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

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

(Mark One)

[..X..] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
June 30, 2003
For the quarterly period ended...........................
Or
[.....] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File No. 333-30761

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

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

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes...... No...X...

PART I

Item 1. Financial Statements.

SDG&E FUNDING LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
(In thousands of dollars)

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

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

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

Basis of Presentation

This Quarterly Report on Form 10-Q includes the financial statements of
SDG&E Funding LLC, a Delaware special-purpose limited-liability company
whose sole member is San Diego Gas & Electric Company (SDG&E), a
provider of electric and natural-gas services. SDG&E is a wholly owned
subsidiary of Sempra Energy. Information in this quarterly report is
unaudited and should be read in conjunction with SDG&E Funding LLC's
Financial Statements and Notes to Financial Statements included in its
2002 Annual Report on Form 10-K and in its Quarterly Report on Form 10-Q
for the three-month period ended March 31, 2003.

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

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

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

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

The following analysis of the financial condition and results of
operations of SDG&E Funding LLC (the Note Issuer) is in an abbreviated
format pursuant to Instruction H of Form 10-Q. Such analysis should be
read in conjunction with the Financial Statements and Note to Financial
Statements included in Item 1 above and the Financial Statements and
Notes to Financial Statements included in the Note Issuer's Annual
Report on Form 10-K for the year ended December 31, 2002 and its
Quarterly Report on Form 10-Q for the three-month period ended March
31, 2003.

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

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

Collections of $19,895,000 resulted in a net undercollection for the
three months ended June 30, 2003, of $215,000 after deducting scheduled
principal and interest payments of $19,807,000, payments of $221,000
for servicing fees and other expenses, and $82,000 retained to fund the
Overcollateralization Account established under the Notes' indenture.
Collections of $25,225,000 resulted in a net overcollection for the
three months ended June 30, 2002, of $4,090,000 after deducting
scheduled principal and interest payments of $20,791,000, payments of
$262,000 for servicing fees and other expenses, and $82,000 retained to
fund the Overcollateralization Account established under the Notes'
indenture.

Collections of $45,347,000 resulted in a net overcollection for the six
months ended June 30, 2003, of $2,602,000 after deducting scheduled
principal and interest payments of $42,128,000, payments of $453,000
for servicing fees and other expenses, and $164,000 retained to fund
the Overcollateralization Account established under the Notes'
indenture. Collections of $52,366,000 resulted in a net overcollection
for the six months ended June 30, 2002, of $4,336,000 after deducting
scheduled principal and interest payments of $44,137,000, payments of
$535,000 for servicing fees and other expenses, $1,480,000 retained to
fund the Overcollateralization Account established under the Notes'
indenture and $1,878,000 retained to fund the Capital Sub-Account that
had been depleted during 2001 due to undercollections (see below).

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

ITEM 4. CONTROLS AND PROCEDURES

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

Under the supervision and with the participation of management,
including the Chief Executive Officer and the Chief Financial Officer,
the company as of the date of this Quarterly Report on Form 10-Q has
evaluated the effectiveness of the design and operation of the
company's disclosure controls and procedures. Based on that evaluation,
the company's Chief Executive Officer and Chief Financial Officer have
concluded that the controls and procedures are effective.

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

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 5. Other Information.

Attached, with respect to the Note Issuer and the Trust, as Exhibit
99.1 is the Quarterly Servicer's Certificate for the quarter ended June
30, 2003, delivered pursuant to the Note Indenture. It includes
information relating to the collections of the nonbypassable charges
(the FTA Charges) payable by residential electric customers and small
commercial electric customers.

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

(a) Exhibits

Exhibit 31 - Section 302 Certification

31.1 Statement of Registrant's Chief Executive Officer pursuant
to Rules 13a-14 and 15d-14 of the Securities Exchange Act of
1934.

31.2 Statement of Registrant's Chief Financial Officer pursuant
to Rules 13a-14 and 15d-14 of the Securities Exchange Act of
1934.

Exhibit 32 - Section 906 Certification

32.1 Statement of Registrant's Chief Executive Officer pursuant
to 18 U.S.C. Sec. 1350.

32.2 Statement of Registrant's Chief Financial Officer pursuant
to 18 U.S.C. Sec. 1350.

Exhibit 99 - Miscellaneous

99.1 Quarterly Servicer's Certificate dated June 10, 2003.

(b) Reports on 8-K:

None.

SIGNATURES

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

SDG&E Funding LLC,
as Registrant

Date: August 14, 2003 By: /s/ James P. Trent
-----------------------------
James P. Trent
Chief Financial Officer and
Chief Accounting Officer