EXHIBIT 10.2
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TRANSITION PROPERTY SERVICING AGREEMENT
between
SDG&E FUNDING LLC
Note Issuer
and
SAN DIEGO GAS & ELECTRIC COMPANY
Servicer
Dated as of December 16, 1997
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TABLE OF CONTENTS
Page
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ARTICLE I Definitions
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SECTION 1.01 Definitions .............................................. 2
SECTION 1.02 Other Definitional Provisions ............................ 16
ARTICLE II Appointment and Authorization
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SECTION 2.01 Appointment of Servicer; Acceptance of
Appointment ............................................ 17
SECTION 2.02 Authorization ............................................ 17
SECTION 2.03 Dominion and Control Over the
Transition Property .................................... 18
ARTICLE III Billing Services
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SECTION 3.01 Duties of Servicer ....................................... 18
SECTION 3.02 Servicing and Maintenance Standards ...................... 22
SECTION 3.03 Certificate of Compliance ................................ 22
SECTION 3.04 Annual Report by Independent Public Accountants .......... 23
ARTICLE IV Services Related to True-Up Adjustments
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SECTION 4.01 Periodic True-Up Adjustments ............................. 25
SECTION 4.02 Limitation of Liability .................................. 34
ARTICLE V The Transition Property
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SECTION 5.01 Custody of Transition Property Records ................... 35
SECTION 5.02 Duties of Servicer as Custodian .......................... 36
SECTION 5.03 Instructions; Authority to Act ........................... 39
SECTION 5.04 Custodian's Indemnification .............................. 39
SECTION 5.05 Effective Period and Termination ......................... 40
SECTION 5.06 General Indemnification of Note Trustee,
Certificate Trustee and the Delaware Trustee ........... 41
ARTICLE VI The Servicer
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SECTION 6.01 Representations and Warranties of Servicer ............... 41
SECTION 6.02 Indemnities of Servicer; Release of Claims ............... 47
SECTION 6.03 Merger or Consolidation of, or Assumption
of the Obligations of, Servicer ......................... 49
Contents, p. ii
SECTION 6.04 Limitation on Liability of Servicer and Others............. 50
SECTION 6.05 San Diego Gas & Electric Company Not to
Resign as Servicer ..................................... 51
SECTION 6.06 Servicing Compensation .................................... 52
SECTION 6.07 Compliance with Applicable Law ............................ 54
SECTION 6.08 Access to Certain Records and Information
Regarding Transition Property ........................... 54
SECTION 6.09 Appointments .............................................. 55
SECTION 6.10 No Servicer Advances ...................................... 56
SECTION 6.11 Remittances ............................................... 56
ARTICLE VII Default
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SECTION 7.01 Servicer Default .......................................... 58
SECTION 7.02 Appointment of Successor .................................. 61
SECTION 7.03 Waiver of Past Defaults ................................... 62
SECTION 7.04 Notice of Servicer Default ................................ 63
ARTICLE VIII Miscellaneous Provisions
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SECTION 8.01 Amendment ................................................. 63
SECTION 8.02 Protection of Title to Trust .............................. 66
SECTION 8.03 Notices ................................................... 67
SECTION 8.04 Assignment ................................................ 68
SECTION 8.05 Limitations on Rights of Others ........................... 68
SECTION 8.06 Severability .............................................. 68
SECTION 8.07 Separate Counterparts ..................................... 69
SECTION 8.08 Headings .................................................. 69
SECTION 8.09 Governing Law ............................................. 69
SECTION 8.10 Assignment to Note Trustee ................................ 69
SECTION 8.11 Nonpetition Covenants ..................................... 70
SECTION 8.12 Limitation of Liability ................................... 70
Exhibits and Schedules
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Exhibit A Form of Monthly Servicer's Certificate
Exhibit B Form of Certificate of Compliance
Exhibit C Form of Routine Annual True-Up Mechanism Advice Letter
Exhibit D Form of Anniversary True-Up Mechanism Advice Letter
Exhibit E Form of Quarterly Servicer's Certificate
Schedule 4.01(a) Expected Amortization Schedule
Schedule 6.01(f) No Proceedings
Contents, p. iii
Page
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Annexes
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Annex I Servicing Procedures
Schedule 6 to
Annex I Calculation of Aggregate Remittance Amount
Annex II Routine Quarterly True-Up Mechanism Advice Letters
TRANSITION PROPERTY SERVICING AGREEMENT dated as of December
16, 1997, between SDG&E FUNDING LLC, a Delaware limited liability
company (the "Note Issuer"), and SAN DIEGO GAS & ELECTRIC
COMPANY, a California corporation, as Servicer (the "Servicer").
RECITALS
A. Pursuant to the Statute and the Financing Order, the Seller and
the Note Issuer are concurrently entering into the Sale Agreement pursuant to
which the Seller is selling to the Note Issuer the Transition Property created
pursuant to the PU Code, the Financing Order and the Issuance Advice Letter
described in such agreement, and the Seller may sell other Transition Property
to the Note Issuer pursuant to Subsequent Sale Agreements.
B. In connection with its ownership of the Transition Property and in
order to collect the associated FTA Charges, the Note Issuer desires to engage
the Servicer to carry out the functions described herein. The Servicer
currently performs similar functions for itself with respect to its own charges
to its customers and may in the future perform for others. In addition, the
Note Issuer desires to engage the Servicer to act on its behalf in obtaining
True-Up Adjustments from the CPUC. The Servicer desires to perform all of these
activities on behalf of the Note Issuer.
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NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
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SECTION 1.01. Definitions. Whenever used in this Agreement, the
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following words and phrases shall have the following meanings:
"Actual FTA Payments" means the actual FTA Payments received by the
Servicer attributable to a particular Billing Period.
"Advice Letter" means any filing made to the CPUC by the Servicer on
behalf of the Note Issuer with respect to the FTA Charges or any True-Up
Adjustment in the form of an advice letter, including an Issuance Advice Letter,
a Routine Annual True-Up Mechanism Advice Letter, an Anniversary True-Up
Mechanism Advice Letter, a Routine Quarterly True-Up Mechanism Advice Letter or
a Non-Routine True-Up Mechanism Advice Letter.
"Aggregate Remittance Amount" has the meaning set forth in Annex I
hereto.
"Agreement" means this Transition Property Servicing Agreement,
together with all Exhibits, Schedules, Annexes and Attachments hereto, as the
same may be amended and supplemented from time to time.
"Anniversary True-Up Mechanism Advice Letter" means an Advice Letter
filed with the CPUC at least fifteen days prior to
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the Financing Order Anniversary Date in respect of a True-Up Adjustment,
substantially in the form of Exhibit D hereto. Any True-Up Adjustment required
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as a result of the Anniversary True-Up Mechanism Advice Letter will become
effective on the date specified by the CPUC in accordance with the Financing
Order.
"Annual Accountant's Report" has the meaning set forth in Section
3.04.
"Annual Adjustment Filing Date" means each December 15, from and
including December 15, 1998 to and including the last December 15 preceding the
Retirement of the Notes; provided, however, that if any such day is not a
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Servicer Business Day, "Annual Adjustment Filing Date" shall mean the Servicer
Business Day immediately preceding such day.
"Applicable ESP" means, with respect to each Customer, the ESP, if
any, providing "direct access" service to that Customer.
"Billing Period" means a calendar month.
"Bills" means each of the regular monthly bills, the summary bills,
the opening bills and the closing bills issued to Customers or ESPs by San Diego
Gas & Electric Company on its own behalf and in its capacity as Servicer.
"Capital Subaccount" has the meaning set forth in the Indenture.
"Certificate of Compliance" has the meaning set forth in Section 3.03.
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"Certificate Trustee" means the Person acting as certificate trustee
under the Trust Agreement.
"Collection Period" means the calendar month immediately preceding the
respective Remittance Date.
"Collections Curves" means the Monthly Collections Curves.
"Consolidated ESP Billing" has the meaning set forth in Annex I
hereto.
"CPUC" means the California Public Utilities Commission or any
successor governmental agency that has regulatory authority over the True-Up
Adjustments contemplated by the Statute.
"CPUC Regulations" means all regulations, rules, tariffs and laws
applicable to public utilities or ESPs, as the case may be, and promulgated by,
enforced by or otherwise within the jurisdiction of the CPUC.
"Customers" means existing and future Residential Customers and Small
Commercial Customers.
"Daily Remittance" has the meaning set forth in Section 6.11(b).
"Delaware Trustee" means the Person acting as Delaware trustee under
the Trust Agreement.
"ESP" means an alternative energy service provider who has entered
into an ESP Service Agreement with the Seller.
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"ESP Service Agreement" means an agreement between an ESP and the
Seller for the provision of "direct access" service to customers in accordance
with CPUC Decision 00-00-000.
"Estimated FTA Payments" means the sum of the amounts remitted with
respect to a Billing Period during the six months following such Billing Period
based on the Collections Curves.
"Excess Remittance" means the amount, if any, calculated for a
particular Remittance Date, by which all Estimated FTA Payments remitted to the
Collection Account on and prior to such Remittance Date with respect to the FTA
Charges billed to Customers during the sixth preceding Billing Period exceed
Actual FTA Payments received by the Servicer attributable to such Billing
Period.
"Expected Amortization Schedule" means Schedule 4.01(a) hereto, as the
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same may be amended from time to time pursuant to Section 4.01(a).
"Financing Order" means the order of the CPUC, Decision 00-00-000,
issued as of September 3, 1997, which became effective on October 6, 1997.
"Financing Order Anniversary Date" means September 3 of each year.
"FTA Charges" means the charges permitted to be levied upon the
Customers pursuant to the Financing Order.
"FTA Collections" means FTA Payments received by the Servicer which
are remitted to the Collection Account.
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"FTA Effective Date" means the date on which the initial FTA Charges
go into effect pursuant to the terms of the Financing Order and the first
Issuance Advice Letter.
"FTA End Date" means, depending on the context in which used, either:
(i) the date on which specific FTA Charges end because such FTA Charges have
been replaced with revised FTA Charges; or (ii) the FTA Termination Date.
"FTA Payments" means the payments made by Customers based on the FTA
Charges.
"FTA Start Date" means, depending on the context in which used,
either: (i) the FTA Effective Date; or (ii) the date on which specific revised
FTA Charges go into effect to replace previously existing FTA Charges.
"FTA Termination Date" means the date on which the FTA Charges will
cease to be billed pursuant to the terms of the Financing Order, provided that
the Notes and the Certificates shall have been paid in full.
"Infrastructure Bank" means the California Infrastructure and Economic
Development Bank or any successor in interest.
"Indenture" means the Indenture dated as of December 16, 1997, between
the Note Issuer and the Note Trustee, as the same may be amended and
supplemented from time to time.
"Initial Transition Property" means the Transition Property described
in the Sale Agreement.
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"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (b)
the commencement by such Person of a voluntary case under any applicable Federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"Issuance Advice Letter" means an Advice Letter submitted to the CPUC
in connection with and immediately prior to the issuance of a Series of Notes,
which Advice Letter becomes
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effective five Business Days after filing pursuant to the terms of the Financing
Order. The first Issuance Advice Letter will establish the initial FTA Charges,
and subsequent Issuance Advice Letters will modify the FTA Charges to support
the issuance of additional Series of Notes.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.
"Losses" has the meaning assigned to that term in Section 5.04.
"Monthly Collections Curves" has the meaning set forth on Schedule 6
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to Annex I hereto.
"Monthly Servicer's Certificate" means a certificate, substantially in
the form of Exhibit A hereto, completed and executed by a Responsible Officer of
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the Servicer pursuant to Section 3.01(b)(i).
"Non-Routine True-Up Adjustment" has the meaning set forth in Section
4.01(c)(i).
"Non-Routine True-Up Mechanism Advice Letter" means an Advice Letter
filed with the CPUC in accordance with the Financing Order with respect to any
Non-Routine True-Up Adjustment, pursuant to which the related Non-Routine True-
Up Adjustment generally will become effective at the beginning of the first
Quarter that is at least 90 days after filing.
"Note Issuer" means SDG&E Funding LLC, a Delaware limited liability
company.
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"Note Trustee" means the Person acting as trustee under the Indenture,
its successors in interest and any successor trustee under the Indenture.
"Officer's Certificate" means a certificate signed by a Responsible
Officer.
"Opinion of Counsel" means one or more written opinions of counsel who
may be employees of or counsel to the party providing such opinion(s) of
counsel, which counsel shall be acceptable to the party receiving such
opinion(s) of counsel.
"Overcollateralization Subaccount" has the meaning set forth in the
Indenture.
"Payment Date" means, with respect to any Series or Class, each March
25, June 25, September 25 and December 26 of each year, provided that if any
such date is not a Business Day, the Payment Date shall be the Business Day
immediately succeeding such date.
"Principal Balance" means, as of any Payment Date, the sum of the
outstanding principal amount of each Series of Notes.
"Projected Principal Balance" means, as of any Payment Date, the sum
of the projected outstanding principal amount of each Series of Notes for such
Payment Date set forth in the Expected Amortization Schedule.
"PU Code" means the California Public Utilities Code, as amended from
time to time.
"Quarter" means each calendar quarter, specifically:
January 1 to and including March 31;
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April 1 to and including June 30;
July 1 to and including September 30; and
October 1 to and including December 31.
"Quarterly Servicer's Certificate" means a certificate, substantially
in the form of Exhibit E hereto, completed and executed by a Responsible Officer
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of the Servicer pursuant to Section 4.01(d)(ii).
"Remittance Date" means the twentieth day of each calendar month or,
if such day is not a Business Day, the next succeeding Business Day, commencing
on January 20, 1998.
"Remittance Shortfall" means the amount, if any, calculated for a
particular Remittance Date, by which Actual FTA Payments received by the
Servicer attributable to FTA Charges billed to Customers during the sixth
preceding Billing Period exceed all Estimated FTA Payments remitted to the
Collection Account on and prior to such Remittance Date with respect to such
Billing Period.
"Required Capital Level" means, as of any Payment Date, the sum of 0.5
percent of the initial principal amount of each then-outstanding Series of Notes
issued pursuant to the Indenture prior to that Payment Date, less $100,000 in
the aggregate for all Series of Notes.
"Required Overcollateralization Level" means, as of any Payment Date,
the amount required to be on deposit in the Overcollateralization Subaccount as
specified in each Series Supplement.
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"Reserve Subaccount" has the meaning set forth in the Indenture.
"Residential Customers" means the existing and future residential
consumers of electricity, as identified in the Financing Order, located in the
service territory in which the Seller provided electricity services as of
December 20, 1995.
"Responsible Officer" means the chairman of the board, the chief
executive officer, the president, the vice chairman of the board, any vice
president, the treasurer, any assistant treasurer, the secretary, any assistant
secretary or the controller of the Servicer.
"Retirement of the Notes" means the day on which the final
distribution is made to the Note Trustee in respect of the last outstanding
Note.
"Routine Annual True-Up Mechanism Advice Letter" means an Advice
Letter filed with the CPUC at least fifteen days prior to the end of each
calendar year in respect of an annual True-Up Adjustment, substantially in the
form of Exhibit C hereto. The Routine Annual True-Up Mechanism Advice Letter
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will become effective on the first calendar day of the next calendar year.
"Routine Quarterly True-Up Mechanism Advice Letter" means an Advice
Letter filed with the CPUC at least fifteen days prior to the end of each of the
first three Quarters of each calendar year in respect of a quarterly True-Up
Adjustment as specified in Annex II hereto. The Routine Quarterly True-Up
Mechanism Advice Letter will become effective on the first
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calendar day of the next Quarter. The Servicer shall file Routine Quarterly
True-Up Mechanism Advice Letters with respect to a Series of Notes only if so
specified on Annex II hereto.
"Sale Agreement" means the Transition Property Purchase and Sale
Agreement dated as of the date hereof between San Diego Gas & Electric Company
and the Note Issuer, as amended and supplemented from time to time.
"SEC" means the Securities and Exchange Commission or any successor
thereto.
"Seller" means San Diego Gas & Electric Company and its successors in
interest to the extent permitted under the Sale Agreement.
"Series Supplement" has the meaning set forth in the Indenture.
"Servicer" means San Diego Gas & Electric Company, as the servicer of
the Transition Property, and each successor to San Diego Gas & Electric Company
(in the same capacity) pursuant to Section 6.03 or 7.02.
"Servicer Business Day" means any Business Day on which the Servicer's
offices in the State of California are open for business.
"Servicer Default" means an event specified in Section 7.01.
"Servicing Fee" means the fee payable on each Payment Date to the
Servicer for services rendered during the period from, but not including, the
preceding Payment Date to and
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including the current Payment Date, determined pursuant to Section 6.06.
"Small Commercial Customers" means the existing and future small
commercial consumers of electricity, as identified in the Financing Order,
located in the service territory in which the Seller provided electricity
services as of December 20, 1995.
"Statute" means Chapter 854, California Statutes of 1996 and Chapter
275, California Statutes of 1997, as amended from time to time.
"STO" means the California State Treasurer's Office, as agent for sale
of the Certificates.
"Subsequent Sale Agreement" has the meaning assigned to that term in
the definition of Subsequent Transition Property.
"Subsequent Sale Date" means any date on which Subsequent Transition
Property is to be sold to the Note Issuer pursuant to a Subsequent Sale
Agreement.
"Subsequent Transition Property" means any transition property (as
defined in Section 840 of the PU Code) created under the PU Code and the
Financing Order and specifically described in the related Issuance Advice Letter
and sold to the Note Issuer by the Seller pursuant to an agreement substantially
similar to the Sale Agreement (a "Subsequent Sale Agreement").
"Termination Notice" has the meaning assigned to that term in Section
7.01.
"Transition Costs" has the meaning assigned to that term in Section
840(f) of the PU Code.
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"Transition Property" means the Initial Transition Property and, from
and after the applicable Subsequent Sale Date therefor, any Subsequent
Transition Property.
"Transition Property Records" has the meaning assigned to that term in
Section 5.01.
"True-Up Adjustment" means each adjustment to the FTA Charges made
pursuant to the terms of the Financing Order and in accordance with Section 4.01
hereof or in connection with the conveyance to the Note Issuer of Subsequent
Transition Property.
"Trust Agreement" means the Amended and Restated Declaration and
Agreement of Trust dated as of December 16, 1997, among the Infrastructure Bank,
the Delaware Trustee and the Certificate Trustee, as the same may be further
amended and supplemented from time to time.
"Trust Officer" means any officer assigned to the Corporate Trust
Office, including any managing director, vice president, assistant vice
president, assistant treasurer, assistant secretary or any other officer of the
Note Trustee customarily performing functions similar to those performed by any
of the above designated officers and having direct responsibility for the
administration of this Agreement, and also, with respect to a particular matter,
any other officer, to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
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SECTION 1.02. Other Definitional Provisions. (a) Capitalized terms
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used herein and not otherwise defined herein have the meanings assigned to them
in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) The words "hereof," "herein," "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Section, Schedule,
Exhibit, Annex and Attachment references contained in this Agreement are
references to Sections, Schedules, Exhibits, Annexes and Attachments in or to
this Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation."
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter forms of such terms.
ARTICLE II
Appointment and Authorization
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SECTION 2.01. Appointment of Servicer; Acceptance of Appointment.
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Subject to Section 6.05 and Article 7, the Note Issuer hereby appoints the
Servicer, and the Servicer hereby accepts such appointment, to perform the
Servicer's obligations pursuant to this Agreement on behalf of and for the
benefit of
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the Note Issuer in accordance with the terms of this Agreement and applicable
law. This appointment and the Servicer's acceptance thereof may not be revoked
except in accordance with the express terms of this Agreement.
SECTION 2.02. Authorization. With respect to all or any portion of
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the Transition Property, the Servicer shall be, and hereby is, authorized and
empowered by the Note Issuer to (a) execute and deliver, on behalf of itself
and/or the Note Issuer, as the case may be, any and all instruments, documents
or notices, and (b) on behalf of itself and/or the Note Issuer, as the case may
be, make any filing and participate in proceedings of any kind with any
governmental authorities, including with the CPUC. The Note Issuer shall
furnish the Servicer with such documents as have been prepared by the Servicer
for execution by the Note Issuer, and with such other documents as may be in the
Note Issuer's possession, as necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties hereunder. Upon the written
request of the Servicer, the Note Issuer shall furnish the Servicer with any
powers of attorney or other documents necessary or appropriate to enable the
Servicer to carry out its duties hereunder.
SECTION 2.03. Dominion and Control Over the Transition Property.
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Notwithstanding any other provision herein, the Servicer and the Note Issuer
agree that the Note Issuer shall have dominion and control over the Transition
Property, and the Servicer, in accordance with the terms hereof, is acting
solely
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as the servicing agent and custodian for the Note Issuer with respect to the
Transition Property and the Transition Property Records. The Servicer hereby
agrees that it shall not take any action that is not authorized by this
Agreement, that is not consistent with its customary procedures and practices,
or that shall impair the rights of the Note Issuer in the Transition Property,
in each case unless such action is required by law or court or regulatory order.
ARTICLE III
Billing Services
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SECTION 3.01. Duties of Servicer. The Servicer, as agent for the
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Note Issuer, shall have the following duties:
(a) Duties of Servicer Generally. The Servicer's duties in general
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shall include management, servicing and administration of the Transition
Property; obtaining meter reads, calculating usage, billing, collections
and posting of all payments in respect of the Transition Property;
responding to inquiries by Customers, the CPUC, or any federal, local or
other state governmental authorities with respect to the Transition
Property; delivering Bills to Customers and ESPs, investigating
delinquencies, processing and depositing collections and making periodic
remittances; furnishing periodic reports to the Note Issuer, the Note
Trustee, the Certificate Trustee, the Infrastructure Bank and the Rating
Agencies; and taking action in connection with True-Up Adjustments as set
forth herein. Certain of
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the duties set forth above may be performed by ESPs pursuant to ESP Service
Agreements. Anything to the contrary notwithstanding, the duties of the
Servicer set forth in this Agreement shall be qualified in their entirety
by any CPUC Regulations as in effect at the time such duties are to be
performed. Without limiting the generality of this Section 3.01(a), in
furtherance of the foregoing, the Servicer hereby agrees that it shall also
have, and shall comply with, the duties and responsibilities relating to
data acquisition, usage and xxxx calculation, billing, customer service
functions, collections, payment processing and remittance set forth in
Annex I hereto.
(b) Reporting Functions.
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(i) Monthly Servicer's Certificate. On or before each
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Remittance Date, the Servicer shall prepare and deliver to the Note
Issuer, the Note Trustee, the Certificate Trustee, the Infrastructure
Bank and the Rating Agencies a written report substantially in the
form of Exhibit A hereto (a "Monthly Servicer's Certificate") setting
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forth certain information relating to FTA Payments received by the
Servicer during the Collection Period preceding such Remittance Date.
(ii) Notification of Laws and Regulations. The Servicer shall
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immediately notify the Note Issuer, the Note Trustee, the Certificate
Trustee, the
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Infrastructure Bank and the Rating Agencies in writing of any laws or
CPUC Regulations hereafter promulgated that have a material adverse
effect on the Servicer's ability to perform its duties under this
Agreement.
(iii) Other Information. Upon the reasonable request of the
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Note Issuer, the Note Trustee, the Certificate Trustee, the
Infrastructure Bank or the Rating Agencies, the Servicer shall provide
to such Note Issuer, Note Trustee, Certificate Trustee, Infrastructure
Bank or the Rating Agencies, as the case may be, any public financial
information in respect of the Servicer, or any material information
regarding the Transition Property to the extent it is reasonably
available to the Servicer, as may be reasonably necessary and
permitted by law for the Note Issuer, the Note Trustee, the
Certificate Trustee, the Infrastructure Bank or the Rating Agencies to
monitor the performance by the Servicer hereunder. In addition, so
long as any of the Notes of any Series are outstanding, the Servicer
shall provide the Note Issuer, the Note Trustee and the Certificate
Trustee, within a reasonable time after written request therefor, any
information available to the Servicer or reasonably obtainable by it
that is necessary to calculate the FTA Charges applicable to each
class of Customer.
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(iv) Preparation of Reports to be Filed with the SEC. The
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Servicer shall prepare any reports required to be filed by the Note
Issuer under the securities laws, including a copy of each Quarterly
Servicer's Certificate described in Section 4.01(d)(ii), the annual
Certificate of Compliance described in Section 3.03, and the Annual
Accountant's Report described in Section 3.04.
SECTION 3.02. Servicing and Maintenance Standards. On behalf of the
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Note Issuer, the Servicer shall (a) manage, service, administer and make
collections in respect of the Transition Property with reasonable care and in
accordance with applicable law, including all applicable CPUC Regulations and
guidelines, using the same degree of care and diligence that the Servicer
exercises with respect to similar assets for its own account and, if applicable,
for others; (b) follow customary standards, policies and procedures for the
industry in performing its duties as Servicer; (c) use all reasonable efforts,
consistent with its customary servicing procedures, to enforce, and maintain
rights in respect of, the Transition Property; and (d) comply with all laws and
regulations applicable to and binding on it relating to the Transition Property.
The Servicer shall follow such customary and usual practices and procedures as
it shall deem necessary or advisable in its servicing of all or any portion of
the Transition Property, which, in the Servicer's judgment, may include the
taking of legal action.
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SECTION 3.03. Certificate of Compliance. The Servicer shall deliver
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to the Note Issuer, the Note Trustee, the Certificate Trustee, the
Infrastructure Bank and the Rating Agencies on or before September 30 of each
year, commencing September 30, 1998 to and including the September 30 succeeding
the Retirement of the Notes, an Officer's Certificate substantially in the form
of Exhibit B hereto (a "Certificate of Compliance"), stating that: (i) a review
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of the activities of the Servicer during the twelve months ended the preceding
June 30 (or, in the case of the first Certificate of Compliance to be delivered
on or before September 30, 1998, the period of time from the date of this
Agreement until June 30, 1998) and of its performance under this Agreement has
been made under such officer's supervision, and (ii) to the best of such
officer's knowledge, based on such review, the Servicer has fulfilled all of its
obligations in all material respects under this Agreement throughout such twelve
months (or, in the case of the Certificate of Compliance to be delivered on or
before September 30, 1998, the period of time from the date of this Agreement
until June 30, 1998), or, if there has been a default in the fulfillment of any
such material obligation, specifying each such material default known to such
officer and the nature and status thereof.
SECTION 3.04. Annual Report by Independent Public Accountants. (a)
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The Servicer shall cause a firm of independent certified public accountants
(which may provide other services to the Servicer or the Seller) to prepare, and
the Servicer shall
22
deliver to the Note Issuer, the Note Trustee, the Certificate Trustee, the
Infrastructure Bank and the Rating Agencies, a report addressed to the Servicer
(the "Annual Accountant's Report"), which may be included as part of the
Servicer's customary auditing activities, for the information and use of the
Note Issuer, the Note Trustee, the Certificate Trustee and the Infrastructure
Bank on or before September 30 of each year, beginning September 30, 1998 to and
including the September 30 succeeding the Retirement of the Notes, to the effect
that such firm has performed certain procedures in connection with the
Servicer's compliance with its obligations under this Agreement during the
preceding twelve months ended June 30 (or, in the case of the first Annual
Accountant's Report to be delivered on or before September 30, 1998, the period
of time from the date of this Agreement until June 30, 1998), identifying the
results of such procedures and including any exceptions noted. In the event
such accounting firm requires the Note Trustee or the Certificate Trustee to
agree or consent to the procedures performed by such firm, the Note Issuer shall
direct the Note Trustee or the Certificate Trustee in writing to so agree; it
being understood and agreed that the Note Trustee or the Certificate Trustee, as
the case may be, will deliver such letter of agreement or consent in conclusive
reliance upon the direction of the Note Issuer, and neither the Note Trustee nor
the Certificate Trustee will make any independent inquiry or investigation as
to, and shall have no
23
obligation or liability in respect of the sufficiency, validity or correctness
of such procedures.
(b) The Annual Accountant's Report shall also indicate that the
accounting firm providing such report is independent of the Servicer within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
ARTICLE IV
Services Related to True-Up Adjustments
---------------------------------------
SECTION 4.01. Periodic True-Up Adjustments. From time to time, until
-----------------------------
the Retirement of the Notes, the Servicer shall identify the need for True-Up
Adjustments and shall take all reasonable action to obtain and implement such
True-Up Adjustments, all in accordance with the following:
(a) Expected Amortization Schedule. The initial Expected
-------------------------------
Amortization Schedule is attached hereto as Schedule 4.01(a). In
----------------
connection with the issuance by the Note Issuer of any additional Series of
Notes after the Closing Date, the Servicer, on or prior to the Series
Issuance Date therefor, shall revise the Expected Amortization Schedule to
add the requisite information for each new Series of Notes and set forth,
as of each Payment Date through the scheduled Retirement of the Notes, the
aggregate principal amounts of the Notes of all Series, including such
additional Series, expected to be outstanding on such Payment Date. If the
Expected Amortization Schedule is revised as set forth above, the Servicer
shall send a
24
copy of such revised Expected Amortization Schedule to the Note Issuer, the
Note Trustee, the Certificate Trustee, the Infrastructure Bank and the
Rating Agencies promptly thereafter.
(b) Routine True-Up Adjustments and Yearly Filings.
-----------------------------------------------
(i) Routine Yearly True-Up Adjustments and Filings.
-----------------------------------------------
(1) Each year on or immediately before the Annual Adjustment
Filing Date, the Servicer shall: (A) estimate collections
through the December 31 immediately following such Annual
Adjustment Filing Date and through December 31 of the year
following the year of such Annual Adjustment Filing Date; (B)
update the assumptions underlying the FTA Charges, including
energy usage volume, the rate of delinquencies and write-offs,
estimated expenses and fees of the Note Issuer, the Trust and the
Infrastructure Bank to the extent not fixed, and the Collections
Curves; (C) determine the revised FTA Charges that, together with
the funds on deposit in the Reserve Subaccount, would restore:
(1) the Principal Balance to the Projected Principal Balance, (2)
the balance in the Overcollateralization Subaccount to the
Required Overcollateralization Level and (3) the balance in the
Capital
25
Subaccount to the Required Capital Level, in each case within
twelve months after such revised FTA Charges go into effect (and
with respect to any True-Up Adjustments occurring after the last
Scheduled Maturity Date for any Class of a Series, determine the
revised FTA Charges that would be sufficient to retire the unpaid
Principal Balance within the earlier of (x) a date which is not
more than twelve months after the Scheduled Maturity Date and (y)
the last Final Maturity Date for any Class of such Series); (D)
file a Routine Annual True-Up Mechanism Advice Letter with the
CPUC, substantially in the form attached hereto as Exhibit C, to
---------
notify the CPUC of the FTA Charges for the coming year; and (E)
take all reasonable actions and make all reasonable efforts to
secure such True-Up Adjustment and to enforce the provisions of
the Statute which obligate the CPUC to approve rates at levels
sufficient to recover the FTA Payments in accordance with the
Expected Amortization Schedule.
(2) Each year on or immediately before August 19, which is
the date that is fifteen days before the Financing Order
Anniversary Date (or if such date is not a Servicer Business Day,
on the Servicer Business Day immediately preceding such
26
date), the Servicer shall: (A) if required by the Servicer in
its judgment or found to be necessary by the CPUC, estimate
collections through the end of the Quarter in which the Financing
Order Anniversary Date occurs; (B) if required by the Servicer in
its judgment or found to be necessary by the CPUC, update the
assumptions underlying the FTA Charges, including energy usage
volume, the rate of delinquencies and write-offs, and estimated
expenses and fees of the Note Issuer, the Trust and the
Infrastructure Bank to the extent not fixed; (C) if required by
the Servicer in its judgment or found to be necessary by the
CPUC, determine the revised FTA Charges that, together with the
funds on deposit in the Reserve Subaccount, would restore: (1)
the Principal Balance to the Projected Principal Balance, (2) the
balance in the Overcollateralization Subaccount to the Required
Overcollateralization Level and (3) the balance in the Capital
Subaccount to the Required Capital Level, in each case within
twelve months after such revised FTA Charges go into effect (and
with respect to any True-Up Adjustments occurring after the last
Scheduled Maturity Date for any Class of a Series, determine the
revised FTA Charges that would be
27
sufficient to retire the unpaid Principal Balance within the
earlier of (x) a date which is not more than twelve months after
the Scheduled Maturity Date and (y) the last Final Maturity Date
for any Class of such Series); (D) file an Anniversary True-Up
Mechanism Advice Letter with the CPUC, substantially in the form
attached hereto as Exhibit D; and (E) take all reasonable actions
---------
and make all reasonable efforts to secure the resulting True-Up
Adjustment (if such an adjustment is sought by the Servicer or
found to be necessary by the CPUC) and to enforce the provisions
of the Statute which obligate the CPUC to approve rates at levels
sufficient to recover the FTA Payments in accordance with the
Expected Amortization Schedule.
(3) In the case of a True-Up Adjustment pursuant to a
Routine Annual True-Up Mechanism Advice Letter, the Servicer
shall implement the revised FTA Charges, if any, as of the first
day of the following calendar year.
(4) In the case of a True-Up Adjustment required by the
Servicer in its judgment or found to be necessary by the CPUC
pursuant to an Anniversary True-Up Mechanism Advice Letter, the
Servicer shall implement the revised FTA Charges,
28
if any, on the date specified by the CPUC in accordance with the
Financing Order.
(ii) Routine Quarterly True-Up Adjustments. If the Issuance
--------------------------------------
Advice Letter with respect to a Series of Notes provides that the
Servicer will file Routine Quarterly True-Up Mechanism Advice Letters,
then the Servicer shall make such filings in accordance with the
procedures set forth in Annex II hereto. On each Series Issuance
Date, the Servicer and the Note Issuer shall amend Annex II to specify
in detail the Servicer's obligations to perform routine quarterly
True-Up Adjustments, if any, with respect to the new Series of Notes
issued on such Series Issuance Date.
(c) Non-Routine True-Up Adjustments.
--------------------------------
(i) Whenever the Servicer determines that the existing
model for calculating the FTA Charges should be amended or
revised, subject to the consent of the Note Issuer under the
conditions set forth in Section 3.17 of the Indenture, the
Servicer shall file a Non-Routine True-Up Mechanism Advice Letter
with the CPUC designating the adjustments to the model and any
corresponding adjustments to the FTA Charges (collectively, a
"Non-Routine True-Up Adjustment").
29
(ii) The Servicer shall take all reasonable actions and make
all reasonable efforts to secure any Non-Routine True-Up
Adjustments.
(iii) The Servicer shall implement any resulting
adjustments to the model and any resulting revised FTA Charges as
of the first day of the Quarter which begins at least 90 days
after the Non-Routine True-Up Mechanism Advice Letter is filed.
(d) Reports.
--------
(i) Notification of Advice Letter Filings and True-Up
-------------------------------------------------
Adjustments. Whenever the Servicer files an Advice Letter with the
------------
CPUC, the Servicer shall send a copy of such filing (together with a
copy of all notices and documents which, in the Servicer's reasonable
judgment, are material to the adjustments effected by such Advice
Letter) to the Note Issuer, the Note Trustee, the Certificate Trustee,
the Infrastructure Bank and the Rating Agencies concurrently
therewith. If any True-Up Adjustment requested in any such Advice
Letter filing does not become effective on the applicable date as
provided by the Financing Order, the Servicer shall notify the Note
Issuer, the Note Trustee, the Certificate Trustee, the Infrastructure
Bank and the Rating Agencies by the end
30
of the second Servicer Business Day after such applicable date.
(ii) Quarterly Servicer's Certificate. Not later than the
---------------------------------
Remittance Date immediately prior to each Payment Date, the Servicer
shall deliver a written report substantially in the form of Exhibit E
---------
hereto (the "Quarterly Servicer's Certificate") to the Note Issuer,
the Note Trustee, the Certificate Trustee, the Infrastructure Bank and
the Rating Agencies.
(iii) Reports to Customers. (A) After each revised FTA Charge
---------------------
has gone into effect pursuant to a True-Up Adjustment, the Servicer
shall, to the extent and in the manner and timeframe required by
applicable CPUC Regulations, if any, cause to be prepared and
delivered to Customers a notice announcing such revised FTA Charges.
(B) In addition, at least once each year, to the extent
permitted by CPUC Regulations, the Servicer shall cause to be prepared
and delivered to Customers a notice stating, in effect, that the
Transition Property and the FTA Charges are owned by the Note Issuer
and not the Seller. Such notice shall be included either as an insert
to or in the text of the Bills delivered to such Customers or shall be
delivered to Customers by electronic means or such other means as the
Servicer or
31
the Applicable ESP may from time to time use to communicate with their
respective customers.
(C) Except to the extent that applicable CPUC Regulations make
the Applicable ESP responsible for such costs, the Servicer shall pay
from its own funds all costs of preparation and delivery incurred in
connection with clauses (A) and (B) above, including but not limited
to printing and postage costs as the same may increase or decrease
from time to time.
(iv) ESP Reports. The Servicer shall provide to the Rating
-----------
Agencies any publicly available reports filed by the Servicer with the
CPUC (or otherwise made publicly available by the Servicer) relating
to ESPs and any other non-confidential and non-proprietary information
relating to ESPs reasonably requested by the Rating Agencies.
SECTION 4.02. Limitation of Liability. (a) The Note Issuer and
------------------------
the Servicer expressly agree and acknowledge that:
(i) In connection with any True-Up Adjustment, the Servicer is acting
solely in its capacity as the servicing agent hereunder.
(ii) Neither the Servicer nor the Note Issuer is responsible in any
manner for, and shall have no liability whatsoever as a result of any
action, decision, ruling or other determination made or not made, or any
delay (other
32
than any delay resulting from the Servicer's failure to file the
applications required by Section 4.01 in a timely and correct manner or
other breach by the Servicer of its duties under this Agreement), by the
CPUC in any way related to the Transition Property or in connection with
any True-Up Adjustment, the subject of any filings under Section 4.01, any
proposed True-Up Adjustment, or the approval of any revised FTA Charges and
the scheduled adjustments thereto.
(iii) The Servicer shall have no liability whatsoever relating to the
calculation of any revised FTA Charges and the scheduled adjustments
thereto, including as a result of any inaccuracy of any of the assumptions
made in such calculation regarding expected energy usage volume and the
rate of delinquencies and write-offs, so long as the Servicer has acted in
good faith and has not acted in a grossly negligent manner in connection
therewith, nor shall the Servicer have any liability whatsoever as a result
of any Person, including the Noteholders or the Certificateholders, not
receiving any payment, amount or return anticipated or expected or in
respect of any Note or Certificate generally, except only to the extent
that the same is caused by the Servicer's gross negligence, willful
misconduct or bad faith.
(b) Notwithstanding the foregoing, the Servicer hereby acknowledges
that the terms of this Section 4.02 are not intended to, and shall not, relieve
the Servicer of liability for any
33
misrepresentation by the Servicer under Section 6.01 or for any breach by the
Servicer of its other obligations under this Agreement.
ARTICLE V
The Transition Property
-----------------------
SECTION 5.01. Custody of Transition Property Records. To assure
---------------------------------------
uniform quality in servicing the Transition Property and to reduce
administrative costs, the Note Issuer hereby revocably appoints the Servicer,
and the Servicer hereby accepts such appointment, to act as the agent of the
Note Issuer and the Note Trustee as custodian of any and all documents and
records that the Seller shall keep on file, in accordance with its customary
procedures, relating to the Transition Property, including copies of the
Financing Order and Advice Letters relating thereto and all documents filed with
the CPUC in connection with any True-Up Adjustment (collectively, the
"Transition Property Records"), which are hereby constructively delivered to the
Note Trustee, as pledgee of the Note Issuer (or, in the case of the Subsequent
Transition Property, will as of the applicable Subsequent Sale Date be
constructively delivered to the Note Trustee, as pledgee of the Note Issuer)
with respect to all Transition Property.
SECTION 5.02. Duties of Servicer as Custodian. (a) Safekeeping.
-------------------------------- ------------
The Servicer shall hold the Transition Property Records on behalf of the Note
Issuer and maintain such accurate and complete accounts, records and computer
systems pertaining to
34
the Transition Property Records as shall enable the Note Issuer to comply with
this Agreement and the Indenture. In performing its duties as custodian the
Servicer shall act with reasonable care, using that degree of care and diligence
that the Servicer exercises with respect to comparable assets that the Servicer
services for itself or, if applicable, for others. The Servicer shall promptly
report to the Note Issuer and the Note Trustee any failure on its part to hold
the Transition Property Records and maintain its accounts, records and computer
systems as herein provided and promptly take appropriate action to remedy any
such failure. Nothing herein shall be deemed to require an initial review or
any periodic review by the Note Issuer or the Note Trustee of the Transition
Property Records. The Servicer's duties to hold the Transition Property Records
on behalf of the Note Issuer set forth in this Section 5.02, to the extent such
Transition Property Records have not been previously transferred to a successor
Servicer pursuant to Article VII, shall terminate three years after the earlier
of the date on which (i) the Servicer is succeeded by a successor Servicer in
accordance with Article VII hereof and (ii) no Notes of any Series are
outstanding.
(b) Maintenance of and Access to Records. The Servicer shall
-------------------------------------
maintain the Transition Property Records at 000 Xxx Xxxxxx, Xxx Xxxxx,
Xxxxxxxxxx or at such other office as shall be specified to the Note Issuer and
the Note Trustee by written notice at least 30 days prior to any change in
location.
35
The Servicer shall make available for inspection to the Note Issuer and the Note
Trustee or their respective duly authorized representatives, attorneys or
auditors the Transition Property Records at such times during normal business
hours as the Note Issuer or the Note Trustee shall reasonably request and which
do not unreasonably interfere with the Servicer's normal operations. Nothing in
this Section 5.02(b) shall affect the obligation of the Servicer to observe any
applicable law (including any CPUC Regulations) prohibiting disclosure of
information regarding the Customers, and the failure of the Servicer to provide
access to such information as a result of such obligation shall not constitute a
breach of this Section 5.02(b).
(c) Release of Documents. Upon instruction from the Note Trustee,
---------------------
the Servicer shall release any Transition Property Records to the Note Trustee,
the Note Trustee's agent or the Note Trustee's designee, as the case may be, at
such place or places as the Note Trustee may designate, as soon as practicable.
(d) Defending Transition Property Against Claims. The Servicer shall
---------------------------------------------
institute any action or proceeding necessary to compel performance by the CPUC
or the State of California of any of their obligations or duties under the PU
Code, the Financing Order or any Advice Letter, and the Servicer agrees to take
such legal or administrative actions, including defending against or instituting
and pursuing legal actions and appearing or testifying at hearings or similar
proceedings, as may be reasonably necessary to block or overturn any attempts to
cause a
36
repeal of, modification of or supplement to the Statute or the Financing Order
or the rights of holders of Transition Property by legislative enactment, voter
initiative or constitutional amendment that would be adverse to
Certificateholders. The costs of any such action shall be payable from FTA
Collections as an Operating Expense in accordance with the priorities set forth
in Section 8.02(d) of the Indenture. The Servicer's obligations pursuant to
this Section 5.02 shall survive and continue notwithstanding the fact that the
payment of Operating Expenses pursuant to Section 8.02(d) of the Indenture may
be delayed (it being understood that the Servicer may be required to advance its
own funds to satisfy its obligations hereunder).
SECTION 5.03. Instructions; Authority to Act. For so long as any
-------------------------------
Notes remain outstanding, the Servicer shall be deemed to have received proper
instructions with respect to the Transition Property Records upon its receipt of
written instructions signed by a Trust Officer of the Note Trustee.
SECTION 5.04. Custodian's Indemnification. The Servicer as custodian
----------------------------
shall indemnify the Note Issuer, the Trust, the Certificate Trustee, the
Delaware Trustee, the Note Trustee, the Infrastructure Bank, the STO, the
Noteholders and the Certificateholders and each of their respective officers,
directors, employees and agents for, and defend and hold harmless each such
Person from and against, any and all liabilities, obligations, losses, damages,
payments, claims, costs or expenses of any kind whatsoever (collectively,
"Losses") that may be
37
imposed on, incurred by or asserted against any such Person as the result of any
improper act or omission in any way relating to the maintenance and custody by
the Servicer, as custodian, of the Transition Property Records; provided,
--------
however, that the Servicer shall not be liable for any portion of any such
-------
amount resulting from the willful misconduct, bad faith or gross negligence of
the Note Issuer, the Trust, the Certificate Trustee, the Delaware Trustee, the
Note Trustee, the Infrastructure Bank, the STO, the Noteholders or the
Certificateholders, as the case may be.
Indemnification under this Section shall survive resignation or
removal of the Note Trustee, the Delaware Trustee or the Certificate Trustee and
shall include reasonable fees and expenses of investigation and litigation.
SECTION 5.05. Effective Period and Termination. The Servicer's
---------------------------------
appointment as custodian shall become effective as of the Closing Date and shall
continue in full force and effect until terminated pursuant to this Section. If
any Servicer shall resign as Servicer in accordance with the provisions of this
Agreement or if all of the rights and obligations of any Servicer shall have
been terminated under Section 7.01, the appointment of such Servicer as
custodian shall be terminated by the Note Trustee or by the Holders of Notes
evidencing not less than 25 percent of the Outstanding Amount of the Notes of
all Series in the same manner as the Note Trustee or such Holders may terminate
the rights and obligations of the Servicer under Section 7.01.
38
SECTION 5.06. General Indemnification of Note Trustee, Certificate
----------------------------------------------------
Trustee and the Delaware Trustee. The Servicer hereby agrees to indemnify and
---------------------------------
hold harmless the Note Trustee, the Certificate Trustee and the Delaware Trustee
and their respective directors, officers, employees and agents from and against
any and all Losses incurred by or asserted against any such Person as a result
of or in connection with the transactions contemplated by this Agreement or any
Basic Document, other than any Loss incurred by reason or result of the gross
negligence or willful misconduct of the Note Trustee, the Certificate Trustee or
the Delaware Trustee, as the case may be; provided, however, that the foregoing
-------- -------
indemnity is extended to the Note Trustee, the Certificate Trustee and the
Delaware Trustee solely in their respective capacities as trustees and not for
the benefit of the Noteholders, the Certificateholders or any other Person. The
obligations of the Servicer set forth herein shall survive the termination of
this Agreement or the earlier resignation or removal of the Note Trustee under
the Indenture or the Certificate Trustee or Delaware Trustee under the Trust
Agreement.
ARTICLE VI
The Servicer
------------
SECTION 6.01. Representations and Warranties of Servicer. The
-------------------------------------------
Servicer makes the following representations and warranties, as of the Closing
Date, as of each Subsequent Sale Date relating to the sale of Subsequent
Transition Property
39
pursuant to a Subsequent Sale Agreement, and as of such other dates as expressly
provided in this Section 6.01, on which the Note Issuer and the Note Trustee are
deemed to have relied in entering into this Agreement relating to the servicing
of the Transition Property. The representations and warranties shall survive
the execution and delivery of this Agreement and the pledge thereof to the Note
Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Servicer is duly organized
-------------------------------
and validly existing as a corporation in good standing under the laws of
the state of its incorporation, with the power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant
times, and has, the requisite power, authority and legal right to service
the Transition Property and to hold the Transition Property Records as
custodian.
(b) Due Qualification. The Servicer is duly qualified to do business
------------------
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals in, all jurisdictions in which the ownership or
lease of property or the conduct of its business (including the servicing
of the Transition Property as required by this Agreement) shall require
such qualifications, licenses or approvals (except where the failure to so
qualify would not be reasonably likely to have a material adverse effect on
the Servicer's business, operations, assets, revenues,
40
properties or prospects or adversely affect the servicing of the Transition
Property).
(c) Power and Authority. The Servicer has the requisite power and
--------------------
authority to execute and deliver this Agreement and to carry out its terms;
and the execution, delivery and performance of this Agreement have been
duly authorized by the Servicer by all necessary corporate action.
(d) Binding Obligation. This Agreement constitutes a legal, valid
-------------------
and binding obligation of the Servicer enforceable in accordance with its
terms, subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws relating to or affecting
creditors' rights generally from time to time in effect and to general
principles of equity (including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing), regardless of
whether considered in a proceeding in equity or at law.
(e) No Violation. After giving effect to the release of the lien of
-------------
the Mortgage and Deed of Trust dated as of July 1, 1940, between San Diego
Gas & Electric Company and First Trust of California, N.A. (successor to
Bank of California, National Association), as trustee, the consummation of
the transactions contemplated by this Agreement and the fulfillment of the
terms hereof shall not conflict with, result in any breach of any of the
terms and
41
provisions of, nor constitute (with or without notice or lapse of time) a
default under, the articles of incorporation or bylaws of the Servicer, or
any indenture, agreement or other instrument to which the Servicer is a
party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of
any such indenture, agreement or other instrument; nor violate any law or
any order, rule or regulation applicable to the Servicer of any court or of
any Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties.
(f) No Proceedings. Except as set forth on Schedule 6.01(f), there
---------------
are no proceedings or investigations pending or, to the Servicer's best
knowledge, threatened before any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Servicer or its properties involving or relating to
the Servicer or the Note Issuer or, to the Servicer's knowledge, any other
Person: (i) asserting (A) the invalidity of this Agreement, or (B) the
invalidity of the Indenture, the Trust Agreement, any of the other Basic
Documents or the Notes or the Certificates, (ii) seeking to prevent the
issuance of the Notes or the Certificates or the consummation of any of the
transactions contemplated by this Agreement, the Indenture, the Trust
42
Agreement or any of the other Basic Documents, (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Servicer of its obligations under, or the validity or
enforceability of, this Agreement, the Indenture, the Trust Agreement, any
of the other Basic Documents or the Notes or the Certificates or (iv)
relating to the Servicer and which might adversely affect the Federal or
state income tax attributes of the Notes or the Certificates.
(g) Approvals. No approval, authorization, consent, order or other
----------
action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the execution and delivery by the Servicer of this
Agreement, the performance by the Servicer of the transactions contemplated
hereby or the fulfillment by the Servicer of the terms hereof, except those
that have been obtained or made and those that the Servicer is required to
make in the future pursuant to Article IV hereof.
(h) Collections Curves. Each Collections Curve used in connection
-------------------
with Schedule 6 to Annex I hereto is accurate in all material respects, and
----------
the future delivery of each revised Collections Curve shall constitute a
representation and warranty that each such revised Collections Curve is
accurate in all material respects.
43
(i) Premises. The premises set forth in Schedule 6 to Annex I hereto
--------- ----------
are reasonable based upon historical performance and will be reasonable as
they change from time to time.
(j) Reports and Certificates. Each report and certificate delivered
-------------------------
in connection with an Advice Letter will constitute a representation and
warranty by the Servicer that each such report or certificate, as the case
may be, is true and correct; provided, however, that to the extent any such
-------- -------
report or certificate is based in part upon or contains assumptions,
forecasts or other predictions of future events, the representation and
warranty of the Servicer with respect thereto will be limited to the
representation and warranty that such assumptions, forecasts or other
predictions of future events are reasonable based upon historical
performance.
SECTION 6.02. Indemnities of Servicer; Release of Claims. (a) The
-------------------------------------------
Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Servicer under this Agreement.
(b) The Servicer shall indemnify the Note Issuer, the Trust, the Note
Trustee, the Certificate Trustee, the Delaware Trustee, the Infrastructure Bank,
the STO, the Seller, the Noteholders and the Certificateholders and each of
their respective officers, directors, employees and agents for, and defend and
hold harmless each such Person from and against, any
44
and all Losses that may be imposed on, incurred by or asserted against any such
Person as a result of (i) the Servicer's willful misconduct, bad faith or gross
negligence in the performance of its duties or observance of its covenants under
this Agreement or the Servicer's reckless disregard of its obligations and
duties under this Agreement or (ii) the Servicer's breach of any of its
representations or warranties in this Agreement.
(c) For purposes of Section 6.02(b), in the event of the termination
of the rights and obligations of San Diego Gas & Electric Company (or any
successor thereto pursuant to Section 6.03) as Servicer pursuant to Section
7.01, or a resignation by such Servicer pursuant to this Agreement, such
Servicer shall be deemed to be the Servicer pending appointment of a successor
Servicer pursuant to Section 7.02.
(d) Indemnification under Sections 6.02(b) and 6.02(c) shall survive
the resignation or removal of the Note Trustee, the Delaware Trustee or the
Certificate Trustee or the termination of this Agreement and shall include
reasonable fees and expenses of investigation and litigation (including
reasonable attorneys fees and expenses).
(e) Except to the extent expressly provided for in this Agreement or
the other Basic Documents (including, without limitation, the Servicer's claims
with respect to the Servicing Fee, reimbursement for any Excess Remittance,
reimbursement for costs incurred pursuant to Section 5.02(d) and the payment of
the purchase price of Transition Property), the Servicer hereby
45
releases and discharges the Note Issuer and the Trust and each of their
respective officers, directors and agents (collectively, the "Released Parties")
from any and all actions, claims and demands whatsoever, whenever arising, which
the Servicer, in its capacity as Servicer or Seller, shall or may have against
any such Person relating to the Transition Property or the Servicer's activities
with respect thereto other than any actions, claims and demands arising out of
the willful misconduct, bad faith or gross negligence of the Released Parties.
SECTION 6.03. Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, Servicer. Any Person (a) into which the Servicer may be merged
-------------------------
or consolidated, (b) which may result from any merger or consolidation to which
the Servicer shall be a party or (c) which may succeed to the properties and
assets of the Servicer substantially as a whole, which Person in any of the
foregoing cases executes an agreement of assumption to perform every obligation
of the Servicer hereunder, shall be the successor to the Servicer under this
Agreement without further act on the part of any of the parties to this
Agreement; provided, however, that (i) immediately after giving effect to such
-------- -------
transaction, no Servicer Default and no event which, after notice or lapse of
time, or both, would become a Servicer Default shall have occurred and be
continuing, (ii) the Servicer shall have delivered to the Note Issuer, the Note
Trustee and the Rating Agencies an Officers' Certificate and an Opinion of
Counsel each stating that such consolidation, merger or
46
succession and such agreement of assumption complies with this Section and that
all conditions precedent provided for in this Agreement relating to such
transaction have been complied with and (iii) the Servicer shall have delivered
to the Note Issuer, the Note Trustee and the Rating Agencies an Opinion of
Counsel either (A) stating that, in the opinion of such counsel, all filings to
be made by the Servicer, including filings with the CPUC pursuant to the PU
Code, have been executed and filed that are necessary to preserve and protect
fully the interests of the Note Issuer in the Transition Property and reciting
the details of such filings or (B) stating that, in the opinion of such counsel,
no such action shall be necessary to preserve and protect such interests.
Notwithstanding anything herein to the contrary, the execution of the foregoing
agreement of assumption and compliance with clauses (i), (ii) and (iii) above
shall be conditions to the consummation of the transactions referred to in
clauses (a), (b) or (c) above.
SECTION 6.04. Limitation on Liability of Servicer and Others.
-----------------------------------------------
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be liable to the Note Issuer, the Note Trustee, the
Infrastructure Bank, the STO, the Noteholders, the Trust, the Certificate
Trustee, the Delaware Trustee, the Certificateholders or any other Person,
except as provided under this Agreement, for any action taken or for refraining
from the taking of any action pursuant to this Agreement or for errors in
judgment; provided, however, that this
-------- -------
47
provision shall not protect the Servicer or any such person against any
liability that would otherwise be imposed by reason of willful misconduct, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under this Agreement. The Servicer and any
director or officer or employee or agent of the Servicer may rely in good faith
on the advice of counsel reasonably acceptable to the Note Trustee or on any
document of any kind, prima facie properly executed and submitted by any Person,
respecting any matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute or defend any legal action that shall not
be related to or incidental to its duties to service the Transition Property in
accordance with this Agreement, and that in its opinion may involve it in any
expense or liability.
SECTION 6.05. San Diego Gas & Electric Company Not to Resign as
-------------------------------------------------
Servicer. Subject to the provisions of Section 6.03, San Diego Gas & Electric
---------
Company shall not resign from the obligations and duties hereby imposed on it as
Servicer under this Agreement except upon either (a) a determination that the
performance of its duties under this Agreement shall no longer be permissible
under applicable law or (b) satisfaction of the following: (i) the Rating Agency
Condition shall have been satisfied, (ii) the CPUC shall have approved such
resignation and (iii) notice of such resignation shall have been given to the
48
Infrastructure Bank. Notice of any such determination permitting the
resignation of San Diego Gas & Electric Company shall be communicated to the
Note Issuer, the Note Trustee, the Certificate Trustee, the Infrastructure Bank
and the Rating Agencies at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time) and any such determination shall be evidenced by an Opinion of
Counsel to such effect delivered to the Note Issuer, the Note Trustee and the
Certificate Trustee concurrently with or promptly after such notice. No such
resignation shall become effective until a successor Servicer shall have assumed
the responsibilities and obligations of San Diego Gas & Electric Company in
accordance with Section 7.02.
SECTION 6.06. Servicing Compensation. (a) In consideration for its
-----------------------
services hereunder, until the Retirement of the Notes, the Servicer shall
receive a fee (the "Servicing Fee") quarterly on each Payment Date in an amount
equal to (i) one-fourth of 0.25 percent of the outstanding Principal Balance
(before giving effect to payments made on such date) for so long as FTA Charges
are included as a line item on Bills otherwise sent to Customers or (ii) one-
fourth of 1.50 percent of the outstanding Principal Balance (before giving
effect to payments made on such date) if FTA Charges are not included as a line
item on Bills otherwise sent to Customers but, instead, are billed separately to
Customers. The Servicer also shall be entitled to retain as additional
compensation (i) any interest earnings on
49
FTA Payments received by the Servicer and invested by the Servicer pursuant to
Section 6(d) of Annex I hereto during each Collection Period prior to remittance
to the Collection Account and (ii) all late payment charges, if any, collected
from Customers or ESPs.
(b) The Servicing Fee set forth in Section 6.06(a) above shall be
paid to the Servicer by the Note Trustee, on each Payment Date in accordance
with the priorities set forth in Section 8.02(d) of the Indenture, by wire
transfer of immediately available funds from the Collection Account to an
account designated by the Servicer. Any portion of the Servicing Fee not paid
on such date shall be added to the Servicing Fee payable on the subsequent
Payment Date.
(c) Except as provided in Section 5.02(d), the Servicer shall be
required to pay from its own account all expenses incurred by it in connection
with its activities hereunder (including any fees to and disbursements by
accountants, counsel, or any other Person, any taxes imposed on the Servicer and
any expenses incurred in connection with reports to Noteholders and
Certificateholders) out of the compensation retained by or paid to it pursuant
to this Section 6.06, and shall not be entitled to any extra payment or
reimbursement therefor.
50
SECTION 6.07. Compliance with Applicable Law. The Servicer covenants
-------------------------------
and agrees, in servicing the Transition Property, to comply with all laws
applicable to, and binding upon, the Servicer and relating to such Transition
Property the noncompliance with which would have a material adverse effect on
the value of the Transition Property; provided, however, that the foregoing is
-------- -------
not intended to, and shall not, impose any liability on the Servicer for
noncompliance with any law that the Servicer is contesting in good faith in
accordance with its customary standards and procedures.
SECTION 6.08. Access to Certain Records and Information Regarding
---------------------------------------------------
Transition Property. The Servicer shall provide to the Noteholders, the Note
--------------------
Trustee, the Certificate Trustee, the Infrastructure Bank and the STO access to
the Transition Property Records in such cases where the Noteholders, the Note
Trustee, the Certificate Trustee, the Infrastructure Bank and the STO shall be
required by applicable law to be provided access to such records. Access shall
be afforded without charge, but only upon reasonable request and during normal
business hours at the respective offices of the Servicer. Nothing in this
Section shall affect the obligation of the Servicer to observe any applicable
law (including any CPUC Regulation) prohibiting disclosure of information
regarding the Customers, and the failure of the Servicer to provide access to
such information as a result of such obligation shall not constitute a breach of
this Section.
51
SECTION 6.09. Appointments. The Servicer may at any time appoint any
-------------
Person to perform all or any portion of its obligations as Servicer hereunder;
provided, however, that the Rating Agency Condition shall have been satisfied in
-------- -------
connection therewith; provided further that the Servicer shall remain obligated
-------- -------
and be liable to the Note Issuer, the Note Trustee, the Certificate Trustee and
the Noteholders for the servicing and administering of the Transition Property
in accordance with the provisions hereof without diminution of such obligation
and liability by virtue of the appointment of such Person and to the same extent
and under the same terms and conditions as if the Servicer alone were servicing
and administering the Transition Property; and provided further, however, that
---------------- -------
nothing herein (including, without limitation, the Rating Agency Condition)
shall preclude the execution by the Servicer of an ESP Service Agreement with
any ESP pursuant to applicable CPUC Regulations. The fees and expenses of such
Person shall be as agreed between the Servicer and such Person from time to time
and none of the Note Issuer, the Note Trustee, the Noteholders or any other
Person shall have any responsibility therefor or right or claim thereto. Any
such appointment shall not constitute a Servicer resignation under Section 6.05.
SECTION 6.10. No Servicer Advances. The Servicer shall not make any
---------------------
advances of interest or principal on the Notes or the Certificates.
52
SECTION 6.11. Remittances. (a) Subject to clause (b) below, on each
------------
Remittance Date, the Servicer shall cause to be made a wire transfer of
immediately available funds equal to the Aggregate Remittance Amount for the
applicable Collection Period to the General Subaccount of the Collection
Account. Prior to each remittance to the General Subaccount of the Collection
Account pursuant to this Section, the Servicer shall provide written notice to
the Note Trustee of each such remittance (including the exact dollar amount to
be remitted).
(b) Notwithstanding the foregoing clause (a), during any period in
which there exists the occurrence and continuance of a Servicer Default, the
failure to satisfy the Rating Agency Condition or the failure of the Servicer to
maintain a short-term rating of A-1 or better by Standard & Poor's and P-1 or
better by Moody's, the Servicer shall remit to the General Subaccount of the
Collection Account the total FTA Payments estimated to have been received by the
Servicer from or on behalf of Customers on a given Servicer Business Day in
respect of all previously Billed FTA Charges within two Servicer Business Days
of receipt thereof by the Servicer (the "Daily Remittance"). On or before each
Remittance Date during any period described in this clause (b), the Servicer
shall calculate the amount of any Remittance Shortfall or Excess Remittance
attributable to the prior Collection Period and (A) if a Remittance Shortfall
exists, the Servicer shall make a supplemental remittance to the General
Subaccount of the Collection Account on such Remittance Date in
53
the amount of such Remittance Shortfall, or (B) if an Excess Remittance exists,
the Servicer shall reduce the amount of each Daily Remittance (beginning with
the Daily Remittance occurring on the Remittance Date) by the outstanding amount
of such Excess Remittance until the balance of the Excess Remittance has been
reduced to zero.
(c) The Servicer agrees and acknowledges that it holds all FTA
Payments collected by it for the benefit of the Note Issuer and that all such
amounts will be remitted by the Servicer in accordance with this Section without
any surcharge, fee, offset, charge or other deduction except (i) as set forth in
clause (b) above or clause (d) below and (ii) for late fees permitted by Section
6.06. The Servicer further agrees not to make any claim to reduce its
obligation to remit all FTA Payments collected by it in accordance with this
Agreement except (i) as set forth in clause (b) above or clause (d) below and
(ii) for late fees permitted by Section 6.06.
(d) If there is an Excess Remittance, the Servicer shall be entitled
either (i) to reduce the amount which the Servicer remits to the General
Subaccount of the Collection Account on such Remittance Date by the amount of
such Excess Remittance, the amount of such reduction becoming the property of
the Servicer or (ii) immediately to be paid from the Collection Account or any
subaccount therein the amount of such Excess Remittance, such payment becoming
the property of the Servicer. If there is a Remittance Shortfall, the amount
which the Servicer
54
remits to the General Subaccount of the Collection Account on such Remittance
Date will be increased by the amount of such Remittance Shortfall, such increase
coming from the Servicer's own funds.
ARTICLE VII
Default
-------
SECTION 7.01. Servicer Default. If any one of the following events
-----------------
(a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to deposit in the Collection Account
on behalf of the Note Issuer any required remittance that shall continue
unremedied for a period of three Business Days after written notice of such
failure is received by the Servicer from the Note Issuer or the Note
Trustee or after discovery of such failure by an officer of the Servicer;
or
(b) any failure on the part of the Servicer or the Seller, as the case
may be, duly to observe or to perform in any material respect any other
covenants or agreements of the Servicer or the Seller (as the case may be)
set forth in this Agreement (including Section 4.01) or any other Basic
Document to which it is a party, which failure shall (i) materially and
adversely affect the rights of Noteholders or Certificateholders and (ii)
continue unremedied for a period of 30 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been
55
given (A) to the Servicer or the Seller (as the case may be) by the Note
Issuer or (B) to the Servicer or the Seller (as the case may be) by the
Note Trustee or by the Holders of Notes evidencing not less than 25 percent
of the Outstanding Amount of the Notes of all Series; or
(c) any representation or warranty made by the Servicer in this
Agreement shall prove to have been incorrect when made, which has a
material adverse effect on the Note Issuer or the Certificateholders and
which material adverse effect continues unremedied for a period of 60 days
after the date on which written notice thereof, requiring the same to be
remedied, shall have been delivered to the Servicer by the Note Issuer or
the Note Trustee; or
(d) an Insolvency Event occurs with respect to the Servicer or the
Seller;
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, either the Note Trustee, or the Holders of Notes evidencing not
less than 25 percent of the Outstanding Amount of the Notes of all Series, by
notice then given in writing to the Servicer (and to the Note Trustee if given
by the Noteholders) (a "Termination Notice") may terminate all the rights and
obligations (other than the obligations set forth in Section 6.02 hereof) of the
Servicer under this Agreement. In addition, upon a Servicer Default described
in Section 7.01(a), each of the following shall be entitled to apply to the CPUC
for sequestration and payment of revenues arising
56
with respect to the Transition Property: (1) the Certificateholders and the
Certificate Trustee as beneficiary of any statutory lien permitted by the PU
Code; (2) the Note Issuer or its assignees; or (3) pledgees or transferees,
including transferees under Section 844 of the PU Code, of the Transition
Property. On or after the receipt by the Servicer of a Termination Notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Notes, the Transition Property, the FTA Charges or otherwise, shall,
without further action, pass to and be vested in such successor Servicer as may
be appointed under Section 7.02; and, without limitation, the Note Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such Termination Notice,
whether to complete the transfer of the Transition Property Records and related
documents, or otherwise. The predecessor Servicer shall cooperate with the
successor Servicer, the Note Issuer and the Note Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer under
this Agreement, including the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Servicer for remittance, or shall thereafter be received by it with
respect to the Transition Property or the FTA Charges. All reasonable costs and
expenses
57
(including attorneys fees and expenses) incurred in connection with transferring
the Transition Property Records to the successor Servicer and amending this
Agreement to reflect such succession as Servicer pursuant to this Section shall
be paid by the predecessor Servicer upon presentation of reasonable
documentation of such costs and expenses.
SECTION 7.02. Appointment of Successor. (a) Upon the Servicer's
-------------------------
receipt of a Termination Notice pursuant to Section 7.01 or the Servicer's
resignation or removal in accordance with the terms of this Agreement, the
predecessor Servicer shall continue to perform its functions as Servicer under
this Agreement, and shall be entitled to receive the requisite portion of the
Servicing Fee, until a successor Servicer shall have assumed in writing the
obligations of the Servicer hereunder as described below. In the event of the
Servicer's termination hereunder, the Note Issuer shall appoint a successor
Servicer with the Note Trustee's prior written consent thereto (which consent
shall not be unreasonably withheld), and the successor Servicer shall accept its
appointment by a written assumption in form acceptable to the Note Issuer and
the Note Trustee. If within 30 days after the delivery of the Termination
Notice, the Note Issuer shall not have obtained such a new Servicer, the Note
Trustee may petition the CPUC or a court of competent jurisdiction to appoint a
successor Servicer under this Agreement. A Person shall qualify as a successor
Servicer only if (i) such Person is permitted under CPUC Regulations to perform
58
the duties of the Servicer, (ii) the Rating Agency Condition shall have been
satisfied and (iii) such Person enters into a servicing agreement with the Note
Issuer having substantially the same provisions as this Agreement.
(b) Upon appointment, the successor Servicer shall be the successor
in all respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the predecessor Servicer and shall be entitled to the Servicing Fee
and all the rights granted to the predecessor Servicer by the terms and
provisions of this Agreement.
SECTION 7.03. Waiver of Past Defaults. The Holders of Notes
------------------------
evidencing not less than a majority of the Outstanding Amount of the Notes of
all Series may, on behalf of all Noteholders, waive in writing any default by
the Servicer in the performance of its obligations hereunder and its
consequences, except a default in making any required deposits to the Collection
Account in accordance with this Agreement. Upon any such waiver of a past
default, such default shall cease to exist, and any Servicer Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto.
SECTION 7.04. Notice of Servicer Default. The Servicer shall deliver
---------------------------
to the Note Issuer, the Note Trustee, the Certificate Trustee, the
Infrastructure Bank, the STO and the
59
Rating Agencies, promptly after having obtained knowledge thereof, but in no
event later than five Business Days thereafter, written notice in an Officers'
Certificate of any event which with the giving of notice or lapse of time, or
both, would become a Servicer Default under Section 7.01(a) or (b).
ARTICLE VIII
Miscellaneous Provisions
------------------------
SECTION 8.01. Amendment. (a) This Agreement may be amended in
----------
writing by the Servicer and the Note Issuer with five Business Days' prior
written notice given to the Rating Agencies and the prior written consent of the
Note Trustee, but without the consent of any of the Noteholders or
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
-------- -------
by an Officer's Certificate delivered to the Note Issuer and the Note Trustee,
adversely affect in any material respect the interests of any Noteholder or
Certificateholder.
This Agreement may also be amended in writing from time to time by the
Servicer and the Note Issuer with prior written notice given to the Rating
Agencies and the prior written consent of the Note Trustee and the prior written
consent of the Holders of Notes evidencing not less than a majority of the
Outstanding
60
Amount of the Notes of all Series, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that no such amendment shall (a) increase
-------- -------
or reduce in any manner the amount of, or accelerate or delay the timing of, FTA
Collections or (b) reduce the aforesaid percentage of the Outstanding Amount of
the Notes, the Holders of which are required to consent to any such amendment,
without the consent of the Holders of all the outstanding Notes.
Promptly after the execution of any such amendment and the requisite
consents, the Note Issuer shall furnish written notification of the substance of
such amendment to the Note Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Noteholders pursuant to
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof.
Prior to its consent to any amendment to this Agreement, the Note
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel stating that such amendment is authorized or permitted by this
Agreement. The Note Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Note Trustee's own rights, duties or immunities
under this Agreement or otherwise.
61
(b) Notwithstanding Section 8.01(a) or anything to the contrary in
this Agreement, the Servicer and the Note Issuer may amend Annex I to this
Agreement in writing with prior written notice given to the Note Trustee and the
Rating Agencies, but without the consent of the Note Trustee, any Rating Agency
or any Noteholder or Certificateholder, solely to address changes to the
Servicer's method of calculating FTA Payments received as a result of changes to
the Servicer's current computerized customer information system, as contemplated
by Section 6(e)(iii) of Annex I hereto; provided that any such amendment shall
--------
not have or cause a material adverse effect on the Certificateholders.
SECTION 8.02. Protection of Title to Trust. (a) The Servicer shall
-----------------------------
maintain accounts and records as to the Transition Property accurately and in
accordance with its standard accounting procedures and in sufficient detail to
permit reconciliation between FTA Payments received by the Servicer and FTA
Collections from time to time deposited in the Collection Account.
(b) The Servicer shall permit the Note Trustee and its agents at any
time during normal business hours, upon reasonable notice to the Servicer and to
the extent it does not unreasonably interfere with the Servicer's normal
operations, to inspect, audit and make copies of and abstracts from the
Servicer's records regarding the Transition Property and the FTA Charges.
Nothing in this Section 8.02(b) shall affect the obligation of the Servicer to
observe any applicable law (including any CPUC
62
Regulation) prohibiting disclosure of information regarding the Customers, and
the failure of the Servicer to provide access to such information as a result of
such obligation shall not constitute a breach of this Section 8.02(b).
SECTION 8.03. Notices. All demands, notices and communications upon
--------
or to the Servicer, the Note Issuer, the Note Trustee, the Infrastructure Bank,
the STO, the Certificate Trustee or the Rating Agencies under this Agreement
shall be in writing and personally delivered, sent by overnight mail or sent by
telecopy or other similar form of rapid transmission, and shall be deemed to
have been duly given upon receipt (a) in the case of the Servicer, to San Diego
Gas & Electric Company, at 000 Xxx Xxxxxx, Xxx Xxxxx, XX 00000, Attention of
Manager, Financial Services, (b) in the case of the Note Issuer, to SDG&E
Funding LLC, 000 Xxx Xxxxxx, Xxxx 000, Xxx Xxxxx, XX 00000, Attention of
President, (c) in the case of the Note Trustee, at the Corporate Trust Office,
(d) in the case of the Infrastructure Bank, to California Infrastructure and
Economic Development Bank, c/o California Trade and Commerce Agency, at 000 X
Xxxxxx, Xxxxx 0000, Xxxxxxxxxx, XX 00000, Attention of Executive Director, (e)
in the case of the Certificate Trustee, to Bankers Trust Company of California,
N.A., c/o Bankers Trust Company, Corporate Trust and Agency Services, at Four
Xxxxxx Xxxxxx, Xxx Xxxx, XX 00000, Attention of Structured Finance Group, (f) in
the case of the STO, to the California State Treasurer's Office, 000 Xxxxxxx
Xxxx, Xxxx 000, Xxxxxxxxxx, XX 00000, Attention of Deputy
63
Treasurer, (g) in the case of Moody's, to Xxxxx'x Investors Service, Inc., ABS
Monitoring Department, 00 Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, (h) in the
case of Standard & Poor's, to Standard & Poor's Corporation, 00 Xxxxxxxx (00xx
Xxxxx), Xxx Xxxx, Xxx Xxxx 00000, Attention of Asset Backed Surveillance
Department, (i) in the case of Fitch, to Fitch Investors Service, L.P., Xxx
Xxxxx Xxxxxx Xxxxx, Xxx Xxxx, XX 00000, Attention of Commercial Asset-Backed
Securities, or (j) as to each of the foregoing, at such other address as shall
be designated by written notice to the other parties.
SECTION 8.04. Assignment. Notwithstanding anything to the contrary
-----------
contained herein, except as provided in Section 6.03 and as provided in the
provisions of this Agreement concerning the resignation of the Servicer, this
Agreement may not be assigned by the Servicer.
SECTION 8.05. Limitations on Rights of Others. The provisions of
--------------------------------
this Agreement are solely for the benefit of the Servicer and the Note Issuer
and, to the extent provided herein or in the Basic Documents, the Trust, the
Note Trustee, the Certificate Trustee, the Noteholders, the Certificateholders,
the Infrastructure Bank and the STO, and nothing in this Agreement, whether
express or implied, shall be construed to give to any other Person any legal or
equitable right, remedy or claim in the Transition Property or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.
64
SECTION 8.06. Severability. Any provision of this Agreement that is
-------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 8.07. Separate Counterparts. This Agreement may be executed
----------------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 8.08. Headings. The headings of the various Articles and
---------
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 8.09. Governing Law. This Agreement shall be construed in
--------------
accordance with the laws of the State of California, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 8.10. Assignment to Note Trustee. The Servicer hereby
---------------------------
acknowledges and consents to the collateral assignment of any or all of the Note
Issuer's rights and obligations hereunder to the Note Trustee and to the further
65
assignment of the Note Trustee's rights and obligations under the Indenture to
the Certificate Trustee.
SECTION 8.11. Nonpetition Covenants. Notwithstanding any prior
----------------------
termination of this Agreement or the Indenture, but subject to the CPUC's right
to order the sequestration and payment of revenues arising with respect to the
Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to the debtor, pledgor or transferor of the
Transition Property pursuant to Section 843(e) and (g) of the PU Code, the
Servicer shall not, prior to the date which is one year and one day after the
termination of the Indenture with respect to the Note Issuer, acquiesce,
petition or otherwise invoke or cause the Note Issuer or the Trust to invoke the
process of any court or governmental authority for the purpose of commencing or
sustaining a case against the Note Issuer or the Trust under any Federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Note Issuer or the Trust or any substantial part of the property of the
Note Issuer or the Trust, or ordering the winding up or liquidation of the
affairs of the Note Issuer or the Trust.
SECTION 8.12. Limitation of Liability. It is expressly understood
------------------------
and agreed by the parties hereto that (a) this Agreement is executed and
delivered by Bankers Trust Company of California, N.A., not individually or
personally but solely as
66
Note Trustee on behalf of the holders of the Notes, in the exercise of the
powers and authority conferred and vested in it, (b) the representations,
undertakings and agreements herein made by the Note Trustee on behalf of the
holders of the Notes are made and intended not as personal representations,
undertakings and agreements by Bankers Trust Company of California, N.A., but
are made and intended for the purpose of binding only the holders of the Notes,
(c) nothing herein contained shall be construed as creating any liability on
Bankers Trust Company of California, N.A., individually or personally, to
perform any covenant either expressed or implied contained herein, except in its
capacity as Note Trustee, all such liability, if any, being expressly waived by
the parties who are signatories to this Agreement and by any Person claiming by,
through or under such parties and (d) under no circumstances shall Bankers Trust
Company of California, N.A., be personally liable for the payment of any
indebtedness or expenses of the holders of the Notes or be personally liable for
the breach or failure of any obligation, representation, warranty or covenant
made or undertaken by the Note Trustee under this Agreement; provided, however,
-------- -------
that this provision shall not protect Bankers Trust Company of California, N.A.
against any liability that would otherwise be imposed by reason of willful
misconduct, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under this Agreement.
67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers as of the day and year first above
written.
SDG&E FUNDING LLC,
by /s/ Xxxxxxx XxXxxxxxx
-------------------------------
Title: President and Chief
Executive Officer
SAN DIEGO GAS & ELECTRIC COMPANY,
by /s/ Xxxxxx X. Xxxxxxxxx
-------------------------------
Title: President and Chief
Executive Officer
Acknowledged and Accepted:
BANKERS TRUST COMPANY
OF CALIFORNIA, N.A., not in
its individual capacity
but solely as Note Trustee,
by /s/ Xxxxx X. Xxxxxxx
________________________
Xxxxx X. Xxxxxxx
Vice President
EXHIBIT A
[TO COME]
EXHIBIT B
CERTIFICATE OF COMPLIANCE
The undersigned hereby certifies that he/she is the duly elected and
acting __________ of San Diego Gas & Electric Company, as servicer (the
"Servicer") under the Transition Property Servicing Agreement dated as of
December 16, 1997 (the "Servicing Agreement") between the Servicer and SDG&E
Funding LLC (the "Note Issuer") and further that:
1. A review of the activities of the Servicer and of its performance
under the Servicing Agreement during the twelve months ended June 30, __ has
been made under the supervision of the undersigned pursuant to Section 3.03 of
the Servicing Agreement; and
2. To the best of the undersigned's knowledge, based on such review,
the Servicer has fulfilled all of its material objections in all material
respects under the Servicing Agreement throughout the twelve months ended June
30, ____, except for those material defaults in the fulfillment of material
obligations listed on Annex A hereto.
-------
Executed as of this ___ day of _________________.
SAN DIEGO GAS & ELECTRIC COMPANY
By: ___________________________
Name:
Title:
ANNEX A
TO
CERTIFICATE OF COMPLIANCE
LIST OF SERVICER DEFAULTS
The following material defaults known to the undersigned occurred during the
year ended June 30, ___:
Nature of Default Status
-------------------- ------
EXHIBIT C
[TO COME]
EXHIBIT D
TO TRANSITION PROPERTY
SERVICING AGREEMENT
Form of Anniversary True-Up Mechanism Advice Letter
---------------------------------------------------
_____________________, 1997
ADVICE __________-E
(U 338-E)
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
ENERGY DIVISION
SUBJECT: Anniversary Fixed Transition Amounts Charge (FTAC) True-Up
Mechanism Advice Filing
Pursuant to California Public Utilities Commission (Commission) Decision No. 97-
09-057 (D.97-09-057), Ordering Paragraph No. 14, San Diego Gas & Electric
Company (SDG&E or Company), as servicer of the Rate Reduction Bonds (RRBs) and
on behalf of SDG&E Funding LLC is required to file a True-Up Mechanism Advice
Lette at least 15 days before each anniversary of the issuance of the financing
order.
PURPOSE
-------
This filing establishes revised FTACs currently in effect are adequate to
service the Rate Reduction Bonds, that no event of default has occurred and is
continuing on the Rate Reduction Bonds, and that no adjustments to the FTACs are
required at this time.
BACKGROUND
----------
In D.00-00-000, in accordance with Public Utilities (PU) Code Section 841 (e),
the Commission ordered SDG&E to file True-Up Mechanism Advice Letters at least
15 days before each anniversary of the issuance of the financing order, stating
whether an adjustment to the FTACs is necessary.
Table I shows the RRB principal balance and the balances in the Collection
Account subaccounts as of June 25, _____. The assumptions underlying the
current FTACs were filed in Advice 1060-E, as authorized by D.00-00-000.
=========================================================================
TABLE I
RRB PRINCIPAL BALANCE AND COLLECTION ACCOUNT SUBACCOUNT BALANCES
-------------------------------------------------------------------------
Scheduled RRB Principal Balance
-------------------------------------------------------------------------
RRB Principal Balance
-------------------------------------------------------------------------
Reserve Subaccount Balance
-------------------------------------------------------------------------
Required Overcollateralization Level
-------------------------------------------------------------------------
Overcollateralization Subaccount Balance
-------------------------------------------------------------------------
Required Capital Level
-------------------------------------------------------------------------
Capital Subaccount Balance
=========================================================================
EFFECTIVE DATE
--------------
In accordance with Decision No. 00-00-000 and PU Code Section 841(e), the
Commission shall determine on the anniversary of issuance of this financing
order, whether adjustments to the FTACs are required, with the resulting
adjustments to the FTACs, if necessary, to be implemented within 90 days of this
anniversary date.
NOTICE
------
In accordance with PU Code Section 491, notice to the public is hereby given by
filing and keeping the Advice Filing open for public inspection at the Company's
corporate headquarters.
Since this Filing is made pursuant to Decision No. 00-00-000, further notice in
accordance with General Order No. 96-A, Section III, Paragraph G, is not
necessary. However, copies of this Filing are being furnished to the Interested
Parties on the attached service list and to parties to A.00-00-000. Address
change requests should be directed to Xxxxxx Xxxxxxx at (000) 000-0000.
Enclosures
cc: CPUC, SF - Attn: Xxxx Xxxxxx, Energy Division
CPUC, SF - Attn: Xxxxx Xxxxxx, XXX
CPUC, SF - Attn: Xxxxxxx Xxxxxx, Energy Division
CPUC, SF - Attn: Xxxx XxXxxxxxx, Energy Division
EXHIBIT E
[ TO COME ]
SCHEDULE 4.01(a)
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE
-------------------------------------------------------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4 Class A-5 Class A-6 Class A-7
------------ --------- --------- --------- ---------- --------- --------- ----------
Series Issuance
Date............ $65,800,000.00 $82,639,254.00 $66,230,948.00 $65,671,451.00 $96,537,839.00 $197,584,137.00 $83,536,371.00
Mar. 1998....... 62,632,171.52 82,639,254.00 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
June 1998....... 43,932,681.18 82,639,254.00 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Sept. 1998...... 23,489,759.73 82,639,254.00 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Dec. 1998....... 0.00 82,639,254.00 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Mar. 1999....... 0.00 63,000,733.42 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
June 1999....... 0.00 49,025,773.57 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Sept. 1999...... 0.00 34,076,269.98 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Dec. 1999....... 0.00 16,839,254.00 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Mar. 2000....... 0.00 0.00 66,230,948.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
June 2000....... 0.00 0.00 51,351,375.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Sept. 2000...... 0.00 0.00 35,452,056.18 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Dec. 2000....... 0.00 0.00 17,270,202.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
Mar. 2001....... 0.00 0.00 0.00 65,671,451.00 96,537,839.00 197,584,137.00 83,536,371.00
June 2001....... 0.00 0.00 0.00 50,877,702.51 96,537,839.00 197,584,137.00 83,536,371.00
Sept. 2001...... 0.00 0.00 0.00 35,102,832.31 96,537,839.00 197,584,137.00 83,536,371.00
Dec. 2001....... 0.00 0.00 0.00 17,141,653.00 96,537,839.00 197,584,137.00 83,536,371.00
Mar. 2002....... 0.00 0.00 0.00 0.00 96,537,839.00 197,584,137.00 83,536,371.00
June 2002....... 0.00 0.00 0.00 0.00 81,688,200.22 197,584,137.00 83,536,371.00
Sept. 2002...... 0.00 0.00 0.00 0.00 65,850,943.56 197,584,137.00 83,536,371.00
Dec. 2002....... 0.00 0.00 0.00 0.00 47,879,492.00 197,584,137.00 83,536,371.00
Mar. 2003....... 0.00 0.00 0.00 0.00 30,746,198.35 197,584,137.00 83,536,371.00
June 2003....... 0.00 0.00 0.00 0.00 15,862,492.33 197,584,137.00 83,536,371.00
Sept. 2003...... 0.00 0.00 0.00 0.00 0.00 197,584,137.00 83,536,371.00
Dec. 2003....... 0.00 0.00 0.00 0.00 0.00 179,663,629.00 83,536,371.00
Mar. 2004....... 0.00 0.00 0.00 0.00 0.00 162,559,535.91 83,536,371.00
June 2004....... 0.00 0.00 0.00 0.00 0.00 147,610,059.78 83,536,371.00
Sept. 2004...... 0.00 0.00 0.00 0.00 0.00 131,717,804.89 83,536,371.00
Dec. 2004....... 0.00 0.00 0.00 0.00 0.00 113,863,629.00 83,536,371.00
Mar. 2005....... 0.00 0.00 0.00 0.00 0.00 96,804,670.77 83,536,371.00
June 2005....... 0.00 0.00 0.00 0.00 0.00 81,792,085.99 83,536,371.00
Sept. 2005...... 0.00 0.00 0.00 0.00 0.00 65,865,306.62 83,536,371.00
Dec. 2005....... 0.00 0.00 0.00 0.00 0.00 48,063,629.00 83,536,371.00
Mar. 2006....... 0.00 0.00 0.00 0.00 0.00 31,031,326.78 83,536,371.00
June 2006....... 0.00 0.00 0.00 0.00 0.00 15,955,287.79 83,536,371.00
Sept. 2006...... 0.00 0.00 0.00 0.00 0.00 0.00 83,536,371.00
Dec. 2006....... 0.00 0.00 0.00 0.00 0.00 0.00 65,800,000.00
Mar. 2007....... 0.00 0.00 0.00 0.00 0.00 0.00 48,653,497.67
June 2007....... 0.00 0.00 0.00 0.00 0.00 0.00 33,202,584.82
Sept. 2007...... 0.00 0.00 0.00 0.00 0.00 0.00 16,886,533.28
Dec. 2007....... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
OUTSTANDING
PRINCIPAL
BALANCE
-------------
Payment Date Series 1997-1
------------ -------------
Series Issuance
Date............ $658,000,000.00
Mar. 1998....... 654,832,171.52
June 1998....... 636,132.681.18
Sept. 1998...... 615,689,759.73
Dec. 1998....... 592,200,000.00
Mar. 1999....... 572,561,479.42
June 1999....... 558,586,519.57
Sept. 1999...... 543,637,015.98
Dec. 1999....... 526,400,000.00
Mar. 2000....... 509,560,746.00
June 2000....... 494,681,173.00
Sept. 2000...... 478,781,854.18
Dec. 2000....... 460,000,000.00
Mar. 2001....... 443,329,798.00
June 2001....... 428,536,049.51
Sept. 2001...... 412,761,179.31
Dec. 2001....... 394,800,000.00
Mar. 2002....... 377,658,347.00
June 2002....... 362,808,708.22
Sept. 2002...... 346,971,451.56
Dec. 2002....... 329,000,000.00
Mar. 2003....... 311,866,706.35
June 2003....... 296,983,000.33
Sept. 2003...... 281,120,508.00
Dec. 2003....... 263,200,000.00
Mar. 2004....... 246,095,906.91
June 2004....... 231,146,430.78
Sept. 2004...... 215,254,175.89
Dec. 2004....... 197,400,000.00
Mar. 2005....... 180,341,041.77
June 2005....... 165,328,456.99
Sept. 2005...... 149,401,677.62
Dec. 2005....... 131,600,000.00
Mar. 2006....... 114,567,697.78
June 2006....... 99,491,658.79
Sept. 2006...... 83,536,371.00
Dec. 2006....... 65,800,000.00
Mar. 2007....... 48,653,497.67
June 2007....... 33,202,584.82
Sept. 2007...... 16,886,533.28
Dec. 2007....... 0.00
SCHEDULE 6.01(f)
Proceedings
-----------
1. Petition for writ of review filed with the California Supreme Court by The
Utility Reform Network on November 24, 1997.
ANNEX I
TO
SERVICING AGREEMENT
The Servicer agrees to comply with the following servicing procedures:
SECTION 1. DEFINITIONS.
-----------
(a) Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
(b) Whenever used in this Annex I, the following words and phrases shall
have the following meanings:
"Aggregate Remittance Amount" has the meaning set forth in Section 6(e)(i)
---------------------------
of this Annex I.
"Applicable MDMA" means with respect to each Customer, the meter data
---------------
management agent providing meter reading services for that Customer's account.
"Billed FTA Charges" means the amounts billed to Customers pursuant to the
------------------
FTA Charges, whether billed directly to such Customers by the Servicer or
indirectly through an ESP pursuant to Consolidated ESP Billing.
"Closing Xxxx" means the final xxxx issued to a Customer at the time
------------
service is terminated.
"Consolidated ESP Billing" means the billing option available to Customers
------------------------
served by an ESP pursuant to which such ESP will be responsible for billing and
collecting all charges to Customers electing such billing option, including the
FTA Charges, and will become obligated to the Servicer for such billed FTA
Charges, all in accordance with applicable CPUC Regulations.
"Estimation Template" means the template shown on Schedule 6 to this Annex
------------------- ----------
I, which template is used to calculate the FTA Payments estimated to have been
received by the Servicer during any Collection Period.
"Full Consolidated ESP Billing" means the billing option available to
-----------------------------
Customers served by an ESP, if such option is approved by the utility with
respect to such ESP, pursuant to which such ESP performs the same tasks it would
perform under Consolidated ESP Billing and, in addition, calculates all utility
charges to Customers,
I-1
including the FTA Charges, from billing factors provided by the utility and the
Servicer.
"Level Pay Plan" means a level payment plan offered by the Seller, which,
--------------
if elected by a Customer, provides for level monthly Xxxx charges to such
Customer by estimating the amount that the Customer would pay during a year
(based on the Customer's actual usage during the prior year), then charging the
Customer 1/11th of that amount for each of eleven months, with quarterly
adjustments if necessary. In the twelfth month, the payments made by such
Customer during the preceding eleven months are reconciled with the amount owed
by such Customer for actual usage during the level pay period, and the Customer
is given a credit or billed for the difference, as appropriate, based on such
reconciliation.
"Net Write-Off Percent" means the number (expressed as a percent) equal to:
---------------------
(i) the amount by which Write-Offs attributable to a particular Billing Period
exceed Write-Off recoveries attributable to such Billing Period, divided by (ii)
the total billed revenue attributable to the current Billing Period.
"Servicer Policies and Practices" means, with respect to the Servicer's
-------------------------------
duties under this Annex I, the policies and practices of the Servicer applicable
to such duties that the Servicer follows with respect to comparable assets that
it services for itself.
"Variables" means the following variables underlying the Daily Collections
---------
Curves:
(i) the 30-day outstanding billed revenue;
(ii) the 60-day outstanding billed revenue;
(iii) the 90-day outstanding billed revenue (which may be solved for
in accordance with applicable Servicer Policies and Practices);
(iv) the 120-day outstanding billed revenue (which may be solved for
in accordance with applicable Servicer Policies and Practices);
(v) the 150-day outstanding billed revenue (which may be solved for
in accordance with applicable Servicer Policies and Practices);
and
(vi) the estimated Net Write-Off percentage for each class of
Customers.
"Write-Offs" means write-offs of Billed FTA Charges that remain unpaid
----------
by Customers or ESPs as of 180 days after the issuance of the Closing Bills
containing such charges.
I-2
SECTION 2. DATA ACQUISITION.
----------------
(a) Installation and Maintenance of Meters. Except to the extent that an
--------------------------------------
ESP is responsible for such services pursuant to an ESP Service Agreement, the
Servicer shall cause to be installed, replaced and maintained meters in such
places and in such condition as will enable the Servicer to obtain usage
measurements for each Customer every 27 to 33 days.
(b) Meter Reading. At least once each calendar month, the Servicer shall
-------------
obtain usage measurements from the Applicable MDMA for each Customer; provided,
--------
however, that the Servicer may determine any Customer's usage on the basis of
-------
estimates in accordance with applicable CPUC Regulations.
(c) Cost of Metering. The Note Issuer shall not be obligated to pay any
----------------
costs associated with the metering duties set forth in this Section 2,
including, but not limited to, the costs of installing, replacing and
maintaining meters, nor shall the Note Issuer be entitled to any credit against
the Servicing Fee for any cost savings realized by the Servicer or any ESP as a
result of new metering and/or billing technologies.
SECTION 3. USAGE AND XXXX CALCULATION.
--------------------------
The Servicer shall obtain a calculation of each Customer's usage (which may
be based on data obtained from such Customer's meter read or on usage estimates
determined in accordance with applicable CPUC Regulations) at least once each
calendar month and shall determine therefrom each Customer's individual FTA
Charge to be included on such Customer's Xxxx; provided, however, that in the
-------- -------
case of Customers served by an ESP under the Full Consolidated ESP Billing
option, the Applicable ESP, rather than the Servicer, shall determine such
Customers' individual FTA Charges to be included on such Customers' Bills based
on billing factors provided by the Servicer, and the Servicer shall deliver to
the Applicable ESPs such billing factors as are necessary for the Applicable
ESPs to calculate such Customers' respective FTA Charges as such charges may
change from time to time pursuant to the True-Up Adjustments.
SECTION 4. BILLING.
-------
The Servicer shall implement the FTA Charges as of the FTA Effective Date
and shall thereafter xxxx each Customer or the Applicable ESP for the respective
Customer's outstanding current and past due FTA Charges accruing through the FTA
Termination Date, all in accordance with the following:
(a) Frequency of Bills; Billing Practices. In accordance with the
-------------------------------------
Servicer's then-existing Servicer Policies and Practices for its own charges, as
such Servicer Policies and Practices may be modified from time to time, the
Servicer shall generate and issue a Xxxx to each Customer, or, in the case of a
Customer who has elected Consolidated ESP Billing, to
I-3
the Applicable ESP, for such Customer's respective FTA Charge once every 27 to
33 days, at the same time, with the same frequency and on the same Xxxx as that
containing the Servicer's own charges to such Customer or ESP, as the case may
be. In the event that the Servicer makes any material modification to these
practices, it shall notify the Note Issuer, the Note Trustee, the Certificate
Trustee, the Infrastructure Bank and the Rating Agencies as soon as practicable,
and in no event later than 60 Business Days after such modification goes into
effect; provided, however, that the Servicer may not make any modification that
-------- -------
will materially adversely affect the Certificateholders.
(b) Format.
------
(i) Each Xxxx to a Customer shall contain the charge corresponding
to the respective FTA Charge owed by such Customer for the applicable Billing
Period. Unless the Servicer's billing system cannot do so, beginning January 1,
1998, the FTA Charge shall appear as a separate line-item on each Xxxx.
(ii) In the case of each Customer that has elected Consolidated ESP
Billing, the Servicer shall deliver to the Applicable ESP itemized charges for
such Customer setting forth such Customer's FTA Charge as a separate line-item.
(iii) The Servicer shall conform to such requirements in respect of
the format, structure and text of Bills delivered to Customers and ESPs as
applicable CPUC Regulations shall from time to time prescribe. To the extent
that Xxxx format, structure and text are not prescribed by the PU Code or by
applicable CPUC Regulations, the Servicer shall, subject to clauses (i) and (ii)
above, determine the format, structure and text of all Bills in accordance with
its reasonable business judgment, its Servicer Policies and Practices with
respect to its own charges and prevailing industry standards.
(c) Delivery. The Servicer shall deliver all Bills to Customers (i) by
--------
United States Mail in such class or classes as are consistent with the Servicer
Policies and Practices followed by the Servicer with respect to its own charges
to its customers or (ii) by any other means, whether electronic or otherwise,
that the Servicer may from time to time use to present its own charges to its
customers. In the case of Customers that have elected Consolidated ESP Billing,
the Servicer shall deliver all Bills to the Applicable ESPs by such means as are
prescribed by applicable CPUC Regulations, or if not prescribed by applicable
CPUC Regulations, by such means as are mutually agreed upon by the Servicer and
the Applicable ESP and are consistent with CPUC Regulations. The Servicer or an
ESP, as applicable, shall pay from its own funds all costs of issuance and
delivery of all Bills, including but not limited to printing and postage costs
as the same may increase or decrease from time to time.
I-4
SECTION 5. CUSTOMER SERVICE FUNCTIONS.
--------------------------
The Servicer shall handle all Customer inquiries and other Customer service
matters according to the same procedures it uses to service Customers with
respect to its own charges.
SECTION 6. COLLECTIONS; PAYMENT PROCESSING; REMITTANCE.
-------------------------------------------
(a) Collection Efforts, Policies, Procedures.
----------------------------------------
(i) The Servicer shall use reasonable efforts to collect all Billed
FTA Charges from Customers and ESPs as and when the same become due and shall
follow such collection procedures as it follows with respect to comparable
assets that it services for itself or others, including with respect to the
following:
(A) The Servicer shall prepare and deliver overdue notices to
Customers and ESPs in accordance with applicable CPUC
Regulations and Servicer Policies and Practices.
(B) The Servicer shall apply late payment charges to outstanding
Customer and ESP balances in accordance with applicable CPUC
Regulations. All late payment charges and interest
collected shall be payable to and retained by the Servicer
as a component of its compensation under the Agreement, and
the Note Issuer shall have no right to share in the same.
(C) The Servicer shall deliver verbal and written final call
notices in accordance with applicable CPUC Regulations and
Servicer Policies and Practices.
(D) The Servicer shall adhere to and carry out disconnection
policies in accordance with PU Code (S) 779.2 and applicable
CPUC Regulations and Servicer Policies and Practices.
(E) The Servicer may employ the assistance of collections agents
in accordance with applicable CPUC Regulations and Servicer
Policies and Practices.
(F) The Servicer shall apply Customer and ESP deposits to the
payment of delinquent accounts in accordance with applicable
CPUC Regulations and Servicer Polices and Practices and
according to the priorities set forth in Section 6(b)(ii),
(iii) and (iv) of this Annex I.
I-5
(ii) The Servicer shall not waive any late payment charge or any other
fee or charge relating to delinquent payments, if any, or waive, vary or modify
any terms of payment of any amounts payable by a Customer, in each case
customary practices or those of any successor Servicer with respect to
comparable assets that it services for itself and for others; (B) would not
materially adversely affect the rights of the Certificateholders; and (C) would
comply with applicable law; provided, however, that notwithstanding anything in
-------- -------
the Agreement or this Annex I to the contrary, the Servicer is authorized to
write off any Billed FTA Charges, in accordance with its Servicer Policies and
Practices, that remain outstanding for 180 days.
(iii) The Servicer shall accept payment from Customers in respect of
Billed FTA Charges in such forms and methods and at such times and places as it
accepts for payment of its own charges. The Servicer shall accept payment from
ESPs in respect of Billed FTA Charges in such forms and methods and at such
times and places as the Servicer and each ESP shall mutually agree in accordance
with applicable CPUC Regulations.
(b) Payment Processing; Allocation; Priority of Payments.
----------------------------------------------------
(i) The Servicer shall post all payments received to Customer accounts as
promptly as practicable, and, in any event, substantially all payments shall be
posted no later than two Servicer Business Days after receipt.
(ii) Subject to clause (iii) below, the Servicer shall apply payments
received to each Customer's or ESP's account in proportion to the charges
contained on the outstanding Xxxx to such Customer or ESP.
(iii) Any amounts collected by the Servicer that represent partial
payments of the total Xxxx to a Customer or ESP shall be allocated as follows:
(A) first to amounts owed to the Note Issuer and the Seller (including any late
fees and interest charges), regardless of age, in proportion to their respective
percentages of the total amount of their combined outstanding charges on such
Xxxx; then (B) to all other outstanding amounts owed to parties other than the
Note Issuer and the Seller.
(iv) The Servicer shall hold all over-payments for the benefit of the Note
Issuer and the Seller and shall apply such funds to future Xxxx charges in
accordance with clauses (ii) and (iii) above as such charges become due.
(v) For Customers on a Level Pay Plan, the Servicer shall treat FTA
Payments received from such Customers as if such Customers had been billed for
their respective FTA Charges in the absence of the Level Pay Plan. Partial
payment of a Level Pay Plan payment shall be allocated according to clause (iii)
above, and overpayment of a Level Pay Plan payment shall be allocated according
to clause (iv) above.
I-6
(c) Accounts; Records.
-----------------
The Servicer shall maintain accounts and records as to the Transition
Property accurately and in accordance with its standard accounting procedures
and in sufficient detail to permit reconciliation between payments or recoveries
with respect to the Transition Property and the amounts from time to time
remitted to the Collection Account in respect of the Transition Property.
(d) Investment of FTA Payments Received.
-----------------------------------
Prior to remittance on the applicable Remittance Date, the Servicer
may invest FTA Payments received at its own risk and for its own benefit, and
such investments and funds shall not be required to be segregated from the other
investments and funds of the Servicer.
(e) Calculation of Collections; Determination of Aggregate Remittance
-----------------------------------------------------------------
Amount.
------
(i) On or before each Remittance Date, the Servicer shall calculate,
in accordance with Schedule 6, the total FTA Payments estimated to have been
----------
received by the Servicer from or on behalf of Customers during the prior
Collection Period in respect of all previously Billed FTA Charges, increased or
decreased, as applicable, by (A) the amount of any Remittance Shortfall
calculated for such Remittance Date or (B) the amount of any Excess Remittance
calculated for such Remittance Date (collectively, the "Aggregate Remittance
Amount").
(ii) At the end of each year, on or before the Annual Adjustment Date
in accordance with Section 4.01(b)(i)(1) of the Agreement, the Servicer shall
update the Variables underlying the Monthly Collections Curve in Schedule 6 and
----------
shall revise such curve to reflect the updated Variables.
(f) Remittances.
-----------
(i) The Note Issuer shall cause to be established the Collection
Account in the name of the Note Trustee in accordance with the Indenture.
(ii) The Servicer shall make remittances to the Collection Account in
accordance with Section 6.11 of the Agreement.
(iii) In the event of any change of account or change of institution
affecting the Collection Account, the Note Issuer shall provide written notice
thereof to the Servicer by the earlier of: (A) five Business Days from the
effective date of such change, or (B) five Business Days prior to the next
Remittance Date.
I-7
SCHEDULE 6
TO ANNEX I
COMPUTATION OF AGGREGATE REMITTANCE AMOUNT
The following models shall be used to determine the Monthly Collections Curve
for each Collection Period. If at some point in the future improvements to the
Servicer's computerized systems result in more precise data becoming available,
the following procedure may be modified to improve the accuracy of determining
the Monthly Collections Curve.
I. Assumptions
---------------
A. Customer billing occurs in 21 cycles 12 times each year.
B. The pattern of collections has not varied materially over the last five
years.
C. The current month collection amounts are based upon actual historical
customer payments.
D. The first prior month through the fifth prior monthly amounts are based on
five years of accounts receivable aging data.
E. Initially, each month has an estimated collection percentage as shown
below.
F. Combined service (gas and electric service) customers have no significantly
different pattern of payments or write-offs than electric only service
customers.
Collection Curve
----------------
The initial monthly collection curve for residential and small commercial
customers is shown below in Figure 1.
--------------------------------------------------------------------------------
CUMULATIVE INCREMENTAL
--------------------------------------------------------------------------------
PAYMENT COLLECTED PERCENTAGE COLLECTED PERCENTAGE
--------------------------------------------------------------------------------
MONTH RESIDENTIAL COMMERCIAL RESIDENTIAL COMMERCIAL
--------------------------------------------------------------------------------
Current month 40.8% 40.8% 40.8% 40.8%
--------------------------------------------------------------------------------
First prior month 89.1% 93.2% 48.3% 52.4%
--------------------------------------------------------------------------------
Second prior month 97.8% 99.5% 8.7% 6.3%
--------------------------------------------------------------------------------
Third prior month 99.3% 99.7% 1.5% 0.2%
--------------------------------------------------------------------------------
Fourth prior month 99.4% 99.8% 0.1% 0.1%
--------------------------------------------------------------------------------
Fifth prior month 99.5% 99.8% 0.1% 0.0%
--------------------------------------------------------------------------------
Figure 1
I-6-1
Methodology
-----------
For the payments received within the current month of billing, existing data
will be used. For the initial calculation actual data representing over 4
million customer payments by billing cycle between January and June, 1996, was
employed. That data had been captured as part of the Servicer's continuing
evaluation and implementation of alternate payment processes (direct debit and
electronic data interchange (EDI)) which are currently offered to customers.
For the payments received within the first prior through the fifth prior months
of billing, the process involves reviewing accounts receivable aging schedules,
exclusive of write-offs, as generated by the Servicer's information system.
Initially the data shown in Figure 2 for calendar years 1992 through 1996 was
used.
--------------------------------------------------------------
RESIDENTIAL CUSTOMERS
--------------------------------------------------------------
COLLECTED 1992 1993 1994 1995 1996 1997
--------------------------------------------------------------
30 days 79.6% 80.9% 82.7% 82.9% 84.5% 82.1%
--------------------------------------------------------------
60 days 95.5% 96.0% 97.7% 97.6% 97.9% 96.9%
--------------------------------------------------------------
90 days 99.4% 99.5% 99.8% 99.8% 99.8% 99.7%
--------------------------------------------------------------
120+ days 99.9% 99.9% 99.9% 99.9% 99.9% 99.9%
--------------------------------------------------------------
--------------------------------------------------------------
COMMERCIAL & INDUSTRIAL CUSTOMERS
--------------------------------------------------------------
COLLECTED 1992 1993 1994 1995 1996 1997
--------------------------------------------------------------
30 days 83.1% 86.5% 89.4% 89.9% 87.4% 87.3%
--------------------------------------------------------------
60 days 99.6% 99.6% 99.6% 99.4% 99.3% 99.5%
--------------------------------------------------------------
90 days 99.9% 99.9% 99.9% 99.9% 99.8% 99.9%
--------------------------------------------------------------
120+ days 99.9% 99.9% 99.9% 99.9% 99.9% 99.9%
--------------------------------------------------------------
Figure 2
The data in Figure 2 is calculated beginning when a customer's xxxx is past due.
Accounts become past due 19 days after mailed for residential customers, and 15
days after mailed for small commercial customers. Further, the Figure 2 data
does not include amounts ultimately written-off.
---
Assuming that accounts become past due about 15 days after billed, averages of
the Figure 2 data can be used to approximate collected amounts. For example,
the Figure 1 amount for the first prior month is calculated as the Figure 2
amount after 30 days plus the amount after
I-6-2
60 days, divided by two (simple average). This simple average was further
adjusted downward to reflect that the data in Figure 2 does not include amounts
---
ultimately written-off. This approach was used to calculate the percentages in
the monthly collections curve for the first prior, the second prior, and the
third prior months.
Next the ultimate write-off amounts are determined. The total billed revenue
amounts in Figure 3 and the write-off amounts in dollars in Figure 4 were
adjusted. The first adjustment was to approximate the small commercial customer
data. First the total revenue data in Figure 3 was developed for small
commercial customers by using the values for the Servicer's rate schedule A
customers, which is the majority of the small commercial customers.
For the write-off dollars in Figure 4, the total amounts were reduced by the
major write-offs that applied to industrial and large commercial customers
during the indicated historical period to produce write-offs for small
commercial customers. For residential customers, the impact of refund programs
was excluded from the amount of write-offs. Under Public Utility Commission
refund plan guidelines, the Servicer takes the amount of refund that a write-off
customer would be allowed and applies this amount to the customer's write-off
amount.
The write-off percentages in the bottom portion of Figure 4 are calculated as
the write-off dollars in the top half of Figure 4 divided by the total billed
revenues in Figure 3.
--------------------------------------------------------------------------------------------
ADJUSTED ELECTRIC AND GAS REVENUES BILLED
(IN MILLIONS)
--------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 TOTAL
Residential $ 783,143 $ 807,052 $ 859,342 $ 839,145 $ 858,252 $4,146,934
--------------------------------------------------------------------------------------------
Small Comm $ 247,141 $ 255,747 $ 280,670 $ 274,961 $ 284,451 $1,342,970
--------------------------------------------------------------------------------------------
Total $1,030,284 $1,062,799 $1,140,012 $1,114,106 $1,142,703 $5,489,904
--------------------------------------------------------------------------------------------
Figure 3
I-6-3
--------------------------------------------------------------------------
ADJUSTED NET ELECTRIC AND GAS REVENUES BILLS
(IN THOUSANDS)
--------------------------------------------------------------------------
1992 1993 1994 1995 1996 TOTAL
Residential $4,338 $5,183 $4,330 $4,204 $2,965 $21,020
--------------------------------------------------------------------------
Small Comm $ 603 $ 541 $ 503 $ 557 $ 311 $ 2,515
--------------------------------------------------------------------------
Total $4,941 $5,724 $4,833 $4,761 $3,276 $23,535
--------------------------------------------------------------------------
--------------------------------------------------------------------------
ADJUSTED NET WRITE OFFS AS A PERCENTAGE OF BILLED REVENUES
--------------------------------------------------------------------------
1992 1993 1994 1995 1996 TOTAL
--------------------------------------------------------------------------
Residential 0.6% 0.6% 0.5% 0.5% 0.4% 0.5%
--------------------------------------------------------------------------
Small Comm 0.2% 0.2% 0.2% 0.2% 0.1% 0.2%
--------------------------------------------------------------------------
Total 0.5% 0.5% 0.4% 0.4% 0.3% 0.4%
--------------------------------------------------------------------------
Figure 4
The fifth prior month percentages in Figure 1 are the amounts ultimately written
off by the Servicer as shown in the bottom portion of Figure 4. The fourth
prior month percentages in Figure 1 are a simple average of the third prior
month and fifth prior month percentages.
I-6-4
II. Estimation Template
------------------------
Where:
M\\n\\ = a Collection Period
A = percentage collected of the total Billed FTA Charges
billed during the current Billing Period
B = percentage collected of the total Billed FTA Charges
billed during the Billing Period prior to the current
Billing Period
C = percentage collected of the total Billed FTA Charges
billed during the Billing Period two periods prior to
the current Billing Period
D = percentage collected of the total Billed FTA Charges
billed during the Billing Period three periods prior to
the current Billing Period
E = percentage collected of the total Billed FTA Charges
billed during the Billing Period four periods prior to
the current Billing Period
F = percentage collected of the total Billed FTA Charges
billed during the Billing Period five periods prior to
the current Billing Period
Then:
FTA Payments estimated to have been received during a Collection
Period (prior to any adjustments for a Remittance Shortfall or Excess
Remittance) equal Z, as shown in the Estimation Template below.
I-6-5
ESTIMATION TEMPLATE
FTA PAYMENTS ESTIMATED TO HAVE BEEN RECEIVED
BY THE SERVICER DURING THE COLLECTION PERIOD OF M\\n\\
(1) RESIDENTIAL CUSTOMERS
---------------------
----------------------------------------------------------------------
COLLECTION COLLECTION BILLED FTA ESTIMATED
PERIOD (M\\n\\) PERCENT CHARGES COLLECTIONS
(R) (S) (T) (S X T)
----------------------------------------------------------------------
M\\n-5\\ F\\n-5\\ X\\n-5\\ (F\\n-5\\)(X\\n-5\\)
+
M\\n-4\\ E\\n-4\\ X\\n-4\\ (E\\n-4\\)(X\\n-4\\)
+
M\\n-3\\ D\\n-3\\ X\\n-3\\ (D\\n-3\\)(X\\n-3\\)
+
M\\n-2\\ C\\n-2\\ X\\n-2\\ (C\\n-2\\)(X\\n-2\\)
+
M\\n-1\\ B\\n-1\\ X\\n-1\\ (B\\n-1\\)(X\\n-1\\)
+
M\\n\\ A\\n\\ X\\n\\ (A\\n\\)(X\\n\\)
--------------------------
TOTAL: Z\\(residential)\\
=========================
(2) SMALL COMMERCIAL CUSTOMERS
--------------------------
------------------------------------------------------------------------
COLLECTION COLLECTION BILLED FTA ESTIMATED
PERIOD (M\\n\\) PERCENT CHARGES COLLECTIONS
(R) (S) (T) (S X T)
------------------------------------------------------------------------
M\\n-5\\ F\\n-5\\ X\\n-5\\ (F\\n-5\\)(X\\n-5\\)
+
M\\n-4\\ E\\n-4\\ X\\n-4\\ (E\\n-4\\)(X\\n-4\\)
+
M\\n-3\\ D\\n-3\\ X\\n-3\\ (D\\n-3\\)(X\\n-3\\)
+
M\\n-2\\ C\\n-2\\ X\\n-2\\ (C\\n-2\\)(X\\n-2\\)
+
M\\n-1\\ B\\n-1\\ X\\n-1\\ (B\\n-1\\)(X\\n-1\\)
+
M\\n\\ A\\n\\ X\\n\\ (A\\n\\)(X\\n\\)
---------------------------
TOTAL: Z\\(small commercial)\\
===========================
(3) ESTIMATED FTA PAYMENTS
----------------------
Z\\(residential)\\ + Z\\(small commercial)\\ = Z
I-6-6
(4) NOTES
-----
1. THE BILLED FTA CHARGES (T) FOR MULTIPLE PRIOR BILLING PERIODS WILL BE ZERO
DURING THE PHASE-IN OF THE FTA CHARGES FOLLOWING THE FTA EFFECTIVE DATE.
SIMILARLY, THE BILLED FTA CHARGES FOR MULTIPLE SUCCEEDING BILLING PERIODS
WILL BE ZERO DURING THE PHASE-OUT OF THE FTA CHARGES FOLLOWING THE FTA
TERMINATION DATE.
2. THE COLLECTION PERCENT (S) IS THE COLLECTION PERCENT IN EFFECT AT THE TIME
THE FTA CHARGES WERE BILLED BASED ON THE MONTHLY COLLECTIONS CURVE THEN IN
EFFECT.
I-6-7
ANNEX II
to
SERVICING AGREEMENT
SECTION 1. Routine Quarterly True-Up Adjustments. (a) The Servicer
--------------------------------------
shall not perform any routine quarterly True-Up Adjustments for the SDG&E
Funding LLC Notes, Series 1997-1.
