Back to GetFilings.com

The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates of the registrant was $0.

Documents incorporated by reference: Not Applicable.

     PG&E Funding LLC is a special purpose, single member limited liability company organized under the laws of the State of Delaware. Pacific Gas and Electric Company, a provider of electricity and natural gas services in northern and central California, owns all of the equity of PG&E Funding LLC. The principal executive office of PG&E Funding LLC is located at 245 Market Street, Suite 424, San Francisco, California 94105. PG&E Funding LLC's mailing address is Mail Code N4E, P.O. Box 770000, San Francisco, California 94177 and its phone number is (415) 972-5467.

     PG&E Funding LLC was organized in July 1997 for the limited purpose of (1) purchasing, holding, and servicing the Transition Property, as described below, (2) issuing notes secured primarily by the Transition Property, and (3) performing related activities. PG&E Funding LLC has no employees and is restricted by its organizational documents from engaging in other activities. Additionally, PG&E Funding LLC's organizational documents require it to operate in a manner such that it should not be included in the bankruptcy estate of Pacific Gas and Electric Company.

     PG&E Funding LLC issued $2,901,000,000 in principal amount of PG&E Funding LLC Notes, Series 1997-1, Class A-1 through Class A-8, or the Notes, pursuant to an Indenture between PG&E Funding LLC and Deutsche Bank National Trust Company (formerly Bankers Trust Company of California, N.A.), as "Trustee". PG&E Funding LLC sold the Notes to the California Infrastructure and Economic Development Bank Special Purpose Trust PG&E-1, a Delaware business trust, or the Trust. The Trust then issued certificates corresponding to each class of Notes, or the Certificates, in a public offering.

     PG&E Funding LLC entered into a servicing agreement, or the Servicing Agreement, with Pacific Gas and Electric Company. The Servicing Agreement requires Pacific Gas and Electric Company, as "Servicer", to service the Transition Property on behalf of PG&E Funding LLC. In addition, PG&E Funding LLC entered into an Administrative Services Agreement with Pacific Gas and Electric Company. This agreement requires Pacific Gas and Electric Company to perform administrative and operational duties for PG&E Funding LLC. (These agreements are discussed in greater detail in Note 5 of the Notes to the Financial Statements.)

     Since the purchase of the Transition Property and issuance of the Notes, the only material business conducted by PG&E Funding LLC has been the collection of the FTA Charges, as described below, and the repayment of the Notes. During 2004, PG&E Funding LLC collected approximately $378 million in FTA Charges and paid $361 million in principal, interest and other expenses. As of December 31, 2004, approximately $871 million in principal amount of Notes remains outstanding, with scheduled maturities ranging from 2006 through 2007. The specific interest rate and maturity of each class of Notes still outstanding are specified in Note 4 of the Notes to Financial Statements.

Transition Property

    The California Public Utilities Code, or the PU Code, provides for the creation of Transition Property, which is the right to receive a specified amount from nonbypassable Fixed Transition Amount Charges, or FTA Charges, payable by residential and small commercial electric customers. Transition Property is presented in the financial statements as Transition Property receivable. The FTA Charges were established by a financing order dated September 3, 1997, or the Financing Order, issued by the California Public Utilities Commission, or the CPUC, together with the related Issuance Advice Letter. Under the PU Code and the Financing Order, the owner of Transition Property (i.e., PG&E Funding LLC) is entitled to collect the FTA Charges until a sufficient amount has been received to:

Item 5.   Market for Registrant's Common Equity and Related Shareholder Matters.

Sales of Unregistered Securities

     There is no established public trading market for PG&E Funding LLC's equity securities. Pacific Gas and Electric Company owns all of PG&E Funding LLC's equity. Pacific Gas and Electric Company purchased its membership interest in PG&E Funding LLC in July 1997 at a purchase price of $5,000 and has made capital contributions to PG&E Funding LLC totaling approximately $27,348,000 as of December 31, 2004. The purchase was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. PG&E Funding LLC has made no other sales of unregistered securities.

Restrictions on Dividends

     Under the Indenture, PG&E Funding LLC is prohibited from making any distributions to its member unless no default has occurred. The Indenture further restricts such a distribution based on the book value of PG&E Funding LLC. Under the Indenture, PG&E Funding LLC may make a distribution to its member only if its book value is equal to at least 0.5% of the original principal amount of all series of Notes that remain outstanding, after taking into account the member distribution. During 2004, 2003 and 2002, PG&E Funding LLC did not make any distributions to its member. PG&E Funding LLC 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.


Certificate Holders

     At February 24, 2005, the sole holder of record of the Certificates was Cede & Co., as nominee of The Depository Trust Company, or DTC. DTC holds securities for its participating organizations, which maintain security positions for their customers' accounts. The Certificates are not traded on any established trading market although market prices are available from financial information systems such as Bloomberg.

Item 6.   Selected Financial Data.

     Omitted pursuant to General 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.

Overview

     The following analysis of PG&E Funding LLC's financial condition and results of operations is in an abbreviated format pursuant to General Instruction I of Form 10-K. Such analysis should be read in conjunction with the attached financial statements.

     As discussed in Item 1 (Business) above, PG&E Funding LLC is a special purpose, single member limited liability company. PG&E Funding LLC's sole member is Pacific Gas and Electric Company, a provider of electricity and natural gas services in northern and central California. Pacific Gas and Electric Company is a subsidiary of PG&E Corporation. PG&E Funding LLC was organized in July 1997 for the limited purposes of (1) purchasing, holding, and servicing the Transition Property, (2) issuing notes secured primarily by the Transition Property, and (3) performing related activities. PG&E Funding LLC has no employees and is restricted by its organizational documents from engaging in activities other than those described in Item 1 (Business). As a result, income statement effects were limited primarily to income generated from the Transition Property receivable, interest expense on the Notes, Transition Property servicing fees, administrative expenses and incid ental investment interest income.
     
     On January 4, 2001, Standard and Poor's Rating Services lowered the short-term credit rating of the Servicer to A-3. On January 5, 2001, Moody's Investors Service Inc. lowered the short-term credit rating of the Servicer to P-3. The Servicer currently has no short-term credit rating. In accordance with section 6.11(b) of the Servicing Agreement, on January 8, 2001, the Servicer began to remit FTA Charges collected to the Trustee on a daily basis. Previously, the Servicer remitted FTA Charges on a monthly basis.

     On April 6, 2001, the Servicer filed a voluntary petition for relief under the provisions of Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California, or the Bankruptcy Court. Although the Servicer's Chapter 11 proceedings resulted in a Servicer default under Section 7.01(d) of the Servicing Agreement, the Servicer continued to perform all duties as Servicer, including remitting daily to the Trustee all the FTA Charges collected. Remittances from the Servicer to the Trustee were not interrupted by the Servicer's Chapter 11 filing. On April 12, 2004, the Servicer's plan of reorganization under Chapter 11 of the Bankruptcy Code became effective, at which time the Servicer emerged from bankruptcy. The implementation of the plan of reorganization did not affect PG&E Funding LLC's payments on the Notes.

In September 2004, the Servicer remitted to the Trustee an additional $16 million in FTA remittances to correct an under reporting of FTA collections for the period from March to July 2004, in compliance with Section 7.01(a) of the Servicing Agreement. Additionally, in October 2004, the Servicer determined that there had been an over remittance to the Trustee during the period from March to August 2004 of approximately $4 million, and offset this amount against the FTA remittances to the Trustee, in compliance with Section 6.11(d) of the Servicing Agreement.

Results of Operations

     Income generated from the Transition Property receivable was approximately $78 million in 2004, $92 million in 2003, and $110 million in 2002. The decreases in income in 2004 and 2003 reflect the declining Transition Property receivable balance.

     Interest income earned from other investments was approximately $2 million in 2004, $1 million in 2003, and $2 million in 2002. PG&E Funding LLC earns interest income on the Restricted cash balance as described below. The increase in interest income in 2004 was mainly due to an increase in the average Restricted cash balance and a higher average interest rate on the Restricted cash balance. The decrease in interest income in 2003 was mainly due to a lower average interest rate on the Restricted cash balance.

     Interest expense was approximately $69 million in 2004, $88 million in 2003, and $106 million in 2002. Interest expense includes (1) interest on the Notes, (2) amortization of the Notes' discount, and (3) amortization of issuance costs. The decreases in interest expense in 2004 and 2003 were mainly due to the declining balance of the Notes.

     PG&E Funding LLC incurred servicing fees of approximately $2.6 million in 2004, $3.4 million in 2003, and $4.1 million in 2002. Servicing fees are calculated as a percentage of the outstanding Note balance. The decreases in servicing fees in 2004 and 2003 were due to the declining balance of the Notes.

     Administrative and general fees were approximately $168,000 in 2004, $234,000 in 2003, and $167,000 in 2002. Administrative and general fees consist primarily of rent expenses, legal fees, and other administrative fees.

Liquidity and Financial Resources

     PG&E Funding LLC expects the future collections of FTA Charges will be sufficient 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, as Servicer and administrator, for servicing the Transition Property and providing administrative services to PG&E Funding LLC. (These agreements are discussed in greater detail in Note 5 of the Notes to the Financial Statements.)

Operating Activities:

     Operating activities provided net cash of approximately $309 million in 2004, $301 million in 2003, and $315 million in 2002. Cash provided by operating activities represents the excess of FTA Charges and earnings on FTA collections over cash payments for interest, servicing fees and administrative and general operating expenses. The increase in net cash provided by operating activities in 2004 was primarily a result of a higher amount of excess FTA charges collected over cash payments for interest, servicing fees and administrative and general operating expenses for the period due to higher sales than estimated when FTA rates were set for 2004, combined with decreasing payments for interest and servicing fees due to the declining balance on the Notes. The decrease in net cash provided by operating activities in 2003 was mainly due to a decrease in FTA Charges collected in 2003 as discussed below.

     Collections of FTA Charges were approximately $378 million in 2004, $390 million in 2003, and $423 million in 2002. The decrease in collections in 2004 and 2003 was due to a decrease in the FTA Charge rates beginning in January 1, 2004 and 2003.

     Interest payments on the Notes were approximately $68 million in 2004, $86 million in 2003, and $105 million in 2002. Payments for servicing fees and other expenses were approximately $3 million in 2004, $4 million in 2003, and $4 million in 2002. The decreases in payments made in 2004 and 2003 were mainly due to the declining balance of the Notes.

Investing Activities:

     Investing activities used net cash of approximately $17 million in 2004 and $10 million in 2003 and $24 million in 2002. The increase in net cash used by investing activities was primarily due to an increase in the average Restricted cash balance. The increase in the average Restricted cash balance was due to a higher average interest rate on the Restricted cash balance and the use of less Restricted cash for principal and interest payments in 2004 as a result of an increase in cash provided by operating activities. The decrease in net cash used by investing activities in 2003 was mainly due to the use of greater amounts of Restricted cash (reserve subaccounts) for principal and interest payments as a result of a decrease in the collection of FTA Charges during the year.

Financing Activities:

     Financing activities used net cash of approximately $290 million in 2004, 2003, and 2002. Cash used in financing activities in all three years was entirely related to principal payments on the Notes.

FTA Charges and Restricted Cash

     The Restricted cash balances were approximately $94 million in December 31, 2004, and $77 million at December 31, 2003. The Restricted cash balances include collected FTA Charges and Subaccounts required by the Indenture.  

     As previously discussed, the Servicer collects FTA Charges from residential and small commercial electric customers and remits the amounts collected to the Trustee on a daily basis. The Trustee holds the collected FTA Charges in separate bank accounts. The funds in these bank accounts are restricted and can only be used to pay principal and interest on the Notes and related expenses. These funds are classified as "Restricted cash" in the Balance Sheets.

     The Indenture requires PG&E Funding LLC to maintain certain minimum balances in the Subaccounts within Restricted cash. The balances in the Subaccounts are to be used only in the event of a shortfall in collections of FTA Charges. No default occurs under the Indenture if the minimum balances are not maintained. However, the Servicer is required to take responsible actions to establish the rate of FTA Charges at a level that is projected to replenish the Subaccounts to their required balances within twelve months of the effective date of any change in FTA Charge rates. The Subaccounts were funded to the levels required under the Indenture as of December 31, 2004.

Critical Accounting Policies

     The preparation of financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, involves the use of estimates and assumptions that affect the amounts reported in the financial statements. Application of PG&E Funding LLC's significant accounting policies did not result in management needing to make material assumptions about matters that would be considered highly uncertain at the time of estimation. PG&E Funding LLC's significant accounting policies are discussed in Note 2 of the Notes to the financial statements.

Forward-Looking Statements

     This Annual Report on Form 10-K contains a forward-looking statement that future collections of FTA Charges are expected to be sufficient to cover scheduled principal and interest payments on the Notes and related expenses. This statement involves risks and uncertainties and is based on the beliefs and assumptions of management and on information currently available to management. Actual results or outcomes could differ materially as a result of various factors, including:

See accompanying Notes to the Financial Statements.

NOTE 1. BASIS OF PRESENTATION

     The Annual Report on Form 10-K includes the financial statements and notes of PG&E Funding LLC, a special purpose, single member limited liability company organized under the laws of the State of Delaware. PG&E Funding LLC's sole member is Pacific Gas and Electric Company, a provider of electricity and natural gas services in northern and central California. Pacific Gas and Electric Company is a subsidiary of PG&E Corporation.

     PG&E Funding LLC was formed in July 1997 to effect the issuance of $2,901,000,000 in principal amount of PG&E Funding LLC notes, or the Notes. The proceeds from the Notes were paid to Pacific Gas and Electric Company in return for Transition Property, as described below. Pacific Gas and Electric Company used the proceeds to finance a ten percent electric rate reduction, which became effective on January 1, 1998. The reduction 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).

     PG&E Funding LLC was organized for the limited purpose 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 nonbypassable Fixed Transition Amount Charges, or FTA Charges, payable by residential and small commercial electric customers. The California Public Utilities Commission, or the CPUC, authorized FTA Charges pursuant to the electric industry restructuring legislation. PG&E Funding LLC issued the Notes in December 1997 to the California Infrastructure and Economic Development Bank Special Purpose Trust PG&E-1, a Delaware business trust, or the Trust. The Trust then issued certificates corresponding to each class of Notes, or the Certificates, in a public offering.

     Deutsche Bank National Trust Company (formerly Bankers Trust Company of California, N.A.), or the Trustee, holds the collected FTA Charges in separate bank accounts. The funds in these bank accounts are restricted and can be used only to pay principal and interest on the Notes and related expenses. These funds are classified as "Restricted cash" in the Balance Sheets. The Restricted cash balance was approximately $94 million at December 31, 2004, and $77 million at December 31, 2003.

     PG&E Funding LLC is restricted by its organizational documents from engaging in other activities. As a result, items that impact PG&E Funding LLC's results of operations are limited to income generated from the Transition Property receivable, interest expense on the Notes, incidental investment interest income and servicing and administrative expenses, as further discussed below. Income earned on the Transition Property receivable is expected to offset (1) interest expense on the Notes, (2) amortization of debt issuance costs and the discount on the Notes, and (3) the fees charged by Pacific Gas and Electric Company, as Servicer and administrator, for servicing the Transition Property receivable and providing administrative services to PG&E Funding LLC. PG&E Funding LLC's most significant expense is the interest expense on the Notes. Accordingly, the interest rate earned on the Transition Property receivable balance is adjusted periodically as the weighted av erage interest rate on the Notes changes.

     In addition, PG&E Funding LLC's organizational documents require it to operate in a manner such that it should not be included in 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. 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 dissolve after the scheduled maturity of the Notes on December 26, 2007.

     On April 6, 2001, Pacific Gas and Electric Company, or the Servicer, filed a voluntary petition for relief under the provisions of Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court of the Northern District of California, or the Bankruptcy Court. Although the Servicer's Chapter 11 proceedings resulted in a Servicer default under Section 7.01(d) of the Servicing Agreement, the Servicer continued to perform all duties as Servicer, including remitting daily to the Trustee all FTA Charges collected. Remittances from the Servicer to the Trustee were not interrupted by the Servicer's Chapter 11 filing. On April 12, 2004, the Servicer's plan of reorganization under Chapter 11 of the Bankruptcy Code became effective, at which time the Servicer emerged from bankruptcy. The implementation of the plan of reorganization did not affect PG&E Funding LLC's payments on the Notes.

Item 10.   Directors and Executive Officers of the Registrant.

     Omitted with respect to PG&E Funding LLC pursuant to General Instruction I of Form 10-K. Not applicable.

Item 11.   Executive Compensation.

     Omitted with respect to PG&E Funding LLC pursuant to General Instruction I of Form 10-K. Not applicable.

Item 12.   Security Ownership of Certain Beneficial Owners and Management.

     Omitted with respect to PG&E Funding LLC pursuant to General Instruction I of Form 10-K. Not applicable.

Item 13.   Certain Relationships and Related Transactions.
     
     Omitted with respect to PG&E Funding LLC pursuant to General Instruction I of Form 10-K. Not applicable.

Item 14.   Principal Accountant Fees and Services.

     PG&E Funding LLC qualifies as an Asset-Backed Issuer. Disclosure omitted pursuant to General Instruction Item 14 of Form 10-K. Not applicable.

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, this 4th day of March 2005.