Back to GetFilings.com
=======================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ---------------------------------------------------------------------------------------------------------------------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
The registrant meets the conditions set forth in General Instruction I 1(a) And (b) of Form 10-K and is therefore filing this form
with the reduced disclosure format.
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000.
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 333-30785
---------
California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1
--------------------------------------------
(Issuer of the Certificates)
SCE Funding LLC
---------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4640661
-------- ----------
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2244 Walnut Grove Avenue,
Room 212T, Rosemead, California 91770
------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (626) 302-1850
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
California Infrastructure and Economic Development Bank Special Purpose Trust SCE-1 Rate Reduction Certificates, Series 1997-1: Class
A-3 6.17% Certificates; Class A-4 6.22% Certificates; Class A-5 6.28% Certificates; Class A-6 6.38% Certificates; Class A-7 6.42%
Certificates, maturing serially from 2001 to 2009, and underlying SCE Funding LLC Notes of the same respective classes
- ---------------------------------------------------------------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for at least the past 90 days. YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K: [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 1, 2001
was $0.
DOCUMENTS INCORPORATED BY REFERENCE.
=======================================================================================================================================
Not applicable.
=======================================================================================================================================
PART I
Item 1. Business.
General
SCE Funding LLC (Note Issuer) is a special purpose, single member limited liability company organized under the laws of the State of
Delaware. Southern California Edison Company (SCE), as the sole member of the Note Issuer, owns all of the equity securities of the
Note Issuer. The principal executive office of the Note Issuer is located at 2244 Walnut Grove Avenue, Room 212T, Rosemead,
California 91770. Its telephone number is (626) 302-1850. The Note Issuer was organized in June 1997 for the limited purposes of
owning the Transition Property (as described below) and issuing notes secured by the Transition Property and other limited collateral
and related activities, and is restricted by its organizational documents from engaging in other activities. The Note Issuer's
organizational documents require it to operate in a manner such that it should not be consolidated in the bankruptcy estate of SCE in
the event SCE becomes subject to such a proceeding.
The only material business conducted by the Note Issuer has been the acquisition of Transition Property (which is reported as a note
receivable on the financial statements); and the issuance on December 11, 1997, of $2,463,000,000 in principal amount of the SCE
Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7 (Notes), with scheduled maturities ranging from one to ten years and
final maturities ranging from three to twelve years; the receipt of amounts payable pursuant to the Transition Property; the payment
of principal and interest with respect to the Notes; 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 (Indenture). The Note Issuer sold the Notes to the
California Infrastructure and Economic Development Bank Special Purpose Trust SCE-1, a Delaware business trust (Trust), which issued
certificates corresponding to each class of Notes (Certificates) in a public offering.
The Note Issuer has no employees. It has entered into a servicing agreement (Servicing Agreement) with SCE pursuant to which SCE is
required to service the Transition Property on behalf of the Note Issuer. In addition, the Note Issuer has entered into an
administrative services agreement with SCE pursuant to which SCE performs administrative and operational duties for the Note Issuer.
Transition Property
The California Public Utilities Code (PU Code) provides for the creation of "Transition Property." A financing order dated September
3, 1997 (Financing Order) issued by the California Public Utilities Commission (CPUC), together with the related Issuance Advice
Letter, establishes, among other things, separate non-bypassable charges (FTA Charges) payable by residential electric customers and
small commercial electric customers in an aggregate amount sufficient to repay in full the Certificates, fund the
Overcollateralization Subaccount established under the Indenture and pay all related costs and fees. Under the PU Code and the
Financing Order, the owner of the Transition Property is entitled to collect FTA Charges until such owner has received amounts
sufficient to retire all outstanding series of Certificates and cover related fees and expenses and the Overcollateralization Amount
described in the Financing Order. The Transition Property is a property right under California law that includes, without
limitation, ownership of the FTA Charges and any adjustments thereto as described in the next paragraph.
In order to enhance the likelihood that actual collections with respect to the Transition Property are neither more nor less than the
amount necessary to amortize the Notes in accordance with their expected
1
amortization schedules, pay all related fees and expenses, and fund certain accounts established pursuant to the Indenture as
required, the Servicing Agreement requires SCE, as the servicer of the Transition Property (Servicer), to seek, and the Financing
Order and the PU Code require the CPUC to approve, periodic adjustments to the FTA Charges. Such adjustments will be based on actual
collections and updated assumptions by the Servicer as to future usage of electricity by specified customers, future expenses
relating to the Transition Property, the Notes and the Certificates, and the rate of delinquencies and write-offs. On August 18,
2000, SCE filed with the CPUC an anniversary true-up mechanism advice letter filing stating that because of the changes in FTA
charges effective October 1, 1999, no further FTA Charge adjustments were necessary at such time. On December 15, 2000, SCE filed
with the CPUC a routine annual true-up mechanism advice letter filing. The filing decreased the FTA Charges for residential
customers by 12%, from 1.235 cents to 1.089 cents per kilowatt hour, and for small commercial customers by 12%, from 1.306 to 1.152
cents per kilowatt hour, effective January 1, 2001.
Under the Servicing Agreement, during any period in which the Servicer does not maintain a short-term rating of A-1 or better by
Standard & Poor's or P-1 or better by Moody's Investors Service, the Servicer must remit to the collection account maintained with
the trustee for the Notes the total payments of FTA Charges estimated to have been received by the Servicer on a given business day
within two business days after receipt thereof by the Servicer. Because of downgrades in its short-term ratings, SCE began making
such daily remittances on January 8, 2001. SCE's current short-term ratings are C by Standard & Poor's and Not Prime by Moody's.
The Trust
The Trust was organized in November 1997 solely for the purpose of purchasing the Notes and issuing the Certificates. It will not
conduct any other material business activities.
Item 2. Properties.
The Note Issuer has no materially important physical properties. Its primary asset is the Transition Property described above in
Item 1 (Business).
The Trust has no materially important physical properties. Its primary assets are the Notes described above in Item 1 (Business).
Information about collections from the Transition Property and payments in respect of the Notes is included in the Annual Statement
and the Quarterly Servicer's Certificate attached hereto as Exhibits 99.1 and 99.3, respectively.
Item 3. Legal Proceedings.
No legal proceedings affecting either the Note Issuer or the Trust occurred in 2000.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted with respect to the Note Issuer pursuant to Instruction I of Form 10-K.
No matters were submitted for a vote or consent of holders of the Certificates in 2000.
2
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Note Issuer's equity securities. All of the Note Issuer's equity is owned by
SCE. The Note Issuer's equity securities, or membership interests, were sold to SCE in June 1997 in exchange for an initial capital
contribution of $5,000. SCE has made capital contributions to the Note Issuer aggregating $10,320,000 as of December 31, 2000, net
of distributions made from time to time from the Note Issuer to SCE. The sale of the Note Issuer's membership interests to SCE was
exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The Note Issuer has made no
other sales of unregistered securities.
The Indenture prohibits the Note Issuer from making any distributions to the sole member from the amounts allocated to the Note
Issuer unless no default has occurred and is continuing thereunder and the book value of the remaining equity of the Note Issuer,
after giving effect to such distribution, is equal to at least 0.5% of the original principal amount of all series of Notes which
remains outstanding. As of December 31, 2000, the original principal amount of all series of Notes which then remained outstanding
was $1,909,448,132.
The registered owner for each class of the Certificates is Cede & Co., as nominee of The Depository Trust Company (DTC). The Note
Issuer and the Trust are unable to ascertain the number of beneficial holders of Certificates. The Certificates are not registered
on any national securities exchange and do not trade on any established trading market.
Item 6. Selected Financial Data.
Omitted pursuant to Instruction I of Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following analysis of the Note Issuer's results of operations is in an abbreviated format pursuant to Instruction I of Form 10-K.
As discussed under Item 1 (Business), the Note Issuer was organized in June 1997 for limited purposes, and on December 11, 1997, the
Note Issuer issued Notes in order to purchase Transition Property, which is classified as a note receivable on the financial
statements included under Item 8 (Financial Statements and Supplementary Data). As the Note Issuer is restricted by its
organizational documents from engaging in activities other than those described in Item 1 (Business), income statement effects were
limited primarily to income generated from the Transition Property, interest expense on the Notes and incidental investment interest
income.
In 2000, income generated from the Transition Property was $124 million compared with $138 million in 1999. The decrease is due to
lower authorized FTA charges per kilowatt hour during 2000. Interest expense in 2000 was $121 million compared to $136 million in
1999. The decrease is due to lower outstanding balances on the rate reduction notes. Interest expense includes interest on the
Notes, amortization of debt issuance costs and the discount on the Notes.
3
During the twelve months ending December 31, 2000, the non-bypassable FTA Charges billed to residential and small commercial
customers totaled $380 million. Collections of FTA Charges totaled $375 million and were sufficient to cover 100% of the scheduled
quarterly payments on the Notes and provide additional funding of approximately $3.5 million for deposit to a reserve sub-account.
Interest earnings on restricted and unrestricted funds are used to assist with making the scheduled payments on the rate reduction
notes. Management of the Note Issuer expects future collections of FTA Charges to be sufficient to cover expenses and to make
scheduled payments on the Notes on a timely basis.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to the Note Issuer or the Trust.
Item 8. Financial Statements and Supplementary Data.
The financial statements and related financial information required to be filed hereunder appear on pages F-1 through F-7 of this
report and are incorporated herein by reference. In addition, attached with respect to the Note Issuer and the Trust as Exhibits
99.1, 99.2, and 99.3 are an Annual Statement summarizing certain information with respect to collections from the Transition Property
and payments on the Notes and Certificate, an Annual Certificate of Compliance with respect to the Servicer's activities, and the
Quarterly Servicer's Certificate for the collection periods September 2000 through November 2000 (dated December 19, 2000).
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Omitted pursuant to Instruction I of Form 10-K.
Item 11. Executive Compensation.
Omitted pursuant to Instruction I of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted pursuant to Instruction I of Form 10-K.
Item 13. Certain Relationships and Related Transactions.
Omitted with respect to the Note Issuer pursuant to Instruction I of Form 10-K.
Not applicable to the Trust.
4
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements.
The following financial statements of the Note Issuer and report of independent public accountants are included in
Item 8 (Financial Statements and Supplementary Data):
Report of Independent Public Accountants
Balance Sheets
Statements of Operations and Changes in Member's Equity
Statements of Cash Flows
Notes to Financial Statements
2. Financial Statement Schedule.
None.
3. Exhibits.
See the Exhibit Index of this report below.
(b) Reports on 8-K.
None.
5
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, as of March 30, 2001.
SCE FUNDING LLC
as Registrant
By: W. James Scilacci
----------------------------------------------
Name: W. James Scilacci
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
W. James Scilacci Director and President March 30, 2001
- --------------------------------------- (Principal Executive
W. James Scilacci Officer)
Mary C. Simpson Director and Treasurer March 30, 2001
- --------------------------------------- (Principal Financial and
Mary C. Simpson Accounting Officer)
Anand Maniktala Director March 30, 2001
- ---------------------------------------
Anand Maniktala
Exhibit Index
-------------
Sequential
Numbered
Exhibit Exhibit
Number Page
------ ----
3.1 Certificate of Formation (incorporated by reference to the same titled
exhibit to the Note Issuer's Registration Statement on Form S-3, File
No. 333-30785)
3.2 Limited Liability Company Agreement (incorporated by reference to the
same titled exhibit to the Note Issuer's Registration Statement on
Form S-3, File No. 333-30785)
3.3 Amended and Restated Limited Liability Company Agreement (incorporated
by reference to exhibit number 3.4 to the Note Issuer's Registration
Statement on Form S-3, File No. 333-30785)
4.1 Note Indenture (incorporated by reference to the same titled exhibit
to the Note Issuer's Current Report on Form 8-K filed with the
Commission on December 11, 1997)
4.2 Series Supplement (incorporated by reference to the same titled
exhibit to the Note Issuer's Current Report on Form 8-K filed with the
Commission on December 11, 1997)
4.3 Note (incorporated by reference to the same titled exhibit to the Note
Issuer's Current Report on Form 8-K filed with the Commission on
December 11, 1997)
4.4 Amended and Restated Declaration and Agreement of Trust (incorporated
by reference to the same titled exhibit to the Note Issuer's Current
Report on Form 8-K filed with the Commission on December 11, 1997)
4.5 First Supplemental Agreement of Trust (incorporated by reference to
the same titled exhibit to the Note Issuer's Current Report on Form
8-K filed with the Commission on December 11, 1997)
4.6 Rate Reduction Certificate (incorporated by reference to the same
titled exhibit to the Note Issuer's Current Report on Form 8-K filed
with the Commission on December 11, 1997)
10.1 Transition Property Purchase and Sale Agreement (incorporated by
reference to the same titled exhibit to the Note Issuer's Current
Report on Form 8-K filed with the Commission on December 11, 1997)
10.2 Transition Property Servicing Agreement (incorporated by reference to
the same titled exhibit to the Note Issuer's Current Report on Form
8-K filed with the Commission on December 11, 1997)
10.3 Note Purchase Agreement (incorporated by reference to the same titled
exhibit to the Note Issuer's Current Report on Form 8-K filed with the
Commission on December 11, 1997)
10.4 Fee and Indemnity Agreement (incorporated by reference to the same
titled exhibit to the Note Issuer's Current Report on Form 8-K filed
with the Commission on December 11, 1997)
23.1 Consent of Arthur Andersen LLP
99.1 Annual Statement
99.2 Annual Certificate of Compliance
99.3 Quarterly Servicer's Certificate
Report of Independent Public Accountants
To the Members of SCE Funding LLC:
We have audited the accompanying balance sheets of SCE Funding LLC (a Delaware Limited Liability Company) as of December 31, 2000 and
1999 and the related statements of operations and changes in member's equity and cash flows for each of the three years in the period
ended December 31, 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 conducted our audits in accordance with auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of SCE Funding LLC as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
March 29, 2001
Item 8. Financial Statements
SCE FUNDING LLC
BALANCE SHEETS
(in thousands)
As of December 31,
ASSETS 2000 1999
------ ---- ----
Current Assets:
Cash & equivalents $ 2,485 $ 1,318
Restricted funds 42,085 35,946
Current portion of note receivable 246,300 246,300
Interest receivable 29 5
-------------------------------------------------------
Total Current Assets 290,899 283,569
-------------------------------------------------------
Other Assets and Deferred Charges:
Note receivable - net of discount 1,475,641 1,712,114
Unamortized bond issuance costs 12,769 14,593
-------------------------------------------------------
Total Other Assets & Deferred Charges 1,488,410 1,726,707
-------------------------------------------------------
Total Assets $ 1,779,309 $ 2,010,276
=======================================================
LIABILITIES AND MEMBER'S EQUITY
-------------------------------
Current Liabilities:
Interest payable $ 3,162 $ 2,220
Current portion of long-term debt 246,300 246,300
Miscellaneous accrued expenses 61 70
-------------------------------------------------------
-------------------------------------------------------
Total Current Liabilities 249,523 248,590
-------------------------------------------------------
Long term debt - net of discount 1,477,321 1,723,552
-------------------------------------------------------
Member's equity 52,465 38,134
-------------------------------------------------------
Total Liabilities and Member's Equity $ 1,779,309 $ 2,010,276
=======================================================
The accompanying notes are an integral part of these financial statements
F-1
SCE FUNDING LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
(in thousands)
Year Ended December 31,
2000 1999 1998
---- ---- ----
OPERATING REVENUE:
Interest income $124,045 $137,670 $154,279
----------------------- -------------------- ---------------------
Total Operating Revenue 124,045 137,670 154,279
----------------------- -------------------- ---------------------
OPERATING EXPENSES:
Interest expense 120,727 135,565 152,274
Other expenses 4,844 5,430 6,584
----------------------- -------------------- ---------------------
Total Operating Expenses 125,571 140,995 158,858
----------------------- -------------------- ---------------------
Net Loss (1,526) (3,325) (4,579)
----------------------- -------------------- ---------------------
Member's Equity- beginning of period 38,134 23,167 12,981
Member Contributions - net 15,857 18,292 14,765
----------------------- -------------------- ---------------------
Member's Equity, end of period $52,465 $38,134 23,167
======================= ==================== =====================
The accompanying notes are an integral part of these financial statements
F-2
SCE FUNDING LLC
STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2000 1999 1998
---- ---- ----
Cash flows from Operating Activities:
Net Loss $ (1,526) $ (3,325) $ (4,579)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortizations 2 2 (30)
Changes in working capital:
Restricted funds (6,139) (15,108) (8,583)
Receivables (24) 2,319 5,839
Interest payable 942 282 (6,204)
Accounts payable and other current liabilities (9) (496) (2,816)
-----------------------------------------------------
Net Cash Used in Operating Activities (6,754) (16,326) (16,373)
-----------------------------------------------------
Cash Flows from Financing Activities:
Payment of bond issuance costs -- -- (2,542)
Payment of principal on rate reduction notes (246,300) (246,300) (246,300)
-----------------------------------------------------
Net Cash Used in Financing Activities (246,300) (246,300) (248,842)
-----------------------------------------------------
Cash Flows from Investing Activities:
Note Receivable Collections from SCE 238,364 245,469 244,017
Equity contributions from Southern California Edison
Company 15,857 18,292 14,765
----------------------------------------------------
Net Cash Provided by Investing Activities 254,221 263,761 258,782
----------------------------------------------------
Net Increase (decrease) in cash and equivalents 1,167 1,135 (6,433)
Cash and equivalents, beginning of period 1,318 183 6,616
----------------------------------------------------
Cash and equivalents, end of period $ 2,485 $ 1,318 $ 183
====================================================
The accompanying notes are an integral part of these financial statements
F-3
SCE FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. Basis of Presentation.
The financial statements include the accounts of SCE Funding LLC (also referred to as the Note Issuer), a Delaware special
purpose limited liability company, whose sole member is Southern California Edison Company (SCE), a provider of electric services.
All of the issued and outstanding common stock of SCE is owned by its parent holding company, Edison International. SCE Funding LLC
was formed on June 27, 1997, in order to effect the purchase from SCE of Transition Property (as defined below) and to fund such
purchase from the issuance of the SCE Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7 (Notes) to the California
Infrastructure and Economic Development Bank Special Purpose Trust SCE-1 (Trust) which issued certificates (Certificates) with terms
and conditions similar to the Notes. The proceeds from the sale of the Transition Property resulted in a reduction in revenue
requirements sufficient to enable SCE to provide a 10% electric rate reduction to SCE's residential and small commercial customers in
connection with electric industry restructuring mandated by California Assembly Bill 1890, as amended by California Senate Bill 477
(collectively, the electric restructuring legislation). This rate reduction became effective January 1, 1998.
SCE Funding LLC was organized for the limited purposes of issuing the Notes and purchasing Transition Property. Transition
Property is the right to be paid a specified amount from non-bypassable tariffs authorized by the California Public Utilities
Commission (CPUC) pursuant to the 1995 electric restructuring legislation. For financial reporting purposes, the purchase of the
Transition Property by the Note Issuer from SCE was treated as the issuance of a promissory note by SCE to SCE Funding LLC, in the
amount of approximately $2.5 billion. Accordingly, the purchase of the Transition Property is classified as a note receivable on the
accompanying financial statements. Notwithstanding such classification, the Transition Property, for legal purposes, has been sold
by SCE to SCE Funding LLC.
SCE Funding LLC is restricted by its organizational documents from engaging in any other activities. In addition, its
organizational documents require it to operate in such a manner that it should not be consolidated in the bankruptcy estate of SCE,
in the event SCE becomes subject to such a proceeding.
SCE Funding LLC is legally separate from SCE. The assets and revenues of the Note Issuer, including, without limitation,
the Transition Property, are not available to creditors of SCE or Edison International, and the note receivable from SCE to SCE
Funding LLC (i.e., the Transition Property) is not legally an asset of SCE or Edison International.
F-4
2. Summary of Accounting Policies
Cash Equivalents
Cash equivalents include working funds and short-term investments with initial maturities of 90 days or less.
Restricted Funds
SCE Funding LLC is required to maintain funds of approximately 0.5% of the outstanding principal balance of the Notes. These funds
are invested in short-term securities with maturities of 90 days or less. They are to be used to make scheduled payments on the
Notes to the Trust and to pay other expenses of SCE Funding LLC in the event that collections of the non-bypassable tariffs prove
insufficient to make such payments.
Unamortized Debt Issuance Expenses
The costs associated with the issuance of the Notes to the Trust have been capitalized and are being amortized over the life of the
Notes.
Income Taxes
SCE Funding LLC is a single-member limited liability company. Accordingly, for federal and state income tax purposes, any income tax
effect of SCE Funding LLC's activities will be reflected in SCE's financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions. These estimates and assumptions may affect the reported amount of revenue, expenses,
assets, and liabilities and disclosure of contingencies. Actual results could differ from these estimates.
3. Fair Value of Financial Instruments
Due to their short maturities, amounts reported for cash equivalents and restricted funds approximate fair value. In addition to
these amounts, at December 31, 2000, SCE Funding LLC had a financial asset (representing its note receivable from SCE), and financial
liabilities (representing its Notes to the Trust) each with a cost basis of approximately $1.7 billion. The note receivable is
carried at cost which approximates fair value. Fair value is estimated based on brokers' quotes of notes with similar
characteristics. Financial liabilities are recorded at cost, which approximates fair value, and their fair value is based on
brokers' quotes.
F-5
4. Long-Term Debt
In December 1997, SCE Funding LLC issued approximately $2.5 billion of Notes to the Trust. There were originally seven classes of
Notes the first of which ("Class A-1") matured in December 1998 and the second of which ("Class A-2") matured in March 2000. The
remaining five classes of Notes have maturities beginning in 2001 and ending in 2007, with interest rates ranging from 6.17% to
6.42%. The Notes are secured solely by the Transition Property (see Note 1) and certain other assets of SCE Funding LLC, and the
holders of the Notes do not have any recourse to any assets or revenue of SCE or Edison International. For financial reporting
purposes the Transition Property is shown as a note receivable, with the same scheduled maturities and interest rates as the Notes to
the Trust (see table below). Notwithstanding such classification of the Transition Property, the Transition Property has been sold
by SCE to SCE Funding LLC.
Principal and interest payments on the Notes are due quarterly and are paid from funds deposited with the Trustee by SCE as servicer
of the Transition Property. Because of the negative impact the California energy crisis has had on SCE's credit ratings, SCE has,
effective January 2001, begun making daily rather than monthly remittances to the trustee. The debt service requirements include an
overcollateralization amount, which will be retained for the benefit of the holders of the Notes. Any amounts not required for debt
service will be returned to SCE Funding LLC. Scheduled maturities and interest rates for the Notes payable to the Trust at December
31, 2000, are as follows:
Scheduled Interest Amount
Class Maturity Date Rate (in thousands)
----- ------------- ---- ------------
A-3 March 25, 2001 6.17% 62,493
A-4 March 25, 2002 6.22% 246,030
A-5 September 25, 2003 6.28% 360,645
A-6 September 25, 2006 6.38% 739,988
A-7 December 26, 2007 6.42% 314,944
----------
$1,724,100
Less: Current Maturities (246,300)
Less: Unamortized Discount (479)
----------
Long-Term Debt $1,477,321
=========
5. Significant Agreements and Related Party Transactions
Under the Transition Property Servicing Agreement, SCE, the servicer, is required to manage and administer the Transition Property of
SCE Funding LLC and to collect the non-bypassable tariffs from the electricity ratepayers on behalf of SCE Funding LLC. SCE Funding
LLC shall pay an annual servicing fee equal to 0.25% of the outstanding principal balance of the Notes for so long as the
non-bypassable tariff is included as a line item on the bills otherwise sent to electricity ratepayers or 1.5% of the outstanding
principal balance of the Notes if the non-bypassable tariff is not included as a line item on bills otherwise sent to electricity
ratepayers but, instead, is billed separately to electricity ratepayers. SCE Funding LLC incurred a total of $4.8 million in
servicing, administration and trustee fees in 2000. SCE is also entitled to receive as compensation any interest earnings on the
non-bypassable tariff collections, and any late payment charges collected from SCE's customers prior to remittance to the Trust.
F-6
The Trust was created solely for the purpose of purchasing the Notes from SCE Funding LLC, issuing the Certificates, and applying the
payments received in respect of the Notes to the payment of interest and principal in respect of the Certificates. Under the Trust
Agreement, Bankers Trust Company, the Certificate Trustee, is responsible for purchasing the Notes and authenticating and delivering
the Certificates to the investors. Bankers Trust Company Delaware, the Delaware Trustee, is responsible for the maintenance of all
records that are necessary to form and maintain the existence of the Trust. All fees and expenses of the Certificate Trustee and the
Delaware Trustee are paid by SCE Funding LLC.