SDG&E FUNDING LLC A DE LIMITED LIABILITY CO - 10-Q Quarterly Report

Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND
IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT

(Mark One)

[..X..] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 30, 2002
For the quarterly period ended...........................
Or
[.....] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File No. 333-30761

CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK SPECIAL PURPOSE TRUST SDG&E-1
(Issuer of the Certificates)

SDG&E FUNDING LLC
(Exact Name Of Registrant As Specified In
Its Certificate Of Formation)

Delaware 95-1184800
- -------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

101 Ash Street, Room 111,
San Diego, California 92101
- -------------------------------------------------------------------
(Address of principal executive offices (Zip code)

Registrant's telephone number, including area code: (619)696-2328

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes...X... No......

PART I

Item 1. Financial Statements.

SDG&E FUNDING LLC
STATEMENT OF OPERATIONS
(In Thousands)

SDG&E FUNDING LLC
BALANCE SHEET
(In thousands of dollars)

SDG&E FUNDING LLC
STATEMENT OF CASH FLOWS
(In thousands of dollars)

Note to Financial Statements
- -----------------------------

Basis of Presentation

This Quarterly Report on Form 10-Q includes the financial statements
of SDG&E Funding LLC, a Delaware special-purpose limited-liability
company whose sole member is San Diego Gas & Electric Company (SDG&E),
a provider of electric and natural-gas services. SDG&E is a wholly
owned subsidiary of Sempra Energy. Information in this quarterly
report is unaudited and should be read in conjunction with SDG&E
Funding LLC's Financial Statements and Notes to Financial Statements
included in its 2001 Annual Report on Form 10-K and its Quarterly
Reports on Form 10-Q for the three-month periods ended March 31, 2002
and June 30, 2002.

SDG&E Funding LLC believes that the accompanying statements reflect
all adjustments that are necessary to present a fair statement of the
financial position and results of operations for the interim periods.
All material adjustments are of a normal, recurring nature unless
otherwise disclosed in this Quarterly Report on Form 10-Q. Results of
operations for interim periods are not necessarily indicative of
results to be expected for a full year.

SDG&E Funding LLC was organized for the limited purposes of issuing
Notes and holding and servicing Transition Property. Notes are SDG&E
Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7
(presented in the financial statements as Long-Term Debt), secured by
the Transition Property and other, limited collateral. Transition
Property is the right to be paid a specified amount (presented in the
financial statements as Transition Property) from nonbypassable
charges, frequently referred to as FTA Charges, levied on residential
electric customers and small commercial electric customers of SDG&E.
The nonbypassable charges were authorized by the California Public
Utilities Commission (CPUC) pursuant to the electric industry
restructuring mandated by California Assembly Bill 1890, as amended by
California Senate Bill 477.

Since SDG&E Funding LLC is a single-member, limited-liability company,
its federal income tax effects and its State of California franchise
tax effects accrue to SDG&E.

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.

The following analysis of the financial condition and results of
operations of SDG&E Funding LLC (the Note Issuer) is in an abbreviated
format pursuant to Instruction H of Form 10-Q. Such analysis should be
read in conjunction with the Financial Statements and Note to
Financial Statements included in Item 1 above and the Financial
Statements and Notes to Financial Statements included in the Note
Issuer's Annual Report on Form 10-K for the year ended December 31,
2001 and its Quarterly Reports on Form 10-Q for the three-month
periods ended March 31, 2002 and June 30, 2002.

The Note Issuer is limited by its organizational documents to engaging
in the activities of owning certain property created pursuant to the
California Public Utilities Code (the Transition Property) and issuing
SDG&E Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7
(the Notes) secured by the Transition Property and other limited
collateral, and related activities. The Notes were issued pursuant to
an Indenture between the Note Issuer and Bankers Trust Company of
California, N.A., as trustee (the Indenture). The Note Issuer sold the
Notes to the California Infrastructure and Economic Development Bank
Special Purpose Trust SDG&E-1, a Delaware business trust (the Trust),
which issued certificates corresponding to each class of the Notes in
a public offering.

Operating statement effects are limited primarily to income generated
from the Transition Property, interest expense on the Notes and
incidental investment interest income. The Note Issuer expects to use
collections with respect to the Transition Property to make scheduled
principal and interest payments on the Notes. Interest income earned
on the Transition Property is expected to offset (1) interest expense
on the Notes, (2) amortization of debt-issuance expenses and the
discount on the Notes, and (3) the fees charged by SDG&E for servicing
the Transition Property and providing administrative services to the
Note Issuer.

Collections of $25,210,000 resulted in a net overcollection for the three
months ended September 30, 2002, of $3,326,000 after deducting scheduled
principal and interest payments of $21,549,000, payments of $253,000 for
servicing fees and other expenses, and $82,000 retained to fund the
Overcollateralization Account established under the Notes' indenture.
Collections of $20,630,000 resulted in a net undercollection for the three
months ended September 30, 2001, of $2,162,000 after deducting scheduled
principal and interest payments of $22,498,000 and payments of $294,000 for
servicing fees and other expenses.

During 2001, a net undercollection arose because of decreases in customer
consumption in response to the California energy crisis. Any such
undercollections are deducted from the previous surplus collections, the
Overcollateralization Sub-Account established under the Notes' indenture and
the Capital Sub-Account, in that order. To mitigate the undercollections, in
August 2001, the CPUC approved a nonroutine increase in FTA charges for
2001, effective October 1, 2001. In December 2001 SDG&E reforecasted future
consumption patterns and a new FTA rate was set for January 1, 2002 and
beyond. The FTA Charges are adjusted at least annually if there is a
material shortfall or overage in collections. Management believes that it is
reasonable to expect future collections of FTA Charges to be sufficient to
make scheduled payments on the Notes and pay related expenses on a timely
basis.

ITEM 4. CONTROLS AND PROCEDURES

The company has designed and maintains disclosure controls and procedures
to ensure that information required to be disclosed in the company's
reports under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission and is accumulated and
communicated to the company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating these
controls and procedures, management recognizes that any system of controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired objectives and necessarily
applies judgment in evaluating the cost-benefit relationship of other
possible controls and procedures.

Under the supervision and with the participation of management, including
the Chief Executive Officer and the Chief Financial Officer, the company
within 90 days prior to the date of this report has evaluated the
effectiveness of the design and operation of the company's disclosure
controls and procedures. Based on that evaluation, the company's Chief
Executive Officer and Chief Financial Officer have concluded that the
controls and procedures are effective.

There have been no significant changes in the company's internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the company completed its evaluation.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 5. Other Information.

Attached, with respect to the Note Issuer and the Trust, as Exhibit
99.1 is the Quarterly Servicer's Certificate for the quarter ended
September 30, 2002, delivered pursuant to the Note Indenture. It
includes information relating to the collections of the nonbypassable
charges (the FTA Charges) payable by residential electric customers
and small commercial electric customers.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

99.1 Quarterly Servicer's Certificate dated September 19, 2002.

(b) Reports on 8-K:

Current Report on Form 8-K filed August 14, 2002, filing as an
exhibit Statements Under Oath of Principal Executive Officer and
Principal Financial Officer Regarding Facts and Circumstances Relating
to Exchange Act Filings pursuant to 18 U.S.C. Sec. 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

SDG&E Funding LLC,
as Registrant

Date: November 14, 2002 By: /s/ James P. Trent
-----------------------------
James P. Trent
Chief Financial Officer and
Chief Accounting Officer

CERTIFICATES

I, Charles A. McMonagle, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SDG&E Funding LLC;

2. Based on my knowledge, this Quarterly Report 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 with respect to the period covered by
this Quarterly Report;

3. Based on my knowledge, the financial statements and other financial
information included in this Quarterly Report fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
Quarterly Report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made know to us by others within those
entities, particularly during the period in which this Quarterly
Report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this Quarterly Report (the "Evaluation Date"); and

c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

November 14, 2002 /s/Charles A. McMonagle
Charles A. McMonagle
Chief Executive Officer

I, James P. Trent, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SDG&E Funding LLC;

2. Based on my knowledge, this Quarterly Report 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 with respect to the period covered by
this Quarterly Report;

3. Based on my knowledge, the financial statements and other financial
information included in this Quarterly Report fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
Quarterly Report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this Quarterly Report (the "Evaluation Date"); and

c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

November 14, 2002 /s/James P. Trent
James P. Trent
Chief Financial Officer