10-Q 1 llc3qtr2002.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT (Mark One) [..X..] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 September 30, 2002 For the quarterly period ended........................... Or [.....] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to _____________ Commission File No. 333-30761 CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK SPECIAL PURPOSE TRUST SDG&E-1 (Issuer of the Certificates) SDG&E FUNDING LLC (Exact Name Of Registrant As Specified In Its Certificate Of Formation) Delaware 95-1184800 ------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 Ash Street, Room 111, San Diego, California 92101 ------------------------------------------------------------------- (Address of principal executive offices (Zip code) Registrant's telephone number, including area code: (619)696-2328 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes...X... No...... PART I Item 1. Financial Statements. SDG&E FUNDING LLC STATEMENT OF OPERATIONS (In Thousands)

Three Months Ended ~~Six~~Nine Months Ended ~~June~~September 30, ~~June~~September 30, ------------------- -------------------- 2002 2001 2002 2001 ------------------- -------------------- INCOME ------ Interest income $ 5,~~755~~587 $ 6,~~754~~600 $1117,~~832~~419 $1320,~~839~~439 Other income ~~277~~276 ~~273~~285 ~~552~~828 ~~548~~833 ------ ------ ------- ------- Total Income 65,~~032~~863 76,~~027~~885 1218,~~384~~247 1421,~~387~~272 ------ ------ ------- ------- EXPENSES -------- Interest expense 5,~~864~~697 6,~~862~~710 1217,~~051~~748 1420,~~057~~767 General & administrative ~~expenses~~166 ~~168~~175 ~~165~~499 ~~333~~505 ~~330~~ ------ ------ ------- ------ Total Expenses 65,~~032~~863 76,~~027~~885 1218,~~384~~247 1421,~~387~~272 ------ ------ ------- ------ NET INCOME --$ -- --$ -- ~~Member's~~$ ~~equity beginning of period 3,290 3,290 3,290 3,290~~ --~~----~~ ~~------~~$ --~~-----~~ ~~------- MEMBER'S EQUITY AT JUNE 30 $ 3,290 $ 3,290 $ 3,290 $ 3,290~~ ====== ====== ======= ======= See note to financial statements.

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

~~June~~September 30, December 31, 2002 2001 ------------- -------------- ASSETS ------- Current Assets: Cash and cash equivalents $ ~~565~~524 $ 603 Interest and other receivables -- 4,881 Current portion of transition property 65,800 65,800 ------------ ------------ Total Current Assets 66,~~365~~324 71,284 Noncurrent Assets: Transition property ~~290~~274,~~013~~176 322,004 Deferred financing costs 3,~~607~~443 3,934 Restricted funds 912,~~005~~415 1,312 ------------ ------------ TOTAL ASSETS $ ~~368~~356,~~990~~358 $ 398,534 ============ ============ LIABILITIES AND MEMBER'S EQUITY ------------------------------- Current Liabilities: Current portion of long-term debt $ 65,800 $ 65,800 Accounts payable and accrued expenses 26,~~891~~096 444 ------------ ------------ Total Current Liabilities 6871,~~691~~896 66,244 Long-term debt ~~297~~281,~~009~~172 329,000 ------------ ------------ Total Liabilities ~~365~~353,~~700~~068 395,244 Member's Equity 3,290 3,290 ------------ ------------ TOTAL LIABILITIES AND MEMBER'S EQUITY $ ~~368~~356,~~990~~358 $ 398,534 ============ ============ See note to financial statements.

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

~~Six~~Nine Months Ended ~~June~~September 30, ---------------------------- 2002 2001 ---------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ -- $ -- Adjustments to reconcile net ~~income~~loss to net cash provided (used) by operating activities: Amortization of deferred financing costs ~~327~~491 ~~327~~492 (Increase) decrease in other receivables 4,881 (~~596~~2,909) Increase (decrease) in accounts payable and accrued expenses 25,~~447~~652 (~~314~~328) ------- ------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 711,~~655~~024 (~~583~~2,745) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Collection of transition property from SDG&E 3147,~~991~~828 3247,~~064~~839 Payments on long-term debt (3147,~~991~~828) (3247,~~064~~839) ~~Decrease~~ (~~increase~~Increase) decrease in restricted funds (711,~~693~~103) ~~588~~2,750 ------- ------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (711,~~693~~103) ~~588~~2,750 ------- ------- NET INCREASE (DECREASE) ~~INCREASE~~ IN CASH AND CASH EQUIVALENTS (3879) 5 CASH AND CASH EQUIVALENTS AT DECEMBER 31 603 560 ------- ------- CASH AND CASH EQUIVALENTS AT ~~JUNE~~SEPTEMBER 30 $ ~~565~~524 $ 565 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest payments $1217,~~147~~857 $1420,~~164~~887 ======= ======= See note to financial statements.

Note to Financial Statements ----------------------------- Basis of Presentation This Quarterly Report on Form 10-Q includes the financial statements of SDG&E Funding LLC, a Delaware special-purpose limited-liability company whose sole member is San Diego Gas & Electric Company (SDG&E), a provider of electric and natural-gas services. SDG&E is a wholly owned subsidiary of Sempra Energy. Information in this quarterly report is unaudited and should be read in conjunction with SDG&E Funding LLC's Financial Statements and Notes to Financial Statements included in its 2001 Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for the three-month periods ended March 31, 2002 and June 30, 2002. SDG&E Funding LLC believes that the accompanying statements reflect all adjustments that are necessary to present a fair statement of the financial position and results of operations for the interim periods. All material adjustments are of a normal, recurring nature unless otherwise disclosed in this Quarterly Report on Form 10-Q. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. SDG&E Funding LLC was organized for the limited purposes of issuing Notes and holding and servicing Transition Property. Notes are SDG&E Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7 (presented in the financial statements as Long-Term Debt), secured by the Transition Property and other, limited collateral. Transition Property is the right to be paid a specified amount (presented in the financial statements as Transition Property) from nonbypassable charges, frequently referred to as FTA Charges, levied on residential electric customers and small commercial electric customers of SDG&E. The nonbypassable charges were authorized by the California Public Utilities Commission (CPUC) pursuant to the electric industry restructuring mandated by California Assembly Bill 1890, as amended by California Senate Bill 477. Since SDG&E Funding LLC is a single-member, limited-liability company, its federal income tax effects and its State of California franchise tax effects accrue to SDG&E. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following analysis of the financial condition and results of operations of SDG&E Funding LLC (the Note Issuer) is in an abbreviated format pursuant to Instruction H of Form 10-Q. Such analysis should be read in conjunction with the Financial Statements and Note to Financial Statements included in Item 1 above and the Financial Statements and Notes to Financial Statements included in the Note Issuer's Annual Report on Form 10-K for the year ended December 31, 2001 and its Quarterly Reports on Form 10-Q for the three-month periods ended March 31, 2002 and June 30, 2002. The Note Issuer is limited by its organizational documents to engaging in the activities of owning certain property created pursuant to the California Public Utilities Code (the Transition Property) and issuing SDG&E Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7 (the Notes) secured by the Transition Property and other limited collateral, and related activities. The Notes were issued pursuant to an Indenture between the Note Issuer and Bankers Trust Company of California, N.A., as trustee (the Indenture). The Note Issuer sold the Notes to the California Infrastructure and Economic Development Bank Special Purpose Trust SDG&E-1, a Delaware business trust (the Trust), which issued certificates corresponding to each class of the Notes in a public offering. Operating statement effects are limited primarily to income generated from the Transition Property, interest expense on the Notes and incidental investment interest income. The Note Issuer expects to use collections with respect to the Transition Property to make scheduled principal and interest payments on the Notes. Interest income earned on the Transition Property is expected to offset (1) interest expense on the Notes, (2) amortization of debt-issuance expenses and the discount on the Notes, and (3) the fees charged by SDG&E for servicing the Transition Property and providing administrative services to the Note Issuer. Collections of $25,210,000 resulted in a net overcollection for the three months ended September 30, 2002, of $3,326,000 after deducting scheduled principal and interest payments of $21,549,000, payments of $253,000 for servicing fees and other expenses, and $82,000 retained to fund the Overcollateralization Account established under the Notes' indenture. Collections of $20,630,000 resulted in a net undercollection for the three months ended September 30, 2001, of $2,162,000 after deducting scheduled principal and interest payments of $22,498,000 and payments of $294,000 for servicing fees and other expenses. During 2001, a net undercollection arose because of decreases in customer consumption in response to the California energy crisis. Any such undercollections are deducted from the previous surplus collections, the Overcollateralization Sub-Account established under the Notes' indenture and the Capital Sub-Account, in that order. To mitigate the undercollections, in August 2001, the CPUC approved a nonroutine increase in FTA charges for 2001, effective October 1, 2001. In December 2001 SDG&E reforecasted future consumption patterns and a new FTA rate was set for January 1, 2002 and beyond. The FTA Charges are adjusted at least annually if there is a material shortfall or overage in collections. Management believes that it is reasonable to expect future collections of FTA Charges to be sufficient to make scheduled payments on the Notes and pay related expenses on a timely basis. ITEM 4. CONTROLS AND PROCEDURES The company has designed and maintains disclosure controls and procedures to ensure that information required to be disclosed in the company's reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and is accumulated and communicated to the company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating these controls and procedures, management recognizes that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives and necessarily applies judgment in evaluating the cost-benefit relationship of other possible controls and procedures. Under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the company within 90 days prior to the date of this report has evaluated the effectiveness of the design and operation of the company's disclosure controls and procedures. Based on that evaluation, the company's Chief Executive Officer and Chief Financial Officer have concluded that the controls and procedures are effective. There have been no significant changes in the company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the company completed its evaluation. PART II OTHER INFORMATION Item 1. Legal Proceedings. None. Item 5. Other Information. Attached, with respect to the Note Issuer and the Trust, as Exhibit 99.1 is the Quarterly Servicer's Certificate for the quarter ended September 30, 2002, delivered pursuant to the Note Indenture. It includes information relating to the collections of the nonbypassable charges (the FTA Charges) payable by residential electric customers and small commercial electric customers. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 99.1 Quarterly Servicer's Certificate dated September 19, 2002. (b) Reports on 8-K: Current Report on Form 8-K filed August 14, 2002, filing as an exhibit Statements Under Oath of Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings pursuant to 18 U.S.C. Sec. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SDG&E Funding LLC, as Registrant Date: November 14, 2002 By: /s/ James P. Trent ----------------------------- James P. Trent Chief Financial Officer and Chief Accounting Officer CERTIFICATES I, Charles A. McMonagle, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of SDG&E Funding LLC; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements and other financial information included in this Quarterly Report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 14, 2002 /s/Charles A. McMonagle Charles A. McMonagle Chief Executive Officer I, James P. Trent, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of SDG&E Funding LLC; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements and other financial information included in this Quarterly Report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 14, 2002 /s/James P. Trent James P. Trent Chief Financial Officer

Filing Compare · SDG&E FUNDING LLC A DE LIMITED LIABILITY CO