recognized on
payment dates, the first of which will be January 2003, when it is determined
such income is not required to satisfy payment obligations, in which case
Transition Funding is entitled to such revenues. Therefore, at December 31,
2002, such revenue is recorded in Investment Revenue, but is deferred as
Over-recovery of Transition Charges. The deposited cash and investment revenue
from both transition charge collections and the capital account are included in
Restricted Funds Held by Trustee on the balance sheet.
Debt Issuance Costs & Other. The costs associated with the issuance of the
transition notes as well as the repurchase cost of certain outstanding bonds
issued by TCC to be acquired with proceeds from the sale of transition property
are capitalized and are being amortized over the life of the transition notes
utilizing the effective interest method.
Discount on Notes. The discount associated with the transition notes is
capitalized offsetting the transition notes on the balance sheet and is being
amortized over the life of the transition notes utilizing the effective interest
method.
Regulation. The application of accounting principles generally accepted in
the United States of America by Transition Funding differs in certain respects
from applications by non-regulated businesses. Transition Funding prepares its
financial statements in accordance with the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71). In general, SFAS 71 recognizes that accounting for
rate-regulated enterprises should reflect the economic effects of regulation. As
a result, a regulated utility is required to defer the recognition of costs (a
regulatory asset) or the recognition of obligations (a regulatory liability) if
it is probable that, through the rate-making process, there will be a
corresponding increase or decrease in future rates. Accordingly, Transition
Funding recorded the transition property at acquired cost as an intangible asset
acquired from TCC, which is being amortized over the life of the transition
notes based on estimated revenue from transition charges, interest accrual and
other related expenses. The financing order limits the terms of the transition
notes to no greater than 15 years. In accordance with SFAS No. 71, expense is
adjusted for over/under recovery of transition charges. The accumulated
over/under-recovery is recorded as either a liability or asset on the balance
sheet.
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires in certain instances the use of estimates and assumptions that affect
the reported amounts of assets and liabilities along with the disclosure of
contingent liabilities at the date of the financial statements. Actual results
could differ from those estimates.
Federal Income and Texas Franchise Taxes. As a single-member limited
liability company, Transition Funding is treated as a disregarded entity for
federal tax purposes, and hence, its results of operations will be consolidated
with TCC's for federal income tax reporting purposes.
For Texas franchise tax purposes, Transition Funding is treated as a
separate corporate entity subject to Texas franchise tax. However, pursuant to
the Act, both the transfer of the transition property and the collection of
transition fees are exempt from Texas franchise tax.
Transition Funding accounts for federal income taxes and state franchise
taxes on a stand-alone basis in accordance with the AEP Tax Sharing Agreement.
3. Original Issuance
On February 7, 2002, Transition Funding issued $797,334,897 of transition
notes in five classes with final legal maturities ranging from 5 years to 15
years. The significant terms of the transition notes issued by Transition
Funding in February 2002 are as follows:
Initial Interest Proceeds Scheduled Final
Principal Rate To Issuer (1) Final Maturity
Balance Payment Date
Date
Class A-1 $128,950,233 3.54% $128,461,963 1/15/05 1/15/07
Class A-2 $154,506,810 5.01% $153,739,267 1/15/08 1/15/10
Class A-3 $107,094,258 5.56% $106,470,016 1/15/10 1/15/12
Class A-4 $214,926,738 5.96% $213,606,937 7/15/13 7/15/15
Class A-5 $191,856,858 6.25% $190,463,517 1/15/16 1/15/17
------------ ------------
Total $797,334,897 $792,741,700
============ ============
(1) Net of discounts and underwriters' fees
The annual maturities of the transition notes are as follows:
2002 -
2003 $ 51,012,778
2004 $ 48,551,004
2005 $ 49,979,433
2006 $ 52,264,786
Thereafter $595,526,896
Accordingly, on February 8, 2002, TCC as servicer of the transition
property implemented a nonbypassable transition charge on behalf of Transition
Funding.
All transition note issuance costs incurred through December 31, 2001
($5,405,749) were paid by TCC and were reimbursed by Transition Funding upon
issuance of the transition notes in 2002. The total issuance costs of $33.6
million is composed of $22.3 million for the net cost of TCC to reacquire
certain of its bonds in the future in accordance with the financing order,
underwriters fees of $3.9 million, original issue discount of $0.7 million and
miscellaneous other costs of $6.7 million.
4. Significant Agreements and Related Party Transactions
Notwithstanding the non-recourse nature of the transactions, TCC
(individually, as servicer or otherwise) was required under the transaction
documents (i) to make certain representations and warranties with respect to,
among other things, the validity of Transition Funding's and its assignees'
title to the transition property; and (ii) to observe certain covenants for the
benefit of Transition Funding and its assignees. TCC is also required to
indemnify Transition Funding against breaches of such representations and
warranties and TCC's failure to perform its covenants and to protect such
parties against certain other losses, which result from actions or inactions of
TCC.
TCC is the initial servicer for Transition Funding under the transaction
documents. The transaction documents contain provisions allowing the servicer to
be replaced under limited circumstances. The servicer is paid a servicing fee in
consideration for billing and collection of transition charges on behalf of
Transition Funding, calculating the true-up adjustments and performing related
services. Such fees paid to TCC for the year ended December 31, 2002 were
$376,000 and are included in Other Operating Expense.
5. Subsequent Events
On January 15, 2003, the first scheduled payment on the transition notes
was made consisting of $31,816,702 of principal and $40,429,267 of interest. New
transition charge rates designed to increase projected overall annual revenues
by 1.3% went into effect with the February 2003 billing cycles as a result of
the first true-up proceeding.
On January 22, 2003, Transition Funding filed a notice on Form 15 with the
Securities and Exchange Commission of the suspension of Transition Funding's
duty to file reports under the Securities Exchange Act of 1934.
INDEPENDENT AUDITORS' REPORT
To the Members/Shareholders of CPL Transition Funding LLC:
We have audited the accompanying balance sheets of CPL Transition Funding
LLC (the "Company"), a wholly-owned subsidiary of AEP Texas Central Company,
formerly Central Power and Light Company, as of December 31, 2002 and 2001, and
the related statements of income and cash flows for the year ended December 31,
2002 and statements of member's equity for the years ended December 31, 2002,
2001 and 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
balance sheets are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2002 and
2001, and the results of its operations and cash flows for the year ended
December 31, 2002 and its member's equity for the years ended December 31, 2002,
2001 and 2000, in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Columbus, Ohio
February 21, 2003
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Omitted pursuant to conditions set forth in General Instruction I(2)(c) of
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to conditions set forth in General Instruction I(2)(c) of
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to conditions set forth in General Instruction I(2)(c) of
Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to conditions set forth in General Instruction I(2)(c) of
Form 10-K.
ITEM 14. CONTROLS AND PROCEDURES
Not applicable.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The following documents are filed as a part of this report:
a. CPL Transition Funding LLC Balance Sheets as of December 31, 2002 and
2001 on page 8 hereof.
b. CPL Transition Funding LLC Statement of Income and Statements of Changes
in Member's Equity for the years ended December 31, 2002, 2001 and 2000 on
page 7 hereof.
(B) No reports on Form 8-K were filed by Transition Funding during the quarter
ended December 31, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CPL TRANSITION FUNDING LLC
BY:/s/ Wendy G. Hargus
(Wendy G. Hargus, Manager)
Date: March 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by a majority of the Board of Managers on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ A. A. Pena Manager March 21, 2003
(A. A. PENA)
/s/ Geoffrey S. Chatas Manager March 21, 2003
(GEOFFREY S. CHATAS)
/s/ Wendy G. Hargus Manager March 21, 2003
(WENDY G. HARGUS)
CERTIFICATION
I, A. A. Pena, Treasurer of AEP Texas Central Company, certify that:
1. I have reviewed this annual report on Form 10-K and all other reports
containing distribution information filed for the period covered by this annual
report;
2. To the best of my knowledge, the information in these reports does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading;
3. To the best of my knowledge, the financial information required to be
provided to the trustee by the servicer under the transition property servicing
agreement is included in these reports; and
4. I am responsible for reviewing the activities performed by the servicer
under the transition property servicing agreement and based upon the review
required under the transition property servicing agreement the servicer has
fulfilled its obligations under the transition property servicing agreement.
Date: March 21, 2003
/s/ A. A. Pena
A. A. Pena
Treasurer
INDEX TO EXHIBITS
Certain of the following exhibits, designated with an asterisk(*), are
filed herewith. The exhibits not so designated have heretofore been filed with
the Securities and Exchange Commission and, pursuant to 17 C.F.R. 229.10(d) and
240.12b-32, are incorporated herein by reference to the documents indicated in
brackets following the description of such exhibits.
Exhibit
Number Document Description
3(a) Copy of Certificate of Formation of CPL Transition Funding LLC
[Registration Statement No. 333-91273, Exhibit 3.2].
3(b) Copy of Amended and Restated Limited Liability Company Agreement of
CPL Transition Funding LLC [Current Report on Form 8-K, dated
February 7, 2002, File No. 333-91273, Exhibit 3.1].
4(a) Copy of Indenture, dated as of February 7, 2002, between CPL
Transition Funding LLC and U. S. Bank National Association, as
Trustee [Current Report on Form 8-K, dated February 7, 2002, File No.
333-91273, Exhibit 4.1].
4(b) Issuance Certificate, dated as of February 7, 2002, executed and
delivered by CPL Transition Funding LLC to U.S. Bank National
Association, establishing certain terms of the Transition Notes,
Series 2002-1 [Annual Report on Form 10-K, dated March 26, 2002, File
No. 333-91273, Exhibit 4(b)].
10(a) Copy of Transition Property Purchase and Sale Agreement, dated as of
February 7, 2002, between CPL Transition Funding LLC and CPL [Current
Report on Form 8-K, dated February 7, 2002, File No. 333-91273,
Exhibit 10.1].
10(b) Copy of Transition Property Servicing Agreement, dated as of February
7, 2002, between CPL Transition Funding LLC and CPL [Current Report
on Form 8-K, dated February 7, 2002, File No. 333-91273, Exhibit
10.2].
*99.1 Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code.
*99.2 Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code.
Exhibit 99.1
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
I, Armando A. Pena, manager of CPL Transition Funding LLC, certify that
(i) the Annual Report on Form 10-K of CPL Transition Funding LLC for the year
ended December 31, 2002 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of CPL Transition Funding LLC.
/s/ A. A. Pena
A. A. Pena
March 21, 2003
Exhibit 99.2
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
I, Wendy G. Hargus, manager of CPL Transition Funding LLC, certify that
(i) the Annual Report on Form 10-K of CPL Transition Funding LLC for the year
ended December 31, 2002 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of CPL Transition Funding LLC.
/s/ Wendy G. Hargus
Wendy G. Hargus
March 21, 2003