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VIA EDGAR
March 29, 2002
United States Securities
and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Report on Form 10-K of PG&E Funding LLC
Commission File No. 333-30715
---------------------------------------
Ladies and Gentlemen,
On behalf of PG&E Funding LLC (the "Company"), enclosed is a Report on
Form 10-K for the period ended December 31, 2001. Because the Company meets the
conditions set forth in General Instruction I 1(a) and (b) of Form 10-K, the
Company is filing this form with the reduced disclosure format.
Please direct any questions you may have regarding this filing to the
undersigned at (415) 973-3262.
Sincerely yours,
Andrea Johnson
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.
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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 333-30715
- ---------
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST PG&E-1
- ----------------------------
(Issuer of the Certificates)
PG&E Funding LLC
- -----------------
(Exact name of Registrant as Specified in its Charter)
Delaware 94-3274751
(State or Other Jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
245 Market Street, Suite 424, San Francisco, California 94105
- ------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 972-5467
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 PG&E-1
Rate Reduction Certificates, Series 1997-1, Class A-4 6.16% Certificates,
Class A-5 6.25% Certificates, Class A-6 6.32% Certificates,
Class A-7 6.42% Certificates and Class A-8 6.48% Certificates,
maturing serially from 2001 to 2007, and underlying PG&E 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 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. [X].
Aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant: $ 0.
DOCUMENTS INCORPORATED BY REFERENCE.
Not applicable.
PART I
Item 1. Business
General
PG&E Funding LLC (the "Note Issuer") is a special purpose, single member
limited liability company organized under the laws of the State of Delaware.
Pacific Gas and Electric Company, 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 245 Market Street, Suite 424,
San Francisco, California 94105. Its mailing address is Mail Code N4E,
P.O. Box 770000, San Francisco, CA 94177 and its phone number is
(415) 972-5467. The Note Issuer was organized in July 1997 for the limited
purposes of holding and servicing 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 into the bankruptcy estate of Pacific Gas and Electric
Company.
The only material business conducted by the Note Issuer has been the
servicing of the Transition Property. During the year, PG&E Funding LLC
collected approximately $406,590,000 in Fixed Transition Amount ("FTA")
Charges (as described below) and paid $417,967,000 in principal, interest,
and other expenses. Of the original $2,901,000,000 in principal amount of
the PG&E Funding LLC Notes, Series 1997-1, Class A-1 through Class A-8
(the "Notes"), there remains approximately $1,740,600,000 in principal
outstanding, with scheduled maturities ranging from 2002 through 2007. The
specific interest rate and maturity of each class of Notes is specified herein
under Note D of the Notes to Financial Statements attached hereto. 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 PG&E-1, a Delaware business
trust (the "Trust"), which issued certificates corresponding to each class
of Notes (the "Certificates") in a public offering.
The Note Issuer has no employees. It entered into a servicing
agreement (the "Servicing Agreement") with Pacific Gas and Electric Company
pursuant to which Pacific Gas and Electric Company (in such capacity, the
"Servicer") is required to service the Transition Property on behalf of the Note
Issuer. In addition, the Note Issuer entered into an Administrative Services
Agreement with Pacific Gas and Electric Company pursuant to which Pacific
Gas and Electric Company performs administrative and operational duties for
the Note Issuer.
Transition Property
The California Public Utilities Code (the "PU Code") provides for the
creation of "Transition Property." A financing order dated September 3, 1997
(the "Financing Order") issued by the California Public Utilities Commission
(the "CPUC"), together with the related Issuance Advice Letter, establishes,
among other things, separate nonbypassable charges (the "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 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.
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 amortization
schedules, pay all related fees and expenses, and fund certain accounts
established pursuant to the Indenture as required, the Servicing Agreement
requires Pacific Gas and Electric Company, as the Servicer of the Transition
Property, 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. The Servicer filed advice letters with the
CPUC, advising them of a decrease to the FTA Charge effective January 1, 2001,
and an increase to the FTA charge effective January 1, 2002. The decrease
for 2001 in FTA Charges was a result of overcollection and yearly principal
reduction. The increase for 2002 is a result of an anticipated decline in
electricity sales of 2% from 2001, and undercollection in the reserve accounts.
The Trust
The Trust was organized in November 1997 solely for the purpose of
Purchasing the Notes and issuing the Certificates. It does not conduct any
other material business activities.
Item 2. Properties.
The Note Issuer has no material physical properties. Its primary asset is
The Transition Property described above in Item 1 (Business).
The Trust has no material properties. Its primary assets are the
Notes described above in Item 1 (Business).
Item 3. Legal Proceedings.
There are no material pending legal proceedings involving the Note Issuer,
the Trust, or the Transition Property.
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.
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.
(a) Sales of Unregistered Securities.
---------------------------------------
There is no established public trading market for the Note Issuer's equity
securities. All of the Note Issuer's equity is owned by Pacific Gas and
Electric Company. Pacific Gas and Electric Company purchased its
membership interest in the Note Issuer in July 1997 for a purchase price
of $5,000 and made capital contributions to the Note Issuer aggregating
approximately $27,348,000 as of December 31, 2001. Such purchase was
exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof. The Note Issuer made no other sales of
unregistered securities.
(b) Restrictions on Dividends.
--------------------------------
The Indenture prohibits the Note Issuer from making any distributions to
its member 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 that remain outstanding. During 2001, the Note Issuer
did not make any distributions to its member. The Note Issuer may make
distributions to its member from time to time in the future as permitted
by the Indenture and approved by the Board of Directors.
(c) Certificate Holders.
-----------------------
At March 29, 2002, the sole holder of record of the Certificates was
Cede & Co., as nominee of The Depository Trust Company. The Certificates
are not traded on any established trading market.
Item 6. Selected Financial Data.
Omitted pursuant to Instruction I of Form 10-K. Not applicable to the Trust.
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. Such analysis
should be read in conjunction with the financial statements attached hereto.
As discussed above under Item 1 (Business), the Note Issuer is a
special purpose entity established in July 1997 for limited purposes.
On December 8, 1997, the Note Issuer issued Notes in order to purchase
Transition Property. 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 receivable, interest expense on the
Notes, Transition Property servicing fees and incidental investment interest
income.
Income generated in 2001 and 2000 from the Transition Property
receivable was approximately $128,882,000 and $150,157,000, respectively.
The decrease reflects the declining Transition Property receivable balance.
During 2001 and 2000, the Note Issuer also earned approximately $4,939,000
and $5,829,000 in interest from other investments, respectively. In 2001
and 2000, the Note Issuer also incurred interest expenses of approximately
$124,505,000 and $143,503,000 related to interest on the Notes and the
amortization of debt issuance expenses and discount on the Notes for
2001 and 2000, respectively. The decrease in interest expense is due to the
declining balance of the Notes. For 2001 and 2000 the Note Issuer also
incurred servicing fees of approximately $4,808,000 and $5,536,000 and
administrative and general fees of approximately $224,000 and $70,000,
respectively. Administrative and general fees in 2000 were lower than usual,
due in part to a refund PG&E Funding LLC received in the third quarter of 2000
for additional fees it had paid that were determined to have already been
included in its payment of quarterly administrative fees from 1997 through 1999.
The Note Issuer expects to use collections of the Transition Property
receivable to make scheduled principal and interest payments on the Notes.
Income earned on the Transition Property receivable 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 Pacific Gas and Electric
Company for servicing the Transition Property receivable and providing
administrative services to the Note Issuer. (These agreements are discussed in
greater detail in Note E to the Financial Statements attached hereto.)
Collections of FTA Charges are currently below expectations. For the year
ended December 31, 2000, collections of FTA Charges and other interest income
of approximately $451,202,000 were sufficient to cover scheduled payments on
the Notes and related expenses totaling $436,509,000. The excess of collections
and other interest income over scheduled payments and related expenses amounted
to $14,693,000, and was applied to subsequent payments on the Notes in 2001.
However, for the year ended December 31, 2001, collections of FTA Charges
and other interest income totaled $411,529,000, while scheduled payments on the
Notes were approximately $417,967,000 resulting in a shortfall in funding in
2001 of $6,438,000. This shortfall made it necessary to draw down the reserve
subaccount and also the overcollateralization subaccount in order to
make the required payments on the Notes and related expenses. The reserve
subaccount and overcollateralization subaccount were created for this purpose,
and will be replenished through future FTA Charge collections. The shortfall is
largely due to a decline in electricity sales. The Servicer has increased the
rates at which the FTA Charges will be collected from customers in 2002 in
order to offset the effect of declining electricity usage by customers.
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.
On January 4, 2001, Standard and Poor's lowered the short-term credit rating
of the Servicer to A-3, and on January 5, 2001, Moody's Investor Services Inc.
lowered the short-term credit rating of the Servicer to P-3. In accordance with
section 6.11(b) of the Transition Property Servicing Agreement, on January 8,
2001 the Servicer began remitting collections to the trustee on a daily basis.
Previously the Servicer remitted payments monthly.
On April 6, 2001, the Servicer filed a bankruptcy petition under
Chapter 11 of the Bankruptcy Code. The Note Issuer does not expect
payments on the Certificates to be affected by the filing. The Servicer has
informed the Note Issuer that, despite the bankruptcy filing, it will continue
to perform all duties as servicer, including remitting daily all amounts paid by
the ratepayers with respect to the Certificates to the trustee.
On September 20, 2001, the Servicer and its parent company, PG&E
Corporation, jointly filed with the Bankruptcy Court a proposed plan of
reorganization ("Plan") under Chapter 11 of the U.S. Bankruptcy Code and a
proposed disclosure statement describing the Plan. The Plan was amended
on December 19, 2001, February 4, 2002, and March 7, 2002. The Servicer has
asserted that the Plan will have no adverse effects on its ability to perform
all duties as servicer.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Long-term Debt:
- --------------------
The table below provides information about the Notes
at December 31, 2001:
(in millions)
Expected maturity date 2002 2003 2004 2005 2006 2007 Total
Notes $290 $290 $290 $290 $290 $291 $1,741
Average interest rate 6.3% 6.4% 6.4% 6.4% 6.4% 6.5% 6.4%
Item 8. Financial Statements and Supplementary Data.
The financial statements and related financial information of the Note Issuer
are set forth below.
The Trust is a pass-through entity with no assets other than the
Notes and no liabilities other than the Certificates. It does not have, and
will not have, income or losses separate from payments on the Notes. Expenses
of the trustees of the Trust are payable by the Note Issuer pursuant to the
terms of a Fee and Indemnity Agreement. For these reasons, no separate
financial statements of the Trust are included.
INDEPENDENT AUDITORS' REPORT
To the Member of PG&E Funding LLC:
We have audited the accompanying balance sheets of PG&E Funding LLC
(a Delaware Limited Liability Company) as of December 31, 2001 and 2000,
and the related statements of income and changes in member's equity and of
cash flows for each of the three years in the period ended December 31, 2001.
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 of America. 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 PG&E Funding LLC as of
December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note A to the financial statements, Pacific Gas and Electric
Company (a Debtor-in-Possession), the Servicer of the Transition Property,
sought protection from its creditors by filing a voluntary petition under the
provisions of Chapter 11 of the United States Bankruptcy Code.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
March 8, 2002
PG&E FUNDING LLC (A DELAWARE LLC)
BALANCE SHEETS
DECEMBER 31,
(in thousands)
2001 2000
---------- ----------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 12,852 $ 11,767
Current portion of
Transition Property receivable 276,946 286,945
---------- ----------
Total Current Assets 289,798 298,712
Noncurrent Assets:
Restricted funds 42,763 50,288
Transition Property receivable 1,453,963 1,721,672
Unamortized debt issuance expenses 6,639 8,871
---------- ----------
Total Noncurrent Assets 1,503,365 1,780,831
---------- ----------
TOTAL ASSETS $1,793,163 $2,079,543
========== ==========
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ - $ 2
Interest payable 1,858 2,479
Current portion of long-term debt 290,000 290,000
---------- ----------
Total Current Liabilities 291,858 292,481
Long-term debt 1,450,600 1,740,700
Unamortized bond discounts (119) (178)
---------- ----------
Long-term debt (net of discount) 1,450,481 1,740,522
Total Liabilities 1,742,339 2,033,003
Member's Equity 50,824 46,540
Commitments and Contingencies - -
---------- ----------
TOTAL LIABILITIES AND MEMBER'S EQUITY $1,793,163 $2,079,543
========== ==========
The accompanying Notes to the Financial Statements are an integral part of these
statements.
PG&E FUNDING LLC (A DELAWARE LLC)
STATEMENTS OF INCOME AND CHANGES IN MEMBER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31,
(in thousands)
2001 2000 1999
---------- --------- ---------
INCOME
- ------
Income from Transition Property receivable $128,882 $150,157 $170,155
Other interest income 4,939 5,829 4,154
-------- -------- --------
Total Income 133,821 155,986 174,309
EXPENSES
- --------
Interest expense 124,505 143,503 161,487
Servicing fees 4,808 5,536 6,246
Administrative and general 224 70 210
-------- -------- --------
Total Expenses 129,537 149,109 167,943
-------- -------- --------
NET INCOME $ 4,284 $ 6,877 $ 6,366
-------- -------- --------
Member's equity at beginning of period 46,540 39,663 33,297
Member's distributions - - -
-------- -------- --------
MEMBER'S EQUITY AT END OF PERIOD $ 50,824 $ 46,540 $ 39,663
======== ======== ========
The accompanying Notes to the Financial Statements are an integral part of these
statements.
PG&E FUNDING LLC (A DELAWARE LLC)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands)
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATIONS:
Net Income $ 4,284 $ 6,877 $ 6,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from Transition Property receivable (128,882) (150,157) (170,155)
Amortization of debt issuance expenses and
discount on long-term debt 2,291 2,870 3,458
Changes in operating assets and liabilities:
Transition Property Receivable 406,590 445,373 474,386
Accounts payable (2) (2) (44)
Interest payable (621) (172) (197)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 283,660 $ 304,789 $ 313,814
--------- --------- ---------
FINANCING ACTIVITIES:
Principal payments on long-term debt $(290,100) $(290,100) $(290,100)
Decrease(Increase) in restricted funds 7,525 (8,739) (20,002)
--------- --------- ---------
NET CASH USED IN FINANCING
ACTIVITIES $(282,575) $(298,839) $(310,102)
---------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,085 5,950 3,712
CASH AND CASH EQUIVALENTS AT: JANUARY 1, 11,767 5,817 2,105
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT DECEMBER 31, $ 12,852 $ 11,767 $ 5,817
========= ========= =========
Cash paid for interest: $ 122,835 $ 140,803 $ 158,228
========= ========= =========
The accompanying Notes to the Financial Statements are an integral part of these
statements.
Notes to the Financial Statements
- -----------------------------------------
A. Basis of Presentation
The financial statements include the accounts of PG&E Funding LLC, a
Delaware special purpose limited liability company, whose sole member is
Pacific Gas and Electric Company (a Debtor-in-Possession), a provider of
electric and natural gas services. Pacific Gas and Electric Company is a
wholly owned subsidiary of PG&E Corporation. PG&E Funding LLC was
formed on July 1, 1997 in order to effect the issuance of notes (the Notes),
the proceeds of which were provided to Pacific Gas and Electric Company
to support a ten percent electric rate reduction. This reduction, which became
effective as of January 1, 1998, is provided to Pacific Gas and Electric
Company's residential and small commercial electric customers in connection
with the electric industry restructuring mandated by California Assembly Bill
1890, as amended by California Senate Bill 477 (electric industry restructuring
legislation). As described in Note D, PG&E Funding LLC issued the Notes
in December 1997.
PG&E Funding LLC was organized for the limited purposes of issuing
the Notes and purchasing the Transition Property from Pacific Gas and Electric
Company. Transition Property is the right to be paid a specified amount
(presented in the financial statements as "Transition Property receivable")
from a nonbypassable charge payable by residential and small commercial
electric distribution customers. The nonbypassable charge was authorized by
the California Public Utility Commission (CPUC) pursuant to the electric
industry restructuring legislation. Pacific Gas and Electric Company
collects the nonbypassable charge from residential and small commercial electric
distribution customers in the form of a small surcharge per kilowatt-hour (kWh),
and remits that money to PG&E Funding LLC. The nonbypassable charge is
calculated to generate sufficient funds to make the required payments on the
Notes and related expenses. Collection of the nonbypassable charge was lower
than expected in 2001 due to lower electricity usage by residential and small
commercial electric distribution customers. The nonbypassable charge will be
collected at a higher rate in 2002 to offset the effect of a decline in usage.
PG&E Funding LLC is restricted by its organizational documents from
engaging in any other activities. In addition, PG&E Funding LLC's
organizational documents require it to operate in such a manner that it should
not be consolidated into the bankruptcy estate of Pacific Gas and Electric
Company. PG&E Funding LLC is legally separate from Pacific Gas and
Electric Company. The assets of PG&E Funding LLC are not available to
creditors of Pacific Gas and Electric Company or PG&E Corporation, and the
Transition Property is legally not an asset of Pacific Gas and Electric Company
or PG&E Corporation. PG&E Funding LLC is expected to terminate after final
maturity of the Notes on December 26, 2007.
On April 6, 2001, Pacific Gas and Electric Company, Servicer of the
Transition Property, filed a bankruptcy petition under Chapter 11 of the
U.S. Bankruptcy Code. PG&E Funding LLC does not expect payments on the
certificates to be affected by the filing. The Servicer has informed PG&E
Funding LLC that, despite the bankruptcy filing, it will continue to perform
all duties as servicer, including remitting daily all amounts paid by the
ratepayer with respect to the certificates to the trustee.
B. Summary of Accounting Policies
Cash Equivalents
Cash equivalents (stated at cost, which approximates market) include
Working funds and short-term investments with original maturities of three
months or less.
Restricted Funds
Restricted funds, which include amounts required under the indenture
agreement, surplus collections, and interest earned on these funds, were as
follows at December 31:
2001 2000
------ ------
(in thousands)
General Subaccount $27,349 $623
Reserve Subaccount 18 30,805
Overcollateralization Subaccount 964 4,374
Capital Subaccount 14,432 14,486
-------- --------
Total Restricted Funds $42,763 $50,288
The indenture agreement for the Notes requires PG&E Funding LLC to
maintain funds equal to approximately 0.50% of the original principal amount
of the Notes ($14,405,000) in an account (the Capital Subaccount) with a trustee
of the California Infrastructure and Economic Development Bank Special
Purpose Trust PG&E-1 (the Trust). These funds are to be held in reserve and
used only in the event that collections of the nonbypassable charge provide
insufficient funds to make scheduled payments on the Notes and to pay other
expenses of PG&E Funding LLC.
Surplus collections of nonbypassable charges result when collection
of these charges exceeds scheduled payments of principal, and interest on the
Notes, and related expenses. These surplus collections were approximately
$14,693,000 in 2000, which were applied to subsequent payments on the Notes.
There was a shortfall of collections in 2001 of approximately $6,438,000, due
largely to reduced sales of electricity.
Unamortized Debt Issuance Expenses and Discount on Notes
The expenses associated with the issuance of the Notes have been
capitalized. These expenses and the discount on the Notes are being amortized
on a straight-line basis over the life of each respective class of Notes, and
are reflected in interest expense in the accompanying statement of income
and changes in member's equity.
Income Taxes
PG&E Funding LLC is a single-member limited liability company. Accordingly,
all federal income tax effects and all material State of California franchise
tax effects of PG&E Funding LLC's activities accrue to Pacific Gas and Electric
Company.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amount of revenues, expenses, assets,
and liabilities and the disclosure of contingencies. Actual results could
differ from these estimates.
Revenue Recognition
PG&E Funding LLC has one major source of income, which is the
interest due from Pacific Gas and Electric Company on the Transition Property
receivable. The other small source of income is the interest earned on the
restricted cash accounts and temporary investment of the nonbypassable
charge collected by Pacific Gas and Electric Company, as Servicer, and
remitted to PG&E Funding LLC.
C. Transition Property Receivable
Changes in the value of the Transition Property receivable reflecting a
yield of approximately 6.91% are shown below (in thousands):
- -----------------------------------------------------------------------------
2001 2000
----------------------------------
Present value, January 1 $2,008,617 $2,303,833
Income due to increase in present value
during the year 128,882 150,157
Less: principal and interest paid during the year (406,590) (445,373)
- --------------------------------------------------------------------------------
Total Transition Property Receivable, December 31 1,730,909 2,008,617
Less: Current portion (276,946) (286,945)
- --------------------------------------------------------------------------------
Noncurrent portion $1,453,963 $1,721,672
- --------------------------------------------------------------------------------
D. Long-term Debt
In December 1997, PG&E Funding LLC issued approximately $2.9 billion of the
Notes to the Trust. The Trust, in turn, issued pass-through certificates known
as "rate reduction bonds" with an original principal amount equal to the
original principal amount of the Notes. PG&E Funding LLC used the proceeds
from the Notes to purchase the Transition Property receivable from Pacific Gas
and Electric Company.
The Notes are secured solely by the Transition Property and other
assets of PG&E Funding LLC. Scheduled maturities and interest rates for the
Notes at December 31, 2001, are as follows:
Scheduled Principal
Maturity Interest Amount
Class Date Rate (in thousands)
- --------------------------------------------------------------------------------
A-5 June 25, 2002 6.25% 99,600
A-6 September 25, 2003 6.32% 375,000
A-7 September 25, 2006 6.42% 866,000
A-8 December 26, 2007 6.48% 400,000
- -------------------------------------------------------------------------------
$1,740,600
Less: Current maturities (290,000)
Unamortized discount (119)
- --------------------------------------------------------------------------------
Long-term debt $1,450,481
- --------------------------------------------------------------------------------
The estimated fair value of the Notes was approximately $1.8 billion and
$2.0 billion at December 31, 2001 and 2000, respectively, and based on
quoted market prices.
The source of repayment will be a nonbypassable charge authorized by
the CPUC. This nonbypassable charge will be collected from Pacific Gas and
Electric Company's residential and small commercial electric customers by
Pacific Gas and Electric Company, as Servicer. Collections of the
nonbypassable charge had been deposited on a monthly basis by Pacific Gas and
Electric Company, as Servicer, with PG&E Funding LLC in an account maintained
by the trustee of the Trust. On January 4, 2001, Standard and Poor's lowered
the short-term credit rating of the Servicer to A-3, and on January 5, 2001,
Moody's Investor Services Inc. lowered the short-term credit rating of the
Servicer to P-3. In accordance with section 6.11(b) of the Transition Property
Servicing Agreement, on January 8, 2001 the Servicer began remitting collections
to the trustee on a daily basis. Each quarter such monies are used to make
principal and interest payments on the Notes. The debt service requirements
include an overcollateralization amount that is retained for the benefit of the
holders of the Notes. Any amounts not required for debt service will be returned
to PG&E Funding LLC.
E. Significant Agreements and Related Party Transactions
Under a Transition Property Servicing Agreement, Pacific Gas and Electric
Company, the Servicer, is required to manage and administer the Transition
Property of PG&E Funding LLC and to collect the nonbypassable charge from
residential and small commercial electric customers on behalf of PG&E Funding
LLC. PG&E Funding LLC pays a servicing fee equal to 0.25% of the outstanding
principal amount of the Notes. The Servicer is also entitled to receive as
compensation any interest earnings on nonbypassable charge collections prior
to remittance to the Trust and any late payment charges collected from Pacific
Gas and Electric Company's customers. For the years ended December 31, 2001,
2000, and 1999, PG&E Funding LLC incurred servicing fees of approximately
$4,808,000, $5,536,000, and $6,246,000, respectively.
Under an Administrative Services Agreement, Pacific Gas and Electric
Company is required to provide administrative and technical services for PG&E
Funding LLC. Pursuant to the terms of this agreement, Pacific Gas and
Electric Company may not charge fees in excess of $25,000 per calendar quarter
without the consent of the California Infrastructure and Economic Development
Bank. PG&E Funding LLC incurred administrative services fees of approximately
$100,000 in each of 2001, 2000, and 1999.
The Trust was created for the limited purposes of purchasing the
Notes from PG&E Funding LLC, issuing rate reduction bonds, and applying the
proceeds from the Notes to the payment of the rate reduction bonds. Under a
Fee and Indemnity Agreement, PG&E Funding LLC is responsible for paying all
fees and expenses incurred by the Trust.
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 with respect to the Note Issuer pursuant to Instruction I of Form
10-K. The Trust has no directors or officers.
Item 11. Executive Compensation.
Omitted with respect to the Note Issuer pursuant to Instruction I of Form
10-K. Not applicable to the Trust.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted with respect to the Note Issuer pursuant to Instruction I of Form
10-K. Not applicable to the Trust.
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.
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 accountants are included in Item 8:
Independent Auditors' Report-Deloitte & Touche LLP
Balance Sheets at December 31, 2001 and 2000
Statements of Income and Changes in Member's Equity
for the Years Ended December 31, 2001, 2000 and 1999
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000 and 1999
Notes to Financial Statements
(2)Exhibits required to be filed by Item 601 of Regulation S-K:
3.1 Certificate of Formation.(1)
3.3 Amended and Restated Limited Liability Company Agreement.(1)
4.1 Note Indenture.(2)
4.2 Series Supplement.(2)
4.3 Note.(2)
4.4 Amended and Restated Declaration and Agreement of Trust.(2)
4.5 First Supplemental Trust Agreement.(2)
4.6 Rate Reduction Certificate.(2)
10.1 Transition Property Purchase and Sale Agreement.(2)
10.2 Transition Property Servicing Agreement.(2)
10.3 Note Purchase Agreement.(2)
10.4 Fee and Indemnity Agreement.(2)
23.1 Consent of Deloitte & Touche LLP
99.1 Quarterly Servicer's Certificate dated December 25, 2001
(b) Reports on Form 8-K filed during the quarter ended December 31, 2001
and through the date hereof: None
- -----------------------------------------------------------------------------
(1)Incorporated by reference to the exhibit with the same name and numerical
designation included in the Registrant's Registration Statement on Form S-3
No. 333-30715.
(2)Incorporated by reference to the exhibit with the same name and numerical
designation included in the Registrant's Report on Form 8-K dated
December 8, 1997.
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 on the 29th day of March, 2002.
PG&E FUNDING LLC, as Registrant
By /s/ KENT M. HARVEY
------------------------------------------
Kent M. Harvey, 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 indicated on March 29, 2002.
Signature Title
------------ -----
/s/ KENT M. HARVEY President and Director
-----------------------------
Kent M. Harvey (Principal Executive Officer)
/s/ MICHAEL J. DONNELLY Treasurer and Director
-----------------------------
Michael J. Donnelly (Principal Financial Officer)
/s/ DINYAR B. MISTRY Controller
-----------------------------
Dinyar B. Mistry (Principal Accounting Officer)
/s/ WALTER S. LEVISON Director
-----------------------------
Walter S. Levison
INDEX TO EXHIBITS
Exhibit Number Description
- ------------------- --------------
23.1 Consent of Deloitte & Touche LLP
99.1 Quarterly Servicer's Certificate
dated December 25, 2001
Other exhibits not filed herewith and listed under Part IV, Item 8, have been
incorporated by reference from other documents previously filed with the
Commission.
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-30715 of PG&E Funding LLC on Form S-3, as amended, of our report
dated March 8, 2002 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to items discussed in Note A), appearing in
this Annual Report on Form 10-K of PG&E Funding LLC for the year ended
December 31, 2001.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
March 29, 2002
EXHIBIT 99.1
QUARTERLY SERVICER'S CERTIFICATE
Exhibit E to Servicing Agreement
Quarterly Servicer's Certificate
California Infrastructure and Economic Development Bank Special
Purpose Trust PG&E-1
$2,901,000,000 Rate Reduction Certificates, Series 1997-1
Pursuant to Section 4.01(d)(ii) of the Transition Property Servicing
Agreement dated as of December 8, 1997 (the "Transition Property Servicing
Agreement") between Pacific Gas and Electric Company, as Servicer, and PG&E
Funding LLC, as Note Issuer, the Servicer does hereby certify as follows:
Capitalized terms used in the Quarterly Servicer's Certificate (the
"Quarterly Certificate") have their respective meanings as set forth in the
Agreement. References herein to certain sections and subsections are
references to the respective sections of the Agreement.
Collection Periods: September 2001, October 2001, November 2001
Distribution Date: December 25, 2001
1. Collections Allocable and Aggregate Amounts Available for the Current
Distribution Date:
i. Remittances for the Sept '01 Collection Period $32,516,735.00
ii. Remittances for the Oct. '01 Collection Period $29,658,151.00
iii. Remittances for the Nov. '01 Collection Period $27,981,802.00
iv. Net Earnings on Collection Account $729,017.91
-------------------
v. General Sub-Account Balance $90,885,705.91
vi Reserve Sub-Account Balance $11,555,605.24
vii. Overcollateralization Sub-Account Balance $5,439,375.00
viii.Capital Sub-Account Balance (less $100K) $14,405,000.00
-------------------
ix. Collection Account Balance $122,285,686.15
2. Outstanding Principal Balance and Collection Account Balance as of Prior
Distribution Date:
i. Class A-1 Principal Balance $0.00
ii. Class A-2 Principal Balance $0.00
iii. Class A-3 Principal Balance $0.00
iv. Class A-4 Principal Balance $0.00
v. Class A-5 Principal Balance $176,300,487.00
vi. Class A-6 Principal Balance $375,000,000.00
vii. Class A-7 Principal Balance $866,000,000.00
viii.Class A-8 Principal Balance $400,000,000.00
-------------------
ix. Rate Reduction Certificate Principal Balance $1,817,300,487.00
x. Reserve Sub-Account Balance $11,555,605.24
xi. Overcollateralization Sub-Account Balance $5,439,375.00
xii. Capital Sub-Account Balance $14,405,000.00
3. Required Funding/Payments as of Current Distribution Date:
i. Projected Class A-1 Certificate Balance $0.00
ii. Projected Class A-2 Certificate Balance $0.00
iii. Projected Class A-3 Certificate Balance $0.00
iv. Projected Class A-4 Certificate Balance $0.00
v. Projected Class A-5 Certificate Balance $99,600,000.00
vi. Projected Class A-6 Certificate Balance $375,000,000.00
vii. Projected Class A-7 Certificate Balance $866,000,000.00
viii.Projected Class A-8 Certificate Balance $400,000,000.00
-------------------
ix. Projected Class A Certificate Balance $1,740,600,000.00
x. Required Class A-1 Coupon $0.00
xi. Required Class A-2 Coupon $0.00
xii. Required Class A-3 Coupon $0.00
xiii.Required Class A-4 Coupon $0.00
xiv. Required Class A-5 Coupon $2,754,695.11
xv. Required Class A-6 Coupon $5,925,000.00
xvi. Required Class A-7 Coupon $13,899,300.00
xvii. Required Class A-8 Coupon $6,480,000.00
xviii.Required Overcollateralization Funding $362,625.00
xix. Required Capital Sub-Account Funding $0.00
4. Allocation of Remittances as of Current Distribution Date Pursuant to 8.02(d)
of Indenture:
i. Note, Delaware and Certificate Trustee Fees $1,123.33
ii. Quarterly Servicing Fee $1,135,812.80
iii. Quarterly Administration Fee $25,000.00
iv. Operating Expenses (subject to $100,000 cap) $4,212.06
v. Quarterly Interest $29,058,995.11
1. Class A-1 Certificate Coupon Payment $0.00
2. Class A-2 Certificate Coupon Payment $0.00
3. Class A-3 Certificate Coupon Payment $0.00
4. Class A-4 Certificate Coupon Payment $0.00
5. Class A-5 Certificate Coupon Payment $2,754,695.11
6. Class A-6 Certificate Coupon Payment $5,925,000.00
7. Class A-7 Certificate Coupon Payment $13,899,300.00
8. Class A-8 Certificate Coupon Payment $6,480,000.00
vi. Principal Due and Payable $0.00
vii. Quarterly Principal $76,700,487.00
1. Class A-1 Certificate Principal Payment $0.00
2. Class A-2 Certificate Principal Payment $0.00
3. Class A-3 Certificate Principal Payment $0.00
4. Class A-4 Certificate Principal Payment $76,700,487.00
5. Class A-5 Certificate Principal Payment $0.00
6. Class A-6 Certificate Principal Payment $0.00
7. Class A-7 Certificate Principal Payment $0.00
8. Class A-8 Certificate Principal Payment $0.00
viii.Operating Expenses (in excess of $100,000) $0.00
ix. Funding of Overcollateralization Sub-Account (to required level $0.00
x. Funding of Capital Sub-Account (to required level) $0.00
xi. Net Earnings Released to Note Issuer $0.00
xii. Released to Note Issuer upon Series Retirement:
Overcollateralization Sub-Account $0.00
xiii.Released to Note Issuer upon Series Retirement:
Capital Sub-Account $0.00
xiv. Deposits to Reserve Sub-Account $0.00
xv. Released to Note Issuer upon Series Retirement:
Collection Account $0.00
5. Outstanding Principal Balance and Collection Account Balance as of current
distribution date:
(after giving effect to payments to be made on such distribution date):
i. Class A-1 Principal Balance $0.00
ii. Class A-2 Principal Balance $0.00
iii. Class A-3 Principal Balance $0.00
iv. Class A-4 Principal Balance $0.00
v. Class A-5 Principal Balance $99,600,000.00
vi. Class A-6 Principal Balance $375,000,000.00
vii. Class A-7 Principal Balance $866,000,000.00
viii.Class A-8 Principal Balance $400,000,000.00
-------------------
ix. Rate Reduction Certificate Principal Balance $1,740,600,000.00
x. Reserve Sub-Account Balance $0.00
xi. Overcollateralization Sub-Account Balance $955,055.85
xii. Capital Sub-Account Balance $14,405,000.00
6. Sub-Account Draws as of Current Distribution Date (if applicable, pursuant to
Section 8.02(e) of Indenture):
i. Reserve Sub-Account $11,555,605.24
ii. Overcollateralization Sub-Account $4,484,319.15
iii. Capital Sub-Account $0.00
-------------------
iv. Total Draws $16,039,924.39
7. Shortfalls In Interest and Principal Payments as of Current Distribution
Date:
i. Quarterly Interest $0.00
1. Class A-1 Certificate Coupon Payment $0.00
2. Class A-2 Certificate Coupon Payment $0.00
3. Class A-3 Certificate Coupon Payment $0.00
4. Class A-4 Certificate Coupon Payment $0.00
5. Class A-5 Certificate Coupon Payment $0.00
6. Class A-6 Certificate Coupon Payment $0.00
7. Class A-7 Certificate Coupon Payment $0.00
8. Class A-8 Certificate Coupon Payment $0.00
ii. Quarterly Principal $0.00
1. Class A-1 Certificate Principal Payment $0.00
2. Class A-2 Certificate Principal Payment $0.00
3. Class A-3 Certificate Principal Payment $0.00
4. Class A-4 Certificate Principal Payment $0.00
5. Class A-5 Certificate Principal Payment $0.00
6. Class A-6 Certificate Principal Payment $0.00
7. Class A-7 Certificate Principal Payment $0.00
8. Class A-8 Certificate Principal Payment $0.00
8. Shortfalls in Required Sub-Account Levels as of Current Distribution Date:
i. Overcollateralization Sub-Account $4,846,944.15
ii. Capital Sub-Account $0.00
9. Distributions of Principal per $1,000 of Original Principal Amount
Principal Payment
per $1,000 of
Original Principal Principal Payment Orig. Principal Amt.
[ A ] [ B ] [ B/A x 1,000]
- ------------------ ----------------- --------------------
i. Class A-1
$0.00 $0.00 $0.000000
ii. Class A-2
$0.00 $0.00 $0.000000
iii. Class A-3
$0.00 $0.00 $0.000000
iv. Class A-4
$0.00 $0.00 $0.000000
v. Class A-5
$176,300,487.00 $76,700,487.00 $435.055446
vi. Class A-6
$375,000,000.00 $0.00 $0.000000
vii. Class A-7
$866,000,000.00 $0.00 $0.000000
viii. Class A-8
$400,000,000.00 $0.00 $0.000000
----------------- ----------------- -------------------
$1,817,300,487.00 $76,700,487.00
10. Distributions of Interest per $1,000 of Original Principal Amount
Interest Payment
per $1,000 of
Original Principal Interest Payment Orig. Principal Amt.
[ A ] [ B ] [ B/A x 1,000]
- ------------------ ----------------- --------------------
i. Class A-1
$0.00 $0.00 $0.000000
ii. Class A-2
$0.00 $0.00 $0.000000
iii. Class A-3
$0.00 $0.00 $0.000000
iv. Class A-4
$0.00 $0.00 $0.000000
v. Class A-5
$176,300,487.00 $2,754,695.11 $15.625000
vi. Class A-6
$375,000,000.00 $5,925,000.00 $15.800000
vii. Class A-7
$866,000,000.00 $13,899,300.00 $16.050000
viii. Class A-8
$400,000,000.00 $6,480,000.00 $16.200000
----------------- ----------------- -------------------
$1,817,300,487.00 $29,058,995.11
IN WITNESS HEREOF, the undersigned has duly executed and delivered this
Quarterly Servicer's Certificate the 25th day of December, 2001.
PACIFIC GAS AND ELECTRIC COMPANY, as Servicer
by: /s/ Kent M. Harvey
---------------------------
Kent M. Harvey
Senior Vice President-Chief Financial Officer and Treasurer