As filed with the Securities and Exchange Commission on October 26, 2020

Registration Nos.

and

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM SF-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

SOUTHERN CALIFORNIA EDISON COMPANY (Exact name of registrant, sponsor and depositor as specified in its charter)		SCE RECOVERY FUNDING LLC (Exact name of registrant and issuing entity as specified in its charter)
California (State or other jurisdiction of incorporation or organization)		Delaware (State or other jurisdiction of incorporation or organization)
1-2313 (Commission File Number)
000092103 (Central Index Key Number)		001826571 (Central Index Key Number)
95-1240335 (I.R.S. Employer Identification Number)		85-3002154 (I.R.S. Employer Identification Number)
2244 Walnut Grove Avenue (P.O. Box 800) Rosemead, California 91770 (626) 302-1212 (Address, including zip code, and telephone number, including area code, of depositor’s principal executive offices)		2244 Walnut Grove Avenue (P.O. Box 5407) Rosemead, California 91770 (626) 302-7255 (Address, including zip code, and telephone number, including area code, of issuing entity’s principal executive offices)
Kathleen L. Brennan de Jesus Senior Attorney 2244 Walnut Grove Avenue (P.O. Box 800) Rosemead, California 91770 626-302-3476 (Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

With Copies to:
Eric D. Tashman Norton Rose Fulbright US LLP 555 California Street San Francisco, California 94104 (628) 231-6803		Michael F. Fitzpatrick, Jr. Hunton Andrews Kurth LLP 200 Park Avenue New York, NY 10166 (212) 309-1071

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to Be Registered		Amount to Be Registered		Proposed Maximum Offering Price Per Unit		Proposed Maximum Aggregate Offering Price		Amount of Registration Fee
Senior Secured Recovery Bonds, Series 2021		$340,000,000		100%		$340,000,000(1)		$37,094

 

(1)	Estimated pursuant to Rule 457(o) solely for the purpose of calculating the registration fee.

 

 

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, dated October 26, 2020

PRELIMINARY PROSPECTUS

$     Senior Secured Recovery Bonds, Series 2021

Southern California Edison Company

Sponsor, Depositor and Initial Servicer

Central Index Key Number: 000092103

SCE Recovery Funding LLC

Issuing Entity

Central Index Key Number: 001826571

 

Tranche

Expected Weighted Average Life (Years)

Principal Amount Offered*

Scheduled Final Payment Date

Final Maturity Date

Interest Rate

Initial Price to Public

Underwriting Discounts and Commissions

Proceeds to issuing entity (Before Expenses)

$

%

%

%

$

 

*	Principal amounts are approximate and subject to change

The total initial price to the public is $            . The total amount of the underwriting discounts and commissions is $            . The total amount of proceeds to the issuing entity before deduction of expenses (estimated to be $            ) is $            . The distribution frequency is semi-annually. The first expected payment date is                .

 

 

Investing in the Senior Secured Recovery Bonds involves risks. Please read “Risk Factors” beginning on page 16 in this prospectus to read about factors you should consider before buying the bonds.

Southern California Edison Company, as depositor, is offering $     of Senior Secured Recovery Bonds, Series 2021, referred to herein as the bonds, in    tranches to be issued by SCE Recovery Funding LLC, as the issuing entity. Southern California Edison Company is also the seller, initial servicer and sponsor with regard to the bonds. The bonds are senior secured obligations of the issuing entity supported by recovery property, which includes the right to a special, irrevocable nonbypassable charge, known as fixed recovery charges, paid by all existing and future consumers (subject to the exceptions described in this prospectus) within SCE’s service territory as it existed on the date of the financing order (as defined below). The Securitization Law (as defined below) requires that fixed recovery charges be adjusted (or “trued-up”) at least annually, and the California Public Utilities Commission (the CPUC or the California commission) has authorized the fixed recovery charges to be adjusted more frequently to ensure the expected recovery of fixed recovery charge revenues sufficient to timely provide all scheduled payments of principal and interest on the bonds and related financing costs, as described further in this prospectus. Credit enhancement for the bonds will be provided by such “true-up” mechanisms as well as by accounts held under the indenture.

The bonds will be issued pursuant to Article 5.8 of Chapter 4 of the California Public Utilities Code, as amended (the Securitization Law), and an irrevocable financing order issued by the CPUC on                approving the issuance of the bonds. The CPUC’s obligations under the Securitization Law and the financing order are irrevocable and the CPUC shall neither reduce, alter nor impair the fixed recovery charges authorized under a financing order, except for the true-up adjustments to the fixed recovery charges.

The bonds represent obligations only of the issuing entity, SCE Recovery Funding LLC, and do not represent obligations of the sponsor or any of its affiliates other than the issuing entity. The bonds are secured by the assets of the issuing entity, consisting principally of the recovery property and funds on deposit in the collection account for the bonds and related subaccounts. Please read “Security for the Bonds” in this prospectus. The bonds are not a debt or general obligation of the State of California, the California Public Utilities Commission or any other governmental agency or instrumentality and are not a charge on the full faith and credit or the taxing power of the State of California or any governmental agency or instrumentality.

Interest will accrue on the bonds from the date of issuance. The bonds are scheduled to pay principal and interest semi-annually on                and                of each year, beginning in                . The first scheduled payment date is                . On each payment date, each bond will be entitled to payment of principal, sequentially, but only to the extent funds are available in the collection account after payment of certain fees and expenses and after payment of interest.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The underwriters expect to deliver the bonds through the book-entry facilities of The Depository Trust Company against payment in immediately available funds on or about                     , 2021.

 

 

Joint Bookrunners

Co-Managers

The date of this prospectus is                    , 2021

TABLE OF CONTENTS

 

		Page
ABOUT THIS PROSPECTUS			1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION			2
PROSPECTUS SUMMARY OF TERMS			3
SUMMARY OF RISK FACTORS			15
RISK FACTORS			16
You may experience material payment delays or incur a loss on your investment in the bonds because the source of funds for payment is limited			16
RISKS ASSOCIATED WITH POTENTIAL JUDICIAL, LEGISLATIVE OR REGULATORY ACTIONS			17
We are not obligated to indemnify you for changes in law			17
Future judicial action could reduce the value of your investment in the bonds			17
Future state legislative action, including a voter initiative, might attempt to reduce the value of your investment in the bonds			17
The California commission might attempt to take actions that could reduce the value of your investment in the bonds			18
The servicer may not fulfill its obligations to act on behalf of the bondholders to protect bondholders from actions by the California commission or the State of California, or the servicer may be unsuccessful in any such attempt			19
A municipal entity or tribal utility might assert the right to acquire portions of SCE’s electric facilities and/or serve the load of customers within their jurisdictional areas and avoid or reduce the affected customers’ payment of the fixed recovery charges			19
SERVICING RISKS			21
Inaccurate consumption or collection forecasting might reduce scheduled payments on the bonds			21
The COVID-19 pandemic may impact SCE’s ability to collect and service the fixed recovery charges and might reduce scheduled payments on the bonds			22
Your investment in the bonds depends on SCE or its successor or assignee, acting as servicer of the recovery property			22
If we replace SCE as the servicer, we may experience difficulties finding and using a replacement servicer			23
Changes to billing, collection and posting practices might reduce the value of your investment in the bonds			23
SCE’s systems and network infrastructure are targets for physical and cyber attacks, intrusions or other catastrophic events that could result in their failure or reduced functionality and limit SCE’s ability to service the recovery property.			23
It may be difficult to collect fixed recovery charges from other parties who bill retail customers			24
It might be difficult for successor servicers to collect the fixed recovery charges from SCE’s customers			24
RISKS ASSOCIATED WITH THE UNUSUAL NATURE OF THE RECOVERY PROPERTY			24
Foreclosure of the trustee’s lien on the recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might have little practical effect			24
NATURAL DISASTER-RELATED RISK			24
Damage to SCE’s operations or reduced capacity to deliver electricity could impair payment of the bonds			24
RISKS ASSOCIATED WITH POTENTIAL BANKRUPTCY PROCEEDINGS OF THE SELLER OR THE SERVICER			25
The servicer will commingle the fixed recovery charges with other revenues it collects, which might obstruct access to the fixed recovery charges in case of the servicer’s bankruptcy and reduce the value of your investment in the bonds			25
The bankruptcy of SCE or any successor seller might result in losses or delays in payments on the bonds			25

 

- i -

TABLE OF CONTENTS

 

		Page
The sale of the recovery property might be construed as a financing and not a sale in a case of SCE’s bankruptcy which might delay or limit payments on the bonds			27
If the servicer enters bankruptcy proceedings, the collections of the fixed recovery charges held by the servicer as of the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owing on the bonds			27
Claims against SCE or any successor seller might be limited in the event of a bankruptcy of the seller			28
The bankruptcy of SCE or any successor seller might limit the remedies available to the trustee			28
OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS			28
SCE’s indemnification obligations under the sale and servicing agreements are limited and might not be sufficient to protect your investment in the bonds			28
We are issuing several tranches of the bonds.			29
The credit ratings are no indication of the expected rate of payment of principal on the bonds			29
The bonds’ credit ratings might affect the market value of your bonds.			29
The absence of a secondary market for the bonds might limit your ability to resell your bonds			29
You might receive principal payments for the bonds later than you expect			30
SCE intends to cause the creation of additional recovery property and the issuance of additional recovery bonds through other affiliated entities and may issue other bonds secured by a nonbypassable charge on customers which may cause a delay in the payment of the bonds			30
Regulatory provisions affecting certain investors could adversely affect the liquidity of the bonds			30
If the investment of collected fixed recovery charges and other funds held by the trustee in the collection account results in investment losses or the investments become illiquid, you may receive payment of principal and interest on the bonds later than you expect			31
REVIEW OF RECOVERY PROPERTY			32
THE RECOVERY PROPERTY AND THE SECURITIZATION LAW			35
The Securitization Law Generally			35
The Financing Order and the Recovery Property			36
SCE’s FINANCING ORDER			40
SCE’s Financing Order			40
Fixed Recovery Charges			40
Issuance Advice Letter			44
Servicing Agreement			44
Additional Bonds			44
THE DEPOSITOR, SELLER, INITIAL SERVICER AND SPONSOR			46
General			46
Community Choice Aggregation, Direct Access and Departing Load			46
SCE Retail Consumer Base and Electric Energy Consumption			47
Forecasting Electricity Consumption			48
Billing and Collections			49
Credit Policy			50
COVID-19 Customer Protections			50
Loss Experience			51
Days Sales Outstanding			51
Delinquencies			51
Municipalization; Municipal Departing Load			51
Successors			52
Prior Securitizations			52
Where to Find Information About SCE			53

 

- ii -

TABLE OF CONTENTS

 

		Page
SCE RECOVERY FUNDING LLC, THE ISSUING ENTITY			54
Restricted Purpose			54
Our Relationship with SCE			55
Our Management			55
Manager Fees and Limitation on Liabilities			56
We Are a Separate and Distinct Legal Entity from SCE			56
Administration Agreement			57
DESCRIPTION OF THE BONDS			58
General			58
Payment and Record Dates and Payment Sources			58
Interest Payments			59
Principal Payments			59
Distribution Following Acceleration			62
Optional Redemption			62
Payments on the Bonds			62
Fees and Expenses			63
Bonds Will Be Issued in Book-Entry Form			64
Definitive Bonds			67
Access of Bondholders			67
Reports to Bondholders			68
Website Disclosure			68
We and the Trustee May Modify the Indenture			69
Our Covenants			72
Events of Default; Rights Upon Event of Default			74
Actions by Bondholders			76
Annual Report of Trustee			77
Annual Compliance Statement			77
Satisfaction and Discharge of Indenture			77
Our Legal and Covenant Defeasance Options			78
No Recourse to Others			79
THE TRUSTEE			80
SECURITY FOR THE BONDS			82
General			82
Pledge of Collateral			82
Security Interest in the Collateral			82
Right of Foreclosure			83
Description of Indenture Accounts			83
How Funds in the Collection Account will be Allocated			85
Intercreditor Agreement			86
WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS FOR THE BONDS			86
Weighted Average Life Sensitivity			87
THE SALE AGREEMENT			88
Sale and Assignment of the Recovery Property			88
Conditions to the Sale of Recovery Property			88
Seller Representations and Warranties			89
Covenants of the Seller			92
Indemnification			95
Successors to the Seller			95
Amendment			96

 

- iii -

TABLE OF CONTENTS

 

		Page
THE SERVICING AGREEMENT			97
Servicing Procedures			97
Servicing Standards and Covenants			98
True-Up Adjustment Filings			98
Remittances to Collection Account			99
Servicing Compensation			100
Servicer Representations and Warranties; Indemnification			100
The Servicer Will Indemnify Us and Other Entities in Limited Circumstances			101
Evidence as to Compliance			101
Matters Regarding the Servicer			102
Servicer Defaults			103
Rights Upon a Servicer Default			103
Waiver of Past Defaults			104
Successor Servicer			104
Amendment			104
HOW A BANKRUPTCY MAY AFFECT YOUR INVESTMENT			106
USE OF PROCEEDS			110
PLAN OF DISTRIBUTION			110
The Underwriters’ Sales Price for the Bonds			110
No Assurance as to Resale Price or Resale Liquidity for the Bonds			110
Various Types of Underwriter Transactions that May Affect the Price of the Bonds			110
AFFILIATIONS AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			111
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES			112
General			112
Taxation of the Issuing Entity and Characterization of the Bonds			112
Tax Consequences to U.S. Holders			113
Tax Consequences to Non-U.S. Holders			114
Backup Withholding			115
STATE AND OTHER TAX CONSEQUENCES			115
ERISA CONSIDERATIONS			116
General			116
Regulation of Assets Included in a Plan			116
Prohibited Transaction Exemptions			117
Consultation with Counsel			118
LEGAL PROCEEDINGS			119
RATINGS FOR THE BONDS			119
WHERE YOU CAN FIND MORE INFORMATION			120
INCORPORATION BY REFERENCE			121
INVESTMENT COMPANY ACT OF 1940 AND VOLCKER RULE MATTERS			122
RISK RETENTION			122
LEGAL MATTERS			123
OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS			123
GLOSSARY OF DEFINED TERMS			126

 

- iv -

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement filed with the Securities and Exchange Commission, or SEC. This prospectus provides information about us, the bonds and Southern California Edison Company, or SCE, the depositor, sponsor and initial servicer. This prospectus describes the terms of the bonds offered hereby. You should carefully review this prospectus, any free writing prospectus the issuing entity files with the SEC, and the information, if any, contained in the documents referenced in this prospectus under the heading “Where You Can Find More Information”.

References in this prospectus to the term we, us, or the issuing entity mean SCE Recovery Funding LLC, the entity which will issue the bonds. References to the recovery bonds or the bonds, unless the context otherwise requires, mean the bonds offered pursuant to this prospectus. References to SCE, the seller, the depositor or the sponsor mean Southern California Edison Company. References to the bondholders or the holders refer to the registered holders of the bonds. References to the recovery property mean the recovery property sold to us by SCE and pledged to the payment of the bonds. References to the servicer refer to SCE and any successor servicer under the servicing agreement referred to in this prospectus. References to the California commission or CPUC refer to the California Public Utilities Commission. References to the Securitization Law refer to Article 5.8 of Chapter 4 of the California Public Utilities Code, as amended. Unless the context otherwise requires, references to a financing order are to the irrevocable Financing Order issued by the CPUC as Decision                , on                . Unless the context otherwise requires, the term customer means “consumer” within the meaning of Securitization Law. Under the Securitization Law, “consumer” is defined as any existing or future individual, governmental body, trust, business entity, or nonprofit organization located in the service territory of SCE as of the date of the financing order that consumes electricity that has been transmitted or distributed by means of electric transmission or distribution facilities, whether those electric transmission or distribution facilities are owned by the consumer, SCE, or any other party. References to ESPs refer to electric service providers as defined in the glossary. You can find a glossary of some of the other defined terms we use in this prospectus on page 126 of this prospectus.

We have included cross-references to sections in this prospectus where you can find further related discussions. You can also find key topics in the preceding pages. Check the table of contents to locate these sections.

You should rely only on the information contained or incorporated by reference in this prospectus and in any free writing prospectus from us or the underwriters specifying the terms of this offering. Neither we nor any underwriter, agent, dealer, salesperson, the California commission or SCE has authorized anyone else to provide you with any different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not offering to sell the bonds in any jurisdiction where the offer or sale is not permitted. The information in this prospectus and any free writing prospectus is current only as of the date of this prospectus.

 

- 1 -

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This prospectus includes forward-looking statements, including regarding expectations, estimates and projections about the electric consumption of customers, SCE’s ability to service the recovery property and collect the fixed recovery charges, the issuing entity’s ability to pay back the bonds, and the California commission’s adherence to the State pledge to protect the rights of bondholders. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events of performance (often, but not always, through the use of words or phrases such as “will,” “are expected to,” “will continue,” “is anticipated,” “believe,” “could,” “should,” “estimated,” “may,” “plans to,” “potential,” “projection,” “designed to,” “intended”) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to important factors included in “Risk Factors” (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on financial results, and could cause actual results to differ materially from those contained in forward-looking statements made by or on behalf of us or SCE, in this prospectus, in presentations, on websites, in response to questions or otherwise. The following are some of the factors that could cause actual results to differ from those expressed or implied by forward-looking statements in this prospectus:

 

•

state and federal legislative, judicial and regulatory actions or developments, including deregulation, re-regulation, restructuring of the electric utility industry and changes in, or changes in application of, laws or regulations applicable to various aspects of SCE’s business;

 

•

the accuracy of the servicer’s estimates of market demand and prices for energy;

 

•

the accuracy of the servicer’s estimates of industrial, commercial and residential growth;

 

•

changes in market demand and demographic patterns;

 

•

weather variations, natural disasters and other natural phenomena, including wildfires, earthquakes, severe storms, floods and other weather-related events affecting customer energy usage, the ability to supply electricity to customers or SCE’s ability to service the recovery property;

 

•

pandemics, such as the novel coronavirus (COVID-19), and other events that cause regional, statewide, national or global disruption which could impact, among other things, electric energy usage;

 

•

the operating performance of SCE’s facilities and the facilities of third-party suppliers of electric energy;

 

•

the accuracy of the servicer’s forecast of electrical consumption or the payment of fixed recovery charges;

 

•

the implementation and reliability of the systems, procedures and other infrastructure necessary to operate SCE’s retail electric business, including the systems owned and operated by the California independent system operator (CAISO);

 

•

national or regional economic conditions affecting retail electric consumer energy usage;

 

•

direct or indirect results of cyber-attacks, security breaches or other attempts to disrupt the business of SCE, ESPs or the CAISO;

 

•

non-payment of fixed recovery charges due to financial distress of ESPs; and

 

•

other factors we discuss in this prospectus.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statement, including unanticipated events, after the date on which such statement is made. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

 

- 2 -

PROSPECTUS SUMMARY OF TERMS

The following section is only a summary of selected information and does not provide you with all the information you will need to make your investment decision. There is more detailed information in this prospectus. To understand all of the terms of the offering of the bonds, carefully read this entire prospectus. You should carefully consider the Risk Factors beginning on page 21 of this prospectus before you invest in the bonds.

 

Securities Offered:		$         Senior Secured Recovery Bonds, Series 2021 scheduled to pay principal semi-annually and sequentially in accordance with the expected sinking fund schedule.

 

		Tranche		Principal Amount*
				$

 

		*  Principal amounts are approximate and subject to change
Issuing Entity and Capital Structure:		We are a special purpose Delaware limited liability company. SCE is our sole member and owns all of our equity interests. We have no commercial operations. We were formed solely to purchase and own recovery property, to issue the bonds secured by recovery property and to perform activities incidental thereto and our organizational documents prohibit us from engaging in any other activity except as specifically authorized by the financing order. Please read “SCE Recovery Funding LLC, the Issuing Entity” in this prospectus.   We will be capitalized with an upfront cash deposit by SCE of 0.50% of the bonds’ principal amount issued (to be held in the capital subaccount) and will have an excess funds subaccount to retain, until the next payment date, any amounts collected and remaining after all scheduled payments due on such payment date for the bonds have been made.
Our Address:		2244 Walnut Grove Avenue P.O. Box 5407 Rosemead, California 91770
Our Telephone Number:		(626) 302-7255
Depositor, Seller, Initial Servicer and Sponsor:		SCE is an investor-owned public utility primarily engaged in the business of supply and delivering electricity to an approximately 50,000 square mile area of southern California. SCE is a wholly owned subsidiary of Edison International. The bonds do not constitute a debt, liability or other legal obligation of SCE or Edison International.   SCE serves approximately 5 million customers in its service territory. As of September 30, 2020, SCE (or its subsidiaries) had 12,956 employees. SCE’s retail rates are regulated by the CPUC.   SCE, acting as the initial servicer, and any successor servicer, referred to in this prospectus as the servicer, will service the recovery property under a servicing agreement with us. Please read “The Depositor, Seller, Initial Servicer and Sponsor” and “The Servicing Agreement” in this prospectus.

 

- 3 -

SCE’s Address:		2244 Walnut Grove Avenue P.O. Box 800 Rosemead, California 91770
Trustee:		The Bank of New York Mellon Trust Company, N.A., a national banking association, will act as trustee under the indenture pursuant to which the bonds will be issued. Please read “The Trustee” in this prospectus for a description of the trustee’s duties and responsibilities under the indenture.
Purpose of Transaction:		This issuance of bonds will enable SCE to recover and refinance a portion of certain wildfire risk mitigation capital expenditures eligible for recovery under the Securitization Law. Please read “The Recovery Property and the Securitization Law” and “SCE’s Financing Order” in this prospectus.
Transaction Overview:		In 2019, in response to catastrophic wildfires which engulfed portions of the State in 2017 and 2018, the California legislature enacted comprehensive legislation, known as AB 1054, to financially stabilize the State’s electric utilities. As part of such legislation, the Legislature amended the Public Utilities Code to enact the Securitization Law. The Securitization Law permits electric utilities, like SCE, to recover certain costs and expenses incurred by electric utilities associated with these wildfires and future fire mitigation costs, including costs and expenses relating to implementing wildfire mitigation plans, determined to be just and reasonable by the California commission. These wildfire-related costs and expenses, including the costs of financing such costs and expenses, are referred to as “recovery costs” in the Securitization Law and in this prospectus. The Securitization Law authorizes the financing and recovery of “recovery costs” through the issuance of recovery bonds pursuant to and supported by an irrevocable financing order issued by the California commission. Please read “SCE’s Financing Order” in this prospectus for a discussion of the recovery costs authorized in the financing order.   In order to secure payment of the recovery bonds, the Securitization Law permits the California commission to approve irrevocable nonbypassable, consumption-based fixed recovery charges which are imposed and collected from all “consumers.” As used in the prospectus, the term “customers” has the same meaning as “consumers” in the Securitization Law, and includes any existing or future customer of SCE, including customers purchasing energy from any ESP, and any other individual, governmental body, trust, business entity, or nonprofit organization located in the service territory of SCE as of the date of the financing order that consumes electricity that has been transmitted or distributed by means of electric transmission or distribution facilities, whether those electric transmission or distribution facilities are owned by the customer, SCE, or any other party.   The amount and terms for collections of these fixed recovery charges are governed by the financing order. The Securitization Law permits an electrical corporation to transfer its rights and interests under a financing order, including the right to impose, collect and receive fixed recovery charges, to a special purpose entity formed by the electrical corporation to issue debt securities secured by the right to receive revenues arising from the fixed recovery charges. The electrical corporation’s right to receive the fixed recovery charges, all revenues and collections resulting from the fixed recovery charges and its other

 

- 4 -

		rights and interests under a financing order, upon transfer to the issuing entity, constitute recovery property. As provided in the financing order, recovery property does not come into existence until SCE sells the recovery property to the issuing entity.   On                 , the California commission issued the financing order to SCE to enable SCE to recover $         million of previously-incurred wildfire risk mitigation capital expenditures and prudently incurred financing expenses. References in this prospectus to the financing order, unless the context indicates otherwise, mean the financing order issued by the California commission on                 . Please read “SCE’s Financing Order” in this prospectus for a more comprehensive description of the financing order and for a discussion a discussion of the recovery costs authorized in the financing order, which we refer to in this prospectus as recovery costs. The costs covered by the financing order relate to, and will be recovered from all customers.   The primary transactions underlying the offering of the bonds are as follows:   •  SCE will sell recovery property to us in exchange for the net proceeds from the sale of the bonds,   •  we will sell the bonds, which will be secured primarily by the recovery property, to the underwriters, and   •  SCE will act as the initial servicer of the recovery property.   The bonds are not obligations of the trustee, our managers, SCE, Edison International or any of their respective affiliates other than us. The bonds are also not obligations of the State of California or any governmental agency, authority or instrumentality of the State of California and neither the full faith and credit nor the taxing power of the State of California is pledged to the payment of the principal of, or interest on, the bonds.

 

- 5 -

Transaction Parties:		The following chart represents a general summary of the parties to the transactions underlying the offering of the bonds, their roles and their various relationships to the other parties:

 

 

 

Flow of Funds:		The following chart represents a general summary of the flow of funds:

 

 

 

Recovery Property, Fixed Recovery Charges and the True-Up Mechanism:		In general terms, all of the rights and interests of SCE under the financing order that are transferred to us pursuant to the sale agreement are referred to in this prospectus as the recovery property. The recovery property consists of all of SCE’s rights and interests established under the financing order and further identified in issuance advice letter transferred to us in connection with the issuance of the bonds, including (i) the right title and interest in and to the fixed

 

- 6 -

		recovery charges, including the right to obtain adjustments of such charges as authorized in the financing order, and (ii) the right to be paid the fixed recovery charges, as well as all revenues, collections, claims, payments, moneys, or proceeds of or arising from the fixed recovery charges. Recovery property is a present property right created by the Securitization Law and the financing order and is protected by the state pledge in the Securitization Law described below.   Nonbypassable means that we will be entitled to collect fixed recovery charges from all existing or future customers of SCE (subject to certain exceptions), including customers purchasing energy from any ESP, or any other individual, governmental body, trust, business entity, or nonprofit organization located in the service territory of SCE as of the date of the financing order that consumes electricity that has been transmitted or distributed by means of transmission or distribution facilities, whether those electric transmission or distribution facilities are owned by the customer, SCE, or any other party. Therefore, in general, customers can only avoid paying fixed recovery charges if they move out of SCE’s service territory or if they fall within categories exempted from paying fixed recovery charges under the Securitization Law. Under the Securitization Law, the only customers exempt from paying fixed recovery charges are those customers enrolled in enrolled in the California Alternative Rate for Energy (CARE) or the Family Electric Rate Assistance (FERA) programs, which customers are collectively referred to herein as exempted customers. Please read “The Recovery Property and the Securitization Law— The Financing Order and the Recovery Property—Exemptions from Fixed Recovery Charges” and “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Establishes the Methodology used to Calculate the Fixed Recovery Charges” in this prospectus.   The fixed recovery charges are calculated by the servicer according to the methodology approved in the financing order, which includes the allocation of cost responsibility among customer rate classes (FRC consumer classes), based upon the cost responsibilities approved in SCE’s most recently filed general rate case (GRC) or related proceeding. There are currently thirteen FRC consumer classes, including two FRC consumer classes consisting of exempted customers. Through the true-up mechanism, all FRC consumer classes and, consequently, all customers, except exempted customers, will cross share in the liabilities of all other customers for the payment of fixed recovery charges. Please read “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Establishes the Methodology used to Calculate the Fixed Recovery Charges” in this prospectus.   During the twelve months ended September 30, 2020, SCE’s total operating revenue was derived as follows:     % commercial customers,     % residential customers,     % industrial customers,     % public authorities,     % agricultural and other, and     % other operating revenue. During 2019, exempted customers accounted for 8.00% of SCE’s total electric deliveries and approximately 24.28% of deliveries to the residential domestic FRC consumer classes.   The recovery property is not a receivable, and the principal collateral securing the bonds will not be a pool of receivables. The fixed recovery charges authorized in the financing order are irrevocable and not subject to reduction, impairment, or adjustment by further action of the California commission,

 

- 7 -

		except for true-up adjustments to correct overcollections or undercollections and to provide for the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the bonds. In addition to the annual true-up adjustment, the servicer is authorized to make interim adjustments at any time for any reason to ensure the timely payment of the periodic payment requirement. Please read “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Requires the Servicer to Periodically to “True-Up” the Fixed Recovery Charge” and “The Servicing Agreement—True-Up Adjustment Filings” in this prospectus.   In addition, the servicer may make a non-routine true-up adjustment to be effective simultaneously with a base rate change that includes any change in the rate allocation among customers used to determine the fixed recovery charges. The servicer may also make changes to the logic, structure and components of the methodology used to determine the fixed recovery charges, subject to compliance with certain conditions in the financing order and the servicing agreement, including satisfaction of the rating agency condition. Please read “The Servicing Agreement—True-Up Adjustment Filings” in this prospectus.   There is no “cap” on the level of fixed recovery charges that may be imposed on customers, in order to timely pay scheduled principal and interest on the bonds and related financing costs.

 

The Collateral:		The bonds are secured only by our assets. The principal asset securing the bonds will be recovery property, which is a present property right created under the Securitization Law by a financing order issued by the California commission. The collateral also includes:   •  our rights under the sale agreement pursuant to which we will acquire the recovery property,   •  our rights under the financing order, including our rights under the true-up mechanism,   •  our rights under the servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing agreement,   •  the collection account for the bonds and all related subaccounts,   •  all of our other property related to the bonds, other than any cash released to SCE by the trustee on any payment date representing a return of capital on its capital contribution,   •  all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and   •  all payments on or under and all proceeds in respect of any or all of the foregoing.   The subaccounts consist of a capital subaccount, which will be funded at closing in the amount of 0.50% of the initial aggregate principal amount of the bonds, a general subaccount, into which the servicer will deposit all fixed recovery charge collections, and excess funds subaccount, into which we will transfer any amounts collected and remaining on a payment date after all payments to

 

- 8 -

		bondholders and other parties have been made. Amounts on deposit in each of these subaccounts will be available to make payments on the bonds on each payment date. For a description of the recovery property, please read “The Recovery Property and the Securitization Law” in this prospectus.
State Pledge:		Under the Securitization Law, the State of California has pledged that it will neither limit nor alter the fixed recovery charges, recovery property, the financing order, or any rights thereunder, except for adjustments discussed in “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Requires the Servicer to Periodically to “True-Up” the Fixed Recovery Charge” and “The Servicing Agreement—True-Up Adjustment Filings”, until the bonds, together with the interest thereon and related financing costs, are fully paid and discharged. However, the Securitization Law further provides that nothing in this pledge precludes the State of California from limiting or altering the fixed recovery charges, recovery property or the financing order of the CPUC, if and when adequate provision is made by law for the protection of electrical corporations, owners of recovery property, financing entities and holders of bonds. We refer to this pledge in this prospectus or any prospectus supplement as the State pledge. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions” in this prospectus.   Under the Securitization Law, we are expressly authorized to include the State pledge for the State of California in the bonds.
Initial Fixed Recovery Charge as a Percentage of Customer’s Bill:		While the initial fixed recovery charge will vary based on the FRC consumer class, the initial fixed recovery charge is expected to represent approximately     % of the total bill, as of         , received by a 1,000 kWh residential customer of SCE.
Payment Dates:		Semi-annually,              and              and on the scheduled final payment date or legal final maturity for each tranche. The first scheduled payment date is             .

 

Interest Payments:		Interest is due on each payment date. Interest will accrue with respect to each tranche of bonds on a 30/360 basis at the interest rate specified for such tranche in the table below:

 

		Tranche		Interest Rate
						%

 

		If any payment date is not a business day, payments scheduled to be made on such date may be made on the next succeeding business day and no interest shall accrue upon such payment during the intervening period.   We will pay interest on each tranche of bonds before we pay the principal of each tranche of bonds. Please read “Description of the Bonds—Principal Payments” in this prospectus. If there is a shortfall in the amounts available in the collection account to make interest payments, the trustee will distribute interest pro rata to each tranche of bonds based on the amount of interest payable on each outstanding tranche.
Principal Payments and Record Dates and Payment Sources:		The issuing entity is scheduled to make payments of principal on each payment date and sequentially in accordance with the expected sinking fund schedule included in this prospectus.

 

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		Principal for each tranche is due upon the final maturity date for that tranche. Failure to pay the entire outstanding principal amount of a tranche by the final maturity date for such tranche will result in an event of default.   Failure to pay a scheduled principal payment on any payment date or the entire outstanding amount of the bonds of any tranche by the scheduled final payment date will not result in a default with respect to that tranche. The failure to pay the entire outstanding principal balance of the bonds of any tranche will result in a default only if such payment has not been made by the final maturity date for the tranche.   If there is a shortfall in the amounts available to make principal payments on the bonds that are due and payable, including upon an acceleration following an event of default, the trustee will distribute principal from the collection account pro rata to each tranche of bonds based on the principal amount then due and payable on the payment date; and if there is a shortfall in the remaining amounts available to make principal payments on the bonds that are scheduled to be paid, the trustee will distribute principal from the collection account pro rata to each tranche of bonds based on the principal amount then scheduled to be paid on the payment date.

 

Weighted Average Life:		Tranche		Expected Weighted Average Life (years)

 

Scheduled Final Payment Date and Final Maturity Date:		The scheduled final payment date and final maturity date for each tranche of bonds will be as set forth in the table below:
		Tranche		Scheduled Final Payment Date		Final Maturity Date

 

Optional Redemption:		None. Non-call for the life of the bonds.
Mandatory Redemption:		None. The issuing entity is not required to redeem the bonds at any time prior to maturity.
Priority of Payments:		On each payment date for the bonds, the trustee will allocate or pay all amounts on deposit in the general subaccount of the collection account in the following order of priority:   1. payment of the trustee’s fees, expenses and any outstanding indemnity amounts not to exceed $             per annum,   2. payment of the servicing fee relating to the bonds, plus any unpaid servicing fees from prior payment dates,   3. payment of the administration fee, and the fees of our independent managers,   4. payment of all of our other ordinary periodic operating expenses relating to the bonds, such as accounting and audit fees, rating agency fees, legal fees

 

- 10 -

		and certain reimbursable costs of the administrator under the administration agreement and the servicer under the servicing agreement,   5. payment of the interest then due on the bonds, including any past-due interest,   6. payment of the principal then required to be paid on the bonds as a result of acceleration upon an event of default or at final maturity,   7. payment of the principal then scheduled to be paid on the bonds in accordance with the expected sinking fund schedule, including any previously unpaid scheduled principal,   8. payment of any remaining unpaid fees, expenses and indemnity amounts owed to the trustee,   9. payment of any of our other unpaid operating expenses and any remaining amounts owed pursuant to the basic documents,   10. replenishment of any amounts drawn from the capital subaccount,   11. provided that no event of default has occurred and is continuing, release to SCE an amount representing a return on capital of its capital contribution calculated at an annual rate per annum equal to the weighted average interest rate on the bonds,   12. allocation of the remainder, if any, to the excess funds subaccount, and   13. after the bonds have been paid in full and discharged, including amounts due and payable to the trustee, the balance, together with all amounts in the capital subaccount and the excess funds subaccount, to us free and clear of the lien of the indenture.   The annual servicing fee for the bonds in clause 2 payable to SCE or any affiliate thereof while it is acting as servicer shall not at any time exceed     % of the original principal amount of the bonds, plus out-of-pocket expenses to cover the Servicer’s incremental costs and expenses in servicing the bonds. The annual servicing fee for the bonds payable to any other servicer not affiliated with SCE shall not at any time exceed     % of the original principal amount of the bonds, plus out-of-pocket expenses to cover the Servicer’s incremental costs and expenses in servicing the bonds, unless such higher rate is approved by the California commission. The annual administration fee in clause 3 above may not exceed $            , plus reimbursable expenses. Please read “Security for the Bonds—How Funds in the Collection Account Will Be Allocated” in this prospectus.
Issuance of Additional Recovery Bonds:		SCE may, from time to time, seek approval from the California commission to issue additional recovery bonds (or similar bonds secured by similar nonbypassable charges) through another issuer to recover additional recovery costs (or other costs) that are eligible to be financed under the Securitization Law (or similar legislation) and have been determined to be reasonable by the California commission. Such additional recovery bonds are referred to in this

 

- 11 -

		prospectus as additional recovery bonds, and such similar bonds are referred to as additional securitization bonds.   The additional recovery bonds or additional securitization bonds will be issued by another issuer or issuers, and will be secured by separate recovery property or similar property created by a separate financing order or orders. SCE intends to seek additional financing orders from the California commission under the Securitization Law to approve the recovery of additional $1.2 billion of recovery costs through the issuance of additional recovery bonds. Please read “SCE’s Financing Order—Additional Bonds” in this prospectus. SCE has covenanted in the sale agreement that the satisfaction of the rating agency condition and the execution of an intercreditor agreement is a condition precedent to the sale of property consisting of nonbypassable charges payable by customers comparable to the recovery property sold by SCE pursuant to the sale agreement. Please read “Risk Factors—Other Risks Associated with an Investment in the Bonds—SCE intends to cause the creation of additional recovery property and the issuance of additional recovery bonds through other affiliated entities and may issue other bonds secured by a nonbypassable charge on customers which may cause a delay in the payment of the bonds,” “Security for the Bonds—Intercreditor Agreement” and “Sale Agreement—Covenants of the Seller” in this prospectus.   Although each series of additional recovery bonds will have its own recovery property, fixed recovery charges relating to the bonds and fixed recovery charges relating to any other series of additional recovery bonds will be collected through a single electricity bill sent to each customer.   SCE will serve as the initial servicer for any additional recovery bonds. The financing order requires that, in the event a customer does not pay in full all amounts owed under any bill including fixed recovery charges, any resulting shortfalls in fixed recovery charges will be allocated ratably between the trustee and other bond trustees for each series of additional recovery bonds. Please read “The Servicing Agreement—Remittances to Collection Account” in this prospectus.
Credit Enhancement:		Credit enhancement for the bonds, which is intended to protect you against losses or delays in scheduled payments on the bonds, will be as follows:   •  The California commission will approve adjustments to the fixed recovery charges, but only upon petition of the servicer, to make up for any shortfall, due to any reason, or reduce any excess in collected fixed recovery charges. We sometimes refer to these adjustments as the true-up adjustments or the true-up mechanism. These adjustments will be made annually, and if determined necessary by the servicer, more frequently, and if there are bonds outstanding following the scheduled final payment date of the latest maturing tranche of the bonds, quarterly, to ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the bonds. Please read “SCE’s Financing Order—Fixed Recovery Charges” in this prospectus.   •  Collection Account—Under the indenture, the trustee will hold a collection account for the bonds, divided into various subaccounts. The primary subaccounts for credit enhancement purposes are:

 

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		•  the general subaccount—the trustee will deposit into the general subaccount all fixed recovery charge collections remitted to it by the servicer;   •  the capital subaccount—SCE will deposit an amount equal to 0.5% of the bonds principal amount issued into the capital subaccount on the date of issuance of the bonds; and   •  the excess funds subaccount—any excess amount of collected fixed recovery charges and investment earnings will be held in the excess funds subaccount.
Reports to Bondholders:		Pursuant to the indenture, the trustee will make available on its website (currently located at https://gctinvestorreporting.bnymellon.com) to the holders of record of the bonds regular reports prepared by the servicer containing information concerning, among other things, us and the collateral. Unless and until the bonds are issued in definitive certificated form, the reports will be provided to The Depository Trust Company. The reports will be available to beneficial owners of the bonds upon written request to the trustee or the servicer. These reports will not be examined and reported upon by an independent public accountant. In addition, no independent public accountant will provide an opinion thereon. Please read “Description of the Bonds—Reports to Bondholders” in this prospectus.
Servicing Compensation:		We will pay the servicer on each payment date the servicing fee with respect to the bonds. As long as SCE or any affiliated entity acts as servicer, this fee will be     % of the initial principal balance of the bonds on an annualized basis. If a successor servicer is appointed, the servicing fee will be negotiated by the successor servicer and the trustee, but will not, unless the California commission consents, exceed     % of the initial principal balance of the bonds on an annualized basis. In no event will the trustee be liable for any servicing fee in its individual capacity.
Federal Income Tax Status:		In the opinion of Norton Rose Fulbright US LLP, counsel to us and to SCE, for federal income tax purposes, the bonds will constitute indebtedness of SCE, our sole member. If you purchase a beneficial interest in any bond, you agree by your purchase to treat the bonds as debt of our sole member for federal income tax purposes. Please read “Material U.S. Federal Income Tax Consequences” in this prospectus.
ERISA Considerations:		Pension plans and other investors subject to ERISA or Section 4975 of the Internal Revenue Code may acquire the bonds subject to specified conditions. The acquisition and holding of the bonds could be treated as a direct or indirect prohibited transaction under ERISA. Accordingly, by purchasing the bonds, each investor purchasing on behalf of a pension plan will be deemed to certify that the purchase and subsequent holding of the bonds would be exempt from the prohibited transaction rules of ERISA or applicable similar law. Please read “ERISA Considerations” in this prospectus.
Credit ratings:		We expect the bonds will receive credit ratings from at least two nationally recognized statistical rating organizations. Please read “Ratings for the Bonds” in this prospectus.

 

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Use of proceeds:		Proceeds will be used to pay expenses of issuance and to purchase the recovery property from SCE. In accordance with the financing order, SCE will use the proceeds it receives from the sale of the recovery property to reimburse itself for previously incurred recovery costs, including the retirement of related debt. Please read “Use of Proceeds” in this prospectus.
1940 Act Registration:		The issuing entity will be relying on an exclusion from the definition of “investment company” under the 1940 Act contained in Rule 3a-7 under the 1940 Act, although there may be additional exclusions or exemptions available to the issuing entity. The issuing entity is being structured so as not to constitute a “covered fund” for purposes of the Volcker Rule under the Dodd-Frank Act.
Credit Risk Retention:		The bonds are not subject to the 5% risk retention requirements imposed by Section 15G of the Securities Exchange Act of 1934 or the Exchange Act due to the exemption provided in Rule 19(b)(8) of the risk retention regulations in 17 C.F.R. Part 246 of the Exchange Act or Regulation RR. For information regarding the requirements of the European Union Securitization Regulation as to risk retention and other matters, please read “Risk Factors—Other Risks Associated with an Investment in the Bonds—Regulatory provisions affecting certain investors could adversely affect the liquidity of the bonds” in this prospectus.
Minimum denomination:		$100,000, or integral multiples of $1,000 in excess thereof, except for one bond of each tranche which may be of a smaller denomination.
Expected settlement:		On or about                 , 2021, settling flat. DTC, Clearstream and Euroclear.

 

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SUMMARY OF RISK FACTORS

Set forth below is a summary of the material risk factors which you should consider before deciding whether to invest in the bonds. These risks can affect the timing or ultimate payment of the bonds and value of your security. A description of such risk factors in greater details follows this summary.

Limited Source of Payment for the Bonds: The only source of funds for the bonds is the recovery property and the other limited moneys held by the trustee. We have no other assets and the bonds are non-recourse to SCE. Therefore, the sources for repayment of the bonds are limited. You must rely for payment of the bonds solely upon the Securitization Law, state and federal constitutional rights to enforcement of the securitization provisions of the Securitization Law, the irrevocable financing order, collections of the fixed recovery charges and funds on deposit in the related accounts held by the trustee.

Risks Associated with Potential Judicial, Legislative or Regulatory Actions: The recovery property is an asset created under the Securitization law and through regulatory proceedings at the California commission. The Securitization Law as well as the financing order may be challenged in court. The California legislature, or the voters of the State using their initiative powers, may attempt to amend the Securitization Law, impairing the value of the recovery property. Further, SCE may fail or be unsuccessful in challenging such actions. Neither we nor SCE will indemnify you for any changes of law, whether as a result of Constitutional amendment, legislative enactment or any judicial proceedings.

In addition, the California commission retains the power to adopt, revise or rescind rules or regulations affecting SCE and may attempt to take actions which could impair the value of the recovery property. Also, true up adjustment filings made with the California commission may be challenged before the California commission or in court, resulting in delays in implementation of the true-up adjustment. Additionally, subject to any required California commission approval, SCE may establish billing, collection and posting arrangements with customers which could impact the timing and amount of customer payments.

Also, a municipality or tribal entity may seek to acquire portions of SCE’s service territory, and may dispute their obligation to pay the fixed recovery charges, or even if obligated to do so, may fail to bill and remit the fixed recovery charges on a timely basis.

Servicing Risks; Natural Disaster Recovery Risks: The collection of fixed recovery charges on a timely and sufficient basis depend upon the ability of the servicer to accurately forecast customer usage. If the servicer inaccurately forecasts consumption or underestimates customer delinquencies for any reason, there could be a shortfall or material delay in fixed recovery charge collections. Factors which might cause inaccurate projections of usage or customer delinquencies, include unanticipated weather conditions, rolling blackouts due to capacity constraints, cyber attacks on SCE or CAISO (defined below) infrastructure, general economic conditions or natural or man-made disasters, such as wildfires, earthquakes or pandemics, such as the current pandemic caused by COVID-19. SCE’s ability to collect fixed recovery charges from customers may also be impacted by some of these same factors. In response to the COVID-19 pandemic, the Governor of California and the California commission have taken actions which could impact on the ability to collect the fixed recovery charges, including the cessation of SCE’s ability to disconnect service, the requirement to defer payments from customers and the suspension of requirement for customer credit deposits. Any of these actions or any future actions by the State legislature or the California commission taken in response to COVID-19 or any future pandemic or other natural disaster may adversely affect the timing of fixed recovery charge collections.

These same natural and man-made disasters may affect SCE’s ability to deliver energy. As the fixed recovery charge is a consumption-based charge, any unexpected failure to deliver electricity may impact of the collection of fixed recovery charges. SCE’s operations could be impacted by severe weather, earthquakes and wildfires. Recent wildfires have resulted in rolling power shutoffs throughout the State of California. Any disruption in SCE’s ability to delivery energy could cause a delay or reduction in fixed recovery charge collections.

 

- 15 -

Servicing of the fixed recovery charges may also be adversely affected by a growth in the number of ESPs which elect to bill and collect the charge and who fail to do so promptly or completely.

It may be difficult for us to find a replacement servicer should SCE default in its obligations. Assuming we can obtain a successive servicer, the successor servicer may be less effective in servicing the charges, potentially resulting in delay in collections, and will be more costly.

Risks Associated with the Unusual Nature of Recovery Property: The unusual nature of recovery property makes it unlikely that, in the event of a default, the recovery property could be sold. Although the bonds may be accelerated in the event of a default, as a practical matter, the fixed recovery charges would likely not be accelerated.

Risks Associated with the Potential Bankruptcy of the Seller or the Servicer: In the event of a bankruptcy by SCE, the investor may experience a delay in payment or a default on payment of the bonds due to various factors, including the comingling of fixed recovery charges with other Servicer revenue, a challenge to the characterization of the sale of the recovery property as a financing transaction, an effort to consolidate our assets and liabilities with those of SCE, a characterization of fixed recovery payments to the bond trustee as preferential transfers, the treatment of our claims against the seller as unsecured claims, and a general limitation on the remedies available in a bankruptcy, including the risk of an automatic stay.

Other Risks: Other risks associated with the purchase of the bonds include the inadequacy of any indemnification obligations provided by the seller, the impact of a change of ratings or the issuance of an unsolicited rating, the absence of a secondary market for the bonds, the issuance of additional recovery bonds or similar instruments creating greater burdens on the same customers, regulatory actions affecting certain investors and losses on investments held by the trustee.

RISK FACTORS

Please carefully consider all the information we have included or incorporated by reference in this prospectus, including the risks described below and the statements contained under the heading “Cautionary Statement Regarding Forward-Looking Information” in this prospectus before deciding whether to invest in the bonds.

You may experience material payment delays or incur a loss on your investment in the bonds because the source of funds for payment is limited

The only source of funds for payment of the bonds will be our assets, which consist of:

 

•

the recovery property securing the bonds, including the right to impose, collect and receive related fixed recovery charges and our rights under the financing order to the true-up mechanism;

 

•

the funds on deposit in the accounts held by the trustee; and

 

•

our rights under various contracts we describe in this prospectus.

The bonds will not be insured or guaranteed by SCE, including in its capacity as sponsor, depositor, seller or servicer, or by its parent, Edison International, any of their respective affiliates, the trustee or any other person or entity. The bonds will be nonrecourse obligations, secured only by the collateral. Delays in payment on the bonds might result in a reduction in the market value of the bonds and, therefore, the value of your investment in the bonds.

Thus, you must rely for payment of the bonds solely upon the Securitization Law, state and federal constitutional rights to enforcement of the Securitization Law, the irrevocable financing order, collections of the

 

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fixed recovery charges and funds on deposit in the related accounts held by the trustee. If these amounts are not sufficient to make payments or there are delays in recoveries, you may experience material payment delays or incur a loss on your investment in the bonds. Our organizational documents restrict our right to acquire other assets unrelated to the transactions described in this prospectus. Please read “SCE Recovery Funding LLC, The Issuing Entity” in this prospectus.

RISKS ASSOCIATED WITH POTENTIAL JUDICIAL, LEGISLATIVE

OR REGULATORY ACTIONS

We are not obligated to indemnify you for changes in law

Neither we nor SCE will indemnify you for any changes in the law, including any federal preemption or repeal or amendment of the Securitization Law, that may affect the value of your bonds. SCE will agree in the sale agreement to institute any action or proceeding as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or amendment to the Securitization Law that would be materially adverse to us, the trustee or bondholders. However, SCE may not be able to take such action and, if SCE does take action, such action may not be successful. Although SCE or any successor seller might be required to indemnify us if legal action based on the law in effect at the time of the issuance of the bonds invalidates the recovery property, such indemnification obligations do not apply for any changes in law after the date the bonds are issued, whether such changes in law are effected by means of any legislative enactment, any constitutional amendment or any final and non-appealable judicial decision. Please read “The Sale Agreement—Seller Representations and Warranties” and “The Servicing Agreement—Servicing Standards and Covenants” in this prospectus.

Future judicial action could reduce the value of your investment in the bonds

The recovery property is created pursuant to the Securitization Law, the financing order and the issuance advice letter relating to the bonds. The Securitization Law, as last amended, became effective on January 1, 2020. SCE is the first utility to issue recovery bonds under the Securitization Law.

The Securitization Law or any provisions thereof might be directly contested in courts or otherwise become the subject of litigation. In addition, the financing order or any provision thereof might be directly contested in courts or otherwise become the subject of litigation. As of the date of this prospectus, no such litigation has arisen; however, a lawsuit challenging the Securitization Law might be instituted in the future and, if filed, such lawsuit will not be successful. If an invalidation of any relevant underlying legislative provision or the Securitization Law provision were to result from such litigation, you might lose some or all of your investment or you might experience delays in recovering your investment.

California and other states have passed laws permitting the securitization of electrical corporation costs similar to the Securitization Law, such as costs associated with the deregulation of the electric market, environmental control costs or hurricane recovery costs. Some of the laws have been challenged by judicial actions or in utility commission proceedings. To date, none of these challenges has succeeded, but future challenges might be made. An unfavorable decision regarding another state’s law would not automatically invalidate the Securitization Law or the financing order, but it might provoke a challenge to the Securitization Law, establish a legal precedent for a successful challenge to the Securitization Law or heighten awareness of the political and other risks of the bonds, and in that way may limit the liquidity and value of the bonds. Therefore, legal activity in other states may indirectly affect the value of your investment in the bonds.

Future state legislative action, including a voter initiative, might attempt to reduce the value of your investment in the bonds

In the Securitization Law, the State has pledged that it will neither limit nor alter the fixed recovery charges, recovery property, financing orders of the CPUC, or any rights thereunder until the bonds, together with the

 

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interest thereon, are fully paid and discharged. For a description of the State pledge, please read “The Recovery Property and the Securitization Law—The Financing Order and the Recovery Property—State Pledge” in this prospectus. However, the Securitization Law further provides that nothing in this pledge precludes the State from limiting or altering the fixed recovery charges, recovery property or any financing order of the CPUC, if and when adequate provision is made by law for the protection of SCE, owners of recovery property and holders of bonds. It is unclear what “adequate provision” would be afforded to holders of bonds by the State if such limitation or alteration were attempted. Accordingly, no assurance can be given that any such provision would not adversely affect the market value of the bonds, or the timing of receipt of payments with respect to the bonds.

In addition, under California law, the electorate has the right, through its initiative powers, to propose statutes as well as amendments to the California Constitution. Generally, any matter that is a proper subject of legislation can become the subject of an initiative. Among other procedural requirements, in order for an initiative measure to qualify for an election, the initiative measure must be submitted to the California Attorney General and a petition signed by electors constituting five percent, in the case of a statutory initiative, and eight percent, in the case of a constitutional initiative, of the votes cast at the immediately preceding gubernatorial election must be submitted to the California Secretary of State. To become effective, the initiative must then be approved by a majority vote of the electors voting at the next general election.

As of the date of this prospectus, we are not aware of any pending legislation in the California legislature or of any pending California voter initiative that would materially and adversely affect any of the provisions of the Securitization Law. Nevertheless, we cannot assure you that a repeal or amendment of the Securitization Law will not be adopted or sought, either by the California legislature, or the electorate acting through its initiative powers, or that any action or refusal to act by the State of California will not occur, any of which may constitute a violation of the State pledge with the holders. If a violation of the State pledge occurred, costly and time-consuming litigation might ensue regardless of the outcome of such litigation. Any litigation might materially adversely affect the price of the bonds and your ability to resell the bonds and might delay the timing of payments on the bonds. Moreover, given the lack of controlling precedent directly addressing the bonds and the State pledge, we cannot predict the outcome of any litigation with certainty, and, accordingly, you could experience a delay in receipt of payments on or incur a loss on your investment in the bonds.

The California commission might attempt to take actions that could reduce the value of your investment in the bonds

The Securitization Law provide that a financing order is irrevocable and that the California commission may not directly or indirectly, by any subsequent action, rescind or amend a financing order or reduce or impair the fixed recovery charges authorized under a financing order, except for the true-up adjustments to the fixed recovery charges. However, the California commission retains the power to adopt, revise or rescind rules or regulations affecting SCE.

For instance, the California commission adopted new customer protection regulations in June 2020 that adopted additional consumer protections and made permanent some, and extended others, of the temporary customer protection regulations enacted in response to COVID-19 that may extend the time it takes to complete the process of disconnecting customers for nonpayment or completely prevent disconnections in excess of certain set thresholds. Please read “The Depositor, Seller, Initial Servicer and Sponsor—Billing and Collections” and “The Depositor, Seller, Initial Servicer and Sponsor—COVID-19 Customer Protections” in this prospectus. Any new or amended regulations or orders from the California commission might affect the ability of the servicer to disconnect customers for nonpayment or prevent disconnections in excess of certain regional thresholds, which may impact SCE’s ability to collect fixed recovery charges in full, and on a timely basis, which may negatively impact, the rating of the bonds or their price and, accordingly, the amortization of the bonds and their weighted average lives.

The servicer is required to file with the California commission, on our behalf, certain adjustments of the fixed recovery charges. Please read “SCE’s Financing Order— Fixed Recovery Charges—The Financing Order

 

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Requires the Servicer to Periodically to “True-Up” the Fixed Recovery Charge” and “The Servicing Agreement—True-Up Adjustment Filings” in this prospectus. Challenges to or delays in the true-up process might adversely affect the market perception and valuation of the bonds. Also, any litigation, as well being costly and time-consuming, might materially delay fixed recovery charge collections due to delayed implementation of true-up adjustments and might result in missing payments or payment delays and lengthened weighted average lives of the bonds.

The servicer may not fulfill its obligations to act on behalf of the bondholders to protect bondholders from actions by the California commission or the State of California, or the servicer may be unsuccessful in any such attempt

The servicer will agree in the servicing agreement to take any action or proceeding necessary to compel performance by the CPUC and the State of California of any of their obligations or duties under the Securitization Law or the financing order, including any actions reasonably necessary to block or overturn attempts to cause a repeal or modification of the Securitization Law or the financing order. The servicer, however, may not be able to take those actions for a number of reasons, including due to legal or regulatory restrictions, financial constraints and practical difficulties in successfully challenging any such legislative enactment or constitutional amendment. Additionally, any action the servicer is able to take may not be successful. Any such failure to perform its obligations or to successfully compel performance by the CPUC or the State of California could negatively affect bondholders’ rights and result in a loss of their investment.

A municipal entity or tribal utility might assert the right to acquire portions of SCE’s electric facilities and/or serve the load of customers within their jurisdictional areas and avoid or reduce the affected customers’ payment of the fixed recovery charges

California law authorizes certain local municipalities to seek to acquire portions of SCE’s electric facilities through the power of eminent domain for use as part of municipally-owned utility systems and serve customers with those facilities. Additionally, local municipalities may extend their own facilities to take over service of customers located within their jurisdictional areas, which may overlap with SCE’s service territory. Moreover, tribal governments may operate their own utilities and, from time to time, may assert the right to acquire SCE’s facilities located within the borders of tribal land through the power of eminent domain. These circumstances involve what is referred to under existing tariffs as municipal departing load (Municipal DL), where the affected customers are no longer interconnected with SCE’s electric facilities. The last tribal annexation occurred in 2017 and involved 25 consumers and the last municipal annexation occurred in 2018 and involved 162 consumers; in each case the departing consumers were primarily residential consumers. As the date of this prospectus, we are not aware of any local municipality or tribe that is actively seeking or threatening to acquire portions of SCE’s electric distribution system.

The Securitization Law provides that the fixed recovery charges must be paid by all existing and future customers within SCE’s service territory as it existed on the date of the financing order. The financing order provides that consumers that no longer take transmission and distribution retail service (including Municipal DL customers) or that otherwise depart or reduce SCE service after the date of the financing order, or that meet relevant criteria in the applicable tariff, will be treated as departing load customers (DL customers). DL customers, including Municipal DL customers, are required to pay the fixed recovery charge based on approaches that are consistent with the methods in place for other nonbypassable charges. SCE’s Municipal DL tariffs provide for calculation of certain nonbypassable charges based on consumption as metered or estimated. SCE has administered these Municipal DL tariffs by reaching agreement the Municipal DL customer or the local municipality serving the Municipal DL customer for the payment of one or more lump sums based on a mutually acceptable estimate of the Municipal DL customer’s nonbypassable cost obligations, which include charges similar to the fixed recovery charges. No assurance can be provided that such agreements will be reached in the future with respect to Municipal DL, and any failure to reach such an agreement could result in litigation or otherwise make it difficult to collect the fixed recovery charges (including any lump sum payment). Please read

 

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“The Depositor, Seller, Initial Servicer and Sponsor—Municipalization; Municipal Departing Load” and “—Successors” in this prospectus. If such agreements relating to Municipal DL are, however, reached, the payments allocable to the fixed recovery charges will constitute recovery property.

The Securitization Law also specifies that any successor to an electric utility shall perform and satisfy all obligations of the electric utility pursuant to the Securitization Law, including collecting and paying to the bondholders revenues arising with respect to the recovery property. In the servicing agreement, SCE will covenant to assert in an appropriate forum that any municipality that acquires any portion of SCE’s electric distribution facilities must be treated as a successor to SCE under the Securitization Law and the financing order and that retail customers in such municipalities remain responsible for payment of fixed recovery charges. No assurance can be provided that such assertion will be accepted by a municipality or sustained by a court. Please read “The Recovery Property and the Securitization Law—The Financing Order and the Recovery Property—The Securitization Law Requires the Electrical Corporation and its Successors to Service the Recovery Property” in this prospectus.

Despite these provisions of the Securitization Law and the financing order, the involved municipality or tribe might assert that its customers are not responsible for payment of fixed recovery charges or that it is not responsible for collecting the charges, and as a result, SCE may find collection of fixed recovery charges from such customers difficult or impractical or the recovery of such charges to be delayed. In any such cases, there can be no assurance that the fixed recovery charges will be collected from customers of municipally-owned utilities who were formerly customers of SCE. Any decrease in the customer base from which fixed recovery charges are collected might result in missing payments or payment delays and lengthened weighted average life of the bonds.

In the financing order, the California commission has committed, in furtherance of the State pledge, in connection with any Commission proceeding to review the municipalization of SCE facilities by an entity that does not set retail rates subject to the California commission, to establish conditions to the approval of such municipalization transaction by the California commission which either (a) establish procedures to ensure that such entity will continue to bill and collect fixed recovery charges from customers and remit such collections to SCE or a new servicer for the bonds or (b) ensure the upfront funding of the fixed recovery charges that would otherwise be paid by customers where rate payment would be affected by the ownership change. Whether and how the law giving the California commission jurisdiction to approve a public entity’s acquisition of electric or gas assets would be applied to a municipalization or tribal condemnation has not been tested, and no assurance can be provided that the provisions of the financing order referenced herein will be successfully implemented. Please read “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Provides that Fixed Recovery Charges are Nonbypassable” in this prospectus.

It may be difficult to estimate and accurately collect fixed recovery charges from customers who self-generate and who disconnect from SCE’s grid

Broader use of distributed generation by customer’s may result from customers’ changing perceptions of the merits of utilizing existing generation technology, tax or other economic incentives or from technological developments resulting in smaller-scale, more fuel efficient, more environmentally friendly and/or more cost effective distributed generation. Moreover, an increase in distributed generation may result if extreme weather conditions result in shortages of grid-supplied energy or if other factors cause grid-supplied energy to be less reliable. More widespread use of distributed generation, particularly battery storage, might allow greater numbers of customers to reduce or eliminate their payment of fixed recovery charges causing fixed recovery charges to remaining consumers to increase.

Under current CPUC decisions, customers taking net energy metering (NEM) service with solar generation are billed on a net-metered basis. Pursuant to the financing order, fixed recovery charges will be imposed on customers taking NEM service on each kilowatt-hour of electricity imported from SCE net of exports from such customer for each metered interval. Please read “The Depositor, Seller, Initial Servicer and Sponsor— Community Choice Aggregation, Direct Access and Departing Load” in this prospectus.

 

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In respect of other customers who self-generate, but do not take NEM service, the financing order provides that customers that no longer take transmission and distribution retail service or that otherwise depart or reduce SCE service after the date of the financing order, or that meet relevant criteria in the applicable tariff, will be treated as DL customers. The financing order provides that these self-generating DL customers will be required to pay fixed recovery charges consistent with the methodology in place under existing DL tariffs for the payment of other nonbypassable charges by such customers, except as stated below. This methodology requires that the fixed recovery charge be imposed on DL customers based upon the consumption displaced by the new generation. Please read “The Depositor, Seller, Initial Servicer and Sponsor—Community Choice Aggregation, Direct Access and Departing Load” “in this prospectus. The financing order does not limit the California commission’s or SCE’s discretion to modify DL tariffs in the future, but does provide assurance that fixed recovery charges will be recovered from customers consistent with the method set forth in the DL tariffs in place as of the date of the financing order.

However, current DL tariffs do not require the payment of nonbypassable charges on DL customers (other than Municipal DL customers) that terminate service and disconnect from SCE’s grid. While the financing order provides that such customers remain responsible for payment of fixed recovery charges, it may be difficult for SCE to collect fixed recovery charges from these disconnected (former) customers, and these customers may dispute their obligation to pay the fixed recovery charge, thus potentially adversely impacting the timing and receipt of fixed recovery charge collections.

SERVICING RISKS

Inaccurate consumption or collection forecasting might reduce scheduled payments on the bonds

The fixed recovery charges are assessed based on forecasted customer usage. The amount and the rate of fixed recovery charge collections will depend in part on actual electricity consumption and the amount of collections and write-offs. The fixed recovery charges are calculated by the servicer according to the methodology approved in the financing order, which includes the allocation of cost responsibility among FRC consumer classes based upon the cost responsibilities approved in SCE’s most recent GRC or related proceeding. If the servicer inaccurately forecasts either electricity consumption or underestimates customer delinquency or write-offs when setting or adjusting the fixed recovery charge, there could be a shortfall or material delay in fixed recovery charge collections, which might result in missed or delayed payments of principal and interest and lengthened weighted average life of the bonds. Please read “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Establishes the Methodology used to Calculate the Fixed Recovery Charges” and “The Servicing Agreement—The True-Up Adjustment Filings” in this prospectus.

Inaccurate forecasting of electricity consumption by the servicer might result from, among other things:

 

•

unanticipated weather or economic conditions, resulting in less electricity consumption than forecast;

 

•

general economic conditions, including the economic downturn caused by COVID-19 pandemic being worse than expected, causing customers to migrate from SCE’s service territory or reduce their electricity consumption;

 

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the occurrence of a natural disaster, such as wildfires or earthquakes or an act of war or terrorism, or other catastrophic event, including pandemics, unexpectedly disrupting electrical service and reducing electricity consumption;

 

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unanticipated changes in the market structure of the electric industry;

 

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large customers unexpectedly ceasing business or departing SCE’s service territory;

 

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dramatic and unexpected changes in energy prices resulting in decreased electricity consumption;

 

•

customers consuming less electricity than anticipated because of increased energy prices, unanticipated increases in conservation efforts or unanticipated increases in electric consumption efficiency; or

 

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differences or changes in forecasting methodology.

 

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Inaccurate forecasting of delinquencies or write-offs by the servicer could result from, among other things:

 

•

unexpected deterioration of the economy, the occurrence of a natural disaster, an act of war or terrorism or other catastrophic events, including pandemics, causing greater write-offs than expected or forcing SCE or a successor utility to grant additional payment relief to more customers;

 

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an unexpected change in law that makes it more difficult for SCE or a successor distribution company to terminate service to nonpaying customers, or that requires SCE or a successor to apply more lenient credit standards for customers;

 

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the expansion of the “direct access” program which permits ESPs to collect payments arising from the fixed recovery charges, but who may fail to remit customer charges to the servicer in a timely manner; or

 

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rolling blackouts instituted by CAISO by the lack of installed capacity and high demand.

The COVID-19 pandemic may impact SCE’s ability to collect and service the fixed recovery charges and might reduce scheduled payments on the bonds

In response to the global pandemic caused by COVID-19, many states and public utility commissions have enacted policies that limit the ability of utilities to disconnect customers for nonpayment. The California commission has directed utilities to implement various consumer protection measures through at least April 16, 2021, including the cessation of all service disconnections, requiring deferred payment protections and the suspension of credit deposits. In addition, SCE has voluntarily implemented certain consumer protection measures, such as the suspension of the assessment of late payment charges (LPCs). Please read “The Depositor, Seller, Initial Servicer and Sponsor—COVID-19 Customer Protections” in this prospectus. These consumer protection measures may limit the ability of SCE to collect all charges owed by customers, including the fixed recovery charges. In addition, the State legislature or the California commission may take additional actions in response to COVID-19 or any future pandemic which may adversely affect the timing of fixed recovery charge collections. As a consequence, there could be a shortfall or material delay in fixed recovery charge collections, which might result in missed or delayed payments of principal and interest and lengthened weighted average life of the bonds and downgrade of the credit ratings on the bonds.

In addition, COVID-19 may impact the ability of SCE to maintain operations at the same level as it was able prior to the pandemic. For instance, a large portion of SCE’s workforce, including employees of their contractors, may be unable to perform their job functions effectively due to illness, family illness, quarantine requirements, social-distancing, telework requirements and other impacts of the COVID-19 pandemic. Such potential impacts may limit the ability SCE to service the fixed recovery charges.

Your investment in the bonds depends on SCE or its successor or assignee, acting as servicer of the recovery property

SCE, as servicer, will be responsible for, among other things, calculating, billing and collecting the fixed recovery charges from ESPs, submitting requests to the California commission to adjust these charges, monitoring the collateral for the bonds and taking certain actions in the event of non-payment by a customers. The trustee’s receipt of collections in respect of the fixed recovery charges, which will be used to make payments on bonds, will depend in part on the skill and diligence of the servicer in performing these functions. The systems that the servicer has in place for fixed recovery charge billings and collections, together with the CPUC regulations governing ESPs, might, in particular circumstances, cause the servicer to experience difficulty in performing these functions in a timely and completely accurate manner. If the servicer fails to make collections for any reason, then the servicer’s payments to the trustee in respect of the fixed recovery charges might be delayed or reduced. In that event, our payments on the bonds might be delayed or reduced.

 

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If we replace SCE as the servicer, we may experience difficulties finding and using a replacement servicer

If SCE ceases to service the recovery property related to the bonds, it might be difficult to find a successor servicer. Also, any successor servicer might have less experience and ability than SCE and might experience difficulties in collecting fixed recovery charges and determining appropriate adjustments to the fixed recovery charges and billing and/or payment arrangements may change, resulting in delays or disruptions of collections. A successor servicer might not be willing to perform except for fees higher than those approved in the financing order and might charge fees that, while permitted under the financing order, are substantially higher than the fees paid to SCE as servicer. Although a true-up adjustment would be required to allow for the increase in fees, there could be a gap between the incurrence of those fees and the implementation of a true-up adjustment to adjust for that increase that might adversely affect distributions to bondholders. In the event of the commencement of a case by or against the servicer under Title 11 of the United States Code, as amended, of the Bankruptcy Code, or similar laws, we and the trustee might be prevented from effecting a transfer of servicing due to operation of the Bankruptcy Code. Any of these factors might delay the timing of payments and reduce the value of your investment.

Changes to billing, collection and posting practices might reduce the value of your investment in the bonds

The financing order specifies the methodology for determining the amount of the fixed recovery charges we may impose. However, subject to any required California commission approval, the servicer may set its own billing, collection and posting arrangements with customers from whom it collects fixed recovery charges, provided that these arrangements comply with any applicable California commission customer safeguards and the provisions of the servicing agreement. For example, to recover part of an outstanding bill, the servicer may agree to extend a customer’s payment schedule, including the fixed recovery charges. Also, subject to any required California commission approval, the servicer may change billing, collection and posting practices, which might adversely impact the timing and amount of customer payments and might reduce fixed recovery charge collections, thereby limiting our ability to make scheduled payments on the bonds. Separately, the California commission might require changes to these practices. Any changes in billing, collection and posting practices or regulations might make it more difficult for the servicer to collect the fixed recovery charges and adversely affect the value of your investment in the bonds.

SCE’s systems and network infrastructure are targets for physical and cyber attacks, intrusions or other catastrophic events that could result in their failure or reduced functionality and limit SCE’s ability to service the recovery property.

SCE’s operations require the continuous availability of critical information technology systems, sensitive customer data and network infrastructure and information, all of which are targets for malicious actors. New cyber and physical threats arise as SCE moves from an analog to a digital electric grid. For example, SCE’s grid modernization efforts and the move to a network-connected grid increases the number of “threat surfaces” and potential vulnerabilities that an adversary can target. In addition, SCE depends on a wide array of vendors to provide it with services and equipment. Malicious actors may attack vendors to disrupt the services they provide to SCE, or to use those vendors as a cyber conduit to attack SCE. Additionally, the equipment and material provided by SCE’s vendors may contain cyber vulnerabilities.

SCE’s systems have been, and will likely continue to be, subjected to computer attacks of malicious codes, unauthorized access attempts, and other illicit activities, but to date, SCE has not experienced a material cybersecurity breach. Though SCE actively monitors developments in this area and is involved in various industry groups and government initiatives, no security measures can completely shield its systems and infrastructure from vulnerabilities to cyber attacks, intrusions or other catastrophic events that could result in their failure or reduced functionality.

If SCE’s information technology and operational technology systems’ security measures were to be breached, or a critical system failure were to occur without timely recovery, SCE could be unable to fulfill

 

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critical business functions, such as delivery of electricity to customers and the ability to meter and bill customers all of which could materially affect SCE’s ability to bill and collect fixed recovery charges or otherwise service the recovery property.

It may be difficult to collect fixed recovery charges from other parties who bill retail customers

Under California’s “direct access” program, SCE faces competition in certain areas of its retail business from ESPs. Currently the direct access program is limited to 13,456.87 gigawatt hours of annual sales for SCE’s service area. However, as has been done previously in 2009 and 2018, the Legislature or the California commission could expand the direct access program at any time. Please read “The Depositor, Seller, Initial Servicer and Sponsor—Community Choice Aggregation, Direct Access and Departing Load” in this prospectus. In respect of customers taking service from an ESP, SCE remains the transmission and distribution provider. The Securitization Law provides that the fixed recovery charges must be paid by all existing and future customers within SCE’s service territory as it existed on the date of the financing order. The financing order provides that customers with departing load must pay the fixed recovery charges on the departing load. Nevertheless, ESPs that elect to do their own billing will be responsible for billing the fixed recovery charges and any delay in the remittance of such fixed recovery charges may reduce the fixed recovery charge collections available to make payments on the bonds.

It might be difficult for successor servicers to collect the fixed recovery charges from SCE’s customers

Any successor servicer may bring an action against a customer for non-payment of the fixed recovery charge, but only a successor servicer that is a successor electric utility may terminate service for failure to pay the fixed recovery charges. A successor servicer that does not have the threat of termination of service available to enforce payment of the fixed recovery charge would need to rely on the successor electric utility to threaten to terminate service for nonpayment of other portions of monthly electric utility bills. This inability might reduce the value of your investment.

RISKS ASSOCIATED WITH THE UNUSUAL NATURE OF THE RECOVERY PROPERTY

Foreclosure of the trustee’s lien on the recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might have little practical effect

Under the Securitization Law and the indenture, the trustee or the bondholders have the right to foreclose or otherwise enforce the lien on the recovery property securing the bonds. However, in the event of foreclosure, there is likely to be a limited market, if any, for the recovery property. Therefore, foreclosure might not be a realistic or practical remedy. Moreover, although principal of the bonds will be due and payable upon acceleration of the bonds before maturity, fixed recovery charges likely would not be accelerated and the nature of our business will result in principal of the bonds being paid as funds become available. If there is an acceleration of the bonds, all tranches of the bonds will be paid pro rata; therefore, some tranches might be paid earlier than expected and some tranches might be paid later than expected.

NATURAL DISASTER-RELATED RISK

Damage to SCE’s operations or reduced capacity to deliver electricity could impair payment of the bonds

SCE’s operations could be impacted by severe weather, earthquakes, and wildfires. Specifically, prolonged drought conditions and shifting weather patterns in California resulting from climate change as well as increased tree mortality rates have increased the duration of the wildfire season and the risk of severe wildfire events. Transmission and/or distribution and generation facilities could be damaged or destroyed and usage of electricity could be interrupted temporarily, reducing the collections of fixed recovery charges or otherwise impacting

 

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SCE’s ability to service the recovery property. There could be longer-lasting weather-related adverse effects on residential and commercial development and economic activity among SCE’s customers, which could cause the fixed recovery charges to be greater than expected. In addition, heat waves and other extreme weather events may require the implementation of rolling blackouts, temporarily reducing electricity sales and resulting in reduced fixed recovery charge collections. Legislative action adverse to the bondholders might be taken in response, and such legislation, if challenged as a violation of the State pledge, might be defended on the basis of public necessity. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions—Future state legislative action, including a voter initiative, might attempt to reduce the value of your investment in the bonds” in this prospectus.

RISKS ASSOCIATED WITH POTENTIAL BANKRUPTCY PROCEEDINGS OF THE SELLER OR THE SERVICER

For a more detailed discussion of the following bankruptcy risks, please read “How a Bankruptcy May Affect Your Investment” in this prospectus.

The servicer will commingle the fixed recovery charges with other revenues it collects, which might obstruct access to the fixed recovery charges in case of the servicer’s bankruptcy and reduce the value of your investment in the bonds

The servicer will be required to remit estimated fixed recovery charge collections to the trustee no later than the second servicer business day of receipt. The servicer will not segregate the fixed recovery charges from the other funds it collects from customers or ESPs or its general funds. The fixed recovery charges will be estimated and segregated only when the servicer pays them to the trustee.

Despite this requirement, the servicer might fail to pay the full amount of the fixed recovery charges payable to the trustee or might fail to do so on a timely basis. This failure, whether voluntary or involuntary, might materially reduce the amount of fixed recovery charge collections available to make payments on the bonds.

Absent a default under the servicing agreement, SCE will be permitted to remit estimated fixed recovery charges to the trustee. While SCE will be responsible for identifying and calculating the actual amount of fixed recovery charges in the event of a default under the servicing agreement, it may be difficult for SCE to identify such charges, given existing limitations in its billing system.

The Securitization Law provides that the priority of a lien and security interest perfected in recovery property is not impaired by the commingling of the funds arising from fixed recovery charges with any other funds. In a bankruptcy of the servicer, however, a bankruptcy court might rule that federal bankruptcy law takes precedence over the Securitization Law and might decline to recognize our right to collections of the fixed recovery charges that are commingled with other funds of the servicer as of the date of bankruptcy. If so, the collections of the fixed recovery charges held by the servicer as of the date of bankruptcy would not be available to pay amounts owing on the bonds. In this case, we would have only a general unsecured claim against the servicer for those amounts. This decision could cause material delays in payments of principal or interest, or losses, on your bonds and could materially reduce the value of your investment in the bonds.

The bankruptcy of SCE or any successor seller might result in losses or delays in payments on the bonds

The seller will represent and warrant in the sale agreement that the transfer of the recovery property to us under that sale agreement is a valid sale and assignment of that recovery property from the seller to us. The seller will also represent, warrant, and covenant that it will take the appropriate actions under the Securitization Law to perfect this sale. The Securitization Law provides that the transactions described in the sale agreement shall constitute a sale of the recovery property to us, and the seller and we will treat the transaction as a sale under applicable law, although for financial reporting and tax reporting purposes the transaction will be treated as debt

 

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of the seller. If the seller were to become a debtor in a bankruptcy case, and a party in interest (including the seller itself) were to take the position that the sale of the recovery property to us should be recharacterized as the grant of a security interest in such recovery property to secure a borrowing of the seller, delays in payments on the bonds could result. If a court were to adopt such position, then delays or reductions in payments on the bonds could result.

Pursuant to the Securitization Law and the financing order, upon the sale of the recovery property, the recovery property is created as a current property right, and it thereafter continuously exists as property for all purposes. Nonetheless, if the seller were to become the debtor in a bankruptcy case, a party in interest (including the seller itself) may take the position that, because the fixed recovery charges are usage-based charges, recovery property comes into existence only as customers use electricity. If a court were to adopt this position, no assurance can be given that the court would not also rule that any recovery property relating to electricity consumed after the commencement of the seller’s bankruptcy case was not required to be transferred to us, thus resulting in delays or reductions of payments on the bonds.

A bankruptcy court generally follows state property law on issues such as those addressed by the state law provisions described above. However, a bankruptcy court does not follow state law if it determines that the state law is contrary to a paramount federal bankruptcy policy or interest. If a bankruptcy court in a SCE bankruptcy refused to enforce one or more of the state property law provisions described above, the effect of this decision on you as a beneficial owner of the bonds might be similar to the treatment you would receive in a SCE bankruptcy if the bonds had been issued directly by SCE. A decision by the bankruptcy court that, despite our separateness from SCE, our assets and liabilities and those of SCE should be consolidated would have a similar effect on you as a bondholder.

We have taken steps together with SCE, as the seller, to reduce the risk that in the event the seller or an affiliate of the seller were to become the debtor in a bankruptcy case, a court would order that our assets and liabilities be substantively consolidated with those of SCE or an affiliate. Nonetheless, these steps might not be completely effective, and thus if SCE or an affiliate of the seller were to become a debtor in a bankruptcy case, a court might order that our assets and liabilities be consolidated with those of SCE or an affiliate of the seller. This might cause material delays in payment of, or losses on, your bonds and might materially reduce the value of your investment in the bonds. For example:

 

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without permission from the bankruptcy court, the trustee might be prevented from taking actions against SCE or recovering or using funds on your behalf or replacing SCE as the servicer,

 

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the bankruptcy court might order the trustee to exchange the recovery property for other property of lower value,

 

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tax or other government liens on SCE’s property might have priority over the trustee’s lien and might be paid from collected fixed recovery charges before payments on the bonds,

 

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the trustee’s lien might not be properly perfected in the collected recovery property collections prior to or as of the date of SCE’s bankruptcy, with the result that the bonds would represent only general unsecured claims against SCE,

 

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the bankruptcy court might rule that neither our property interest nor the trustee’s lien extends to fixed recovery charges in respect of electricity consumed after the commencement of SCE’s bankruptcy case, with the result that the bonds would represent only general unsecured claims against SCE,

 

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we and SCE might be relieved of any obligation to make any payments on the bonds during the pendency of the bankruptcy case and might be relieved of any obligation to pay interest accruing after the commencement of the bankruptcy case,

 

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SCE might be able to alter the terms of the bonds as part of its plan of reorganization,

 

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the bankruptcy court might rule that the fixed recovery charges should be used to pay, or that we should be charged for, a portion of the cost of providing electric service, or

 

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•

the bankruptcy court might rule that the remedy provisions of the sale agreement are unenforceable, leaving us with an unsecured claim for actual damages against SCE that may be difficult to prove or, if proven, to collect in full.

Furthermore, if SCE enters bankruptcy proceedings, it might be permitted to stop acting as servicer, and it may be difficult to find a third party to act as servicer. The failure of the servicer to perform its duties or the inability to find a successor servicer might cause payment delays or losses on your investment in the bonds. Also, the mere fact of a servicer or seller bankruptcy proceeding might have an adverse effect on the resale market for the bonds and on the value of the bonds.

The sale of the recovery property might be construed as a financing and not a sale in a case of SCE’s bankruptcy which might delay or limit payments on the bonds

The Securitization Law provides that the characterization of a transfer of recovery property as a sale or other absolute transfer will not be affected or impaired by treatment of the transfer as a financing for federal or state tax purposes or financial reporting purposes. We and SCE will treat the transaction as a sale under applicable law, although for financial reporting and income and franchise tax purposes the transaction is intended to be treated as a financing. In the event of a bankruptcy of SCE, a party in interest in the bankruptcy might assert that the sale of the recovery property to us was a financing transaction and not a “sale or other absolute transfer” and that the treatment of the transaction for financial reporting and tax purposes as a financing and not a sale lends weight to that position. If a court were to characterize the transaction as a financing, we expect that we would, on behalf of ourselves and the trustee, be treated as a secured creditor of SCE in the bankruptcy proceedings, although a court might determine that we only have an unsecured claim against SCE. Even if we had a security interest in the recovery property, we would not likely have access to the related fixed recovery charge collections during the bankruptcy and would be subject to the risks of a secured creditor in a bankruptcy case, including the possible bankruptcy risks described in the immediately preceding risk factor. As a result, repayment of the bonds might be significantly delayed and a plan of reorganization in the bankruptcy might permanently modify the amount and timing of payments to us of the related fixed recovery charge collections and therefore the amount and timing of funds available to us to pay bondholders.

If the servicer enters bankruptcy proceedings, the collections of the fixed recovery charges held by the servicer as of the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owing on the bonds

In the event of a bankruptcy of the servicer, a party in interest might take the position that the remittance of funds prior to bankruptcy of the servicer, pursuant to the servicing agreement, constitutes a preference under bankruptcy law if the remittance of those funds was deemed to be paid on account of a preexisting debt. If a court were to hold that the remittance of funds constitutes a preference, any such remittance within 90 days of the filing of the bankruptcy petition could be avoidable, and the funds could be required to be returned to the bankruptcy estate of the servicer. To the extent that fixed recovery charges have been commingled with the general funds of the servicer, the risk that a court would hold that a remittance of funds was a preference would increase. Also, we or the servicer may be considered an “insider” with any ESP that is affiliated with us or the servicer. If the servicer or we are considered to be an “insider” of the ESP, any such remittance made within one year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold that such remittance constitutes a preference. In either case, we or the trustee would merely be an unsecured creditor of the servicer. If any funds were required to be returned to the bankruptcy estate of the servicer, we would expect that the amount of any future fixed recovery charges would be increased through the statutory true-up mechanism to recover such amount, though this would not eliminate the risk of payment delays or losses on your investment in the bonds.

 

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Claims against SCE or any successor seller might be limited in the event of a bankruptcy of the seller

If the seller were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us against the seller under the sale agreement and the other documents executed in connection with the sale agreement would be unsecured claims and would be adjudicated in the bankruptcy case. In addition, the bankruptcy court might estimate any contingent claims that we have against the seller and, if it determines that the contingency giving rise to these claims is unlikely to occur, estimate the claims at a lower amount. A party in interest in the bankruptcy of the seller might challenge the enforceability of the indemnity provisions in a sale agreement. If a court were to hold that the indemnity provisions were unenforceable, we would be left with a claim for actual damages against the seller based on breach of contract principles, which would be subject to estimation and/or calculation by the court. We cannot give any assurance as to the result if any of the above-described actions or claims were made. Furthermore, we cannot give any assurance as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving the seller.

The bankruptcy of SCE or any successor seller might limit the remedies available to the trustee

Upon an event of default for the bonds under the indenture, the Securitization Law permits the trustee to enforce the security interest in the recovery property, as well as the statutory lien created by the Securitization Law in the recovery property, in accordance with the terms of the indenture. In this capacity, and pursuant to the Securitization Law and the financing order, the trustee is permitted to request the California commission to order the sequestration and payment to bondholders of all revenues arising with respect to the related recovery property. There can be no assurance, however, that the California commission or a court would issue this order, or that a court would respect the California commission’s right to order sequestration, after a SCE bankruptcy in light of the automatic stay provisions of Section 362 of the United States Bankruptcy Code. In that event, the trustee would be required to seek an order from the bankruptcy court lifting the automatic stay to permit this action by the California commission or a court, and an order requiring an accounting and segregation of the revenues arising from the recovery property. There can be no assurance that a court would grant either order.

OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS

SCE’s indemnification obligations under the sale and servicing agreements are limited and might not be sufficient to protect your investment in the bonds

SCE is obligated under the sale agreement to indemnify us and the trustee, for itself and on behalf of the bondholders, only in specified circumstances and will not be obligated to repurchase any recovery property in the event of a breach of any of its representations, warranties or covenants regarding the recovery property. Similarly, SCE is obligated under the servicing agreement to indemnify us and the trustee, for itself and on behalf of the bondholders, only in specified circumstances. Please read “The Sale Agreement” and “The Servicing Agreement” in this prospectus.

Neither the trustee nor the bondholders will have the right to accelerate payments on the bonds as a result of a breach under the sale agreement or servicing agreement, absent an event of default under the indenture relating to the bonds as described under “Description of the Bonds—Events of Default; Rights Upon Event of Default” in this prospectus. Furthermore, SCE might not have sufficient funds available to satisfy its indemnification obligations under these agreements, and the amount of any indemnification paid by SCE might not be sufficient for you to recover all of your investment in the bonds. In addition, if SCE becomes obligated to indemnify bondholders, the then-current ratings on the bonds will likely be downgraded as a result of the circumstances causing the breach and the fact that bondholders will be unsecured creditors of SCE with respect to any of these indemnification amounts. SCE will not indemnify any person for any loss, damages, liability, obligation, claim, action, suit or payment resulting solely from a downgrade in the ratings on the bonds, or for any consequential damages, including any loss of market value of the bonds resulting from a default or a downgrade of the ratings of the bonds. Please read “The Sale Agreement—Seller Representations and Warranties” and “The Sale Agreement—Indemnification” in this prospectus.

 

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We are issuing several tranches of the bonds

The financing order authorizes us to issue one or more tranches of the bonds not to exceed the aggregate principal amount of $                . Fixed recovery charges collected by or for the benefit of SCE will be allocated among the tranches of bonds as set forth in the expected sinking fund schedule and the priority of payments set forth under “Security for the Bonds—How Funds in the Collection Account Will Be Allocated” in this prospectus. However, we cannot assure you that the existence of multiple tranches of bonds would not cause reductions or delays in payment on your bonds. In addition, some matters relating to the bonds may require the vote of the holders of all tranches of the bonds. Your interests in these votes might conflict with the interests of the beneficial owners of bonds of another tranche and therefore these votes could result in an outcome that is materially unfavorable to you.

The credit ratings are no indication of the expected rate of payment of principal on the bonds

We expect the bonds will receive credit ratings from at least two nationally recognized statistical rating organizations (NRSRO). A rating is not a recommendation to buy, sell or hold the bonds. The ratings merely analyze the probability that we will repay the total principal amount of the bonds at the final maturity date (which is later than the scheduled final payment date) and will make timely interest payments. The ratings are not an indication that the rating agencies believe that principal payments are likely to be paid on time according to the expected sinking fund schedule.

Under Rule 17g-5 of the Exchange Act, NRSROs providing the sponsor with the requisite certification will have access to all information posted on a website by the sponsor for the purpose of determining the initial rating and monitoring the rating after the closing date in respect of the bonds. As a result, an NRSRO other than the NRSRO hired by the sponsor (the hired NRSRO) may issue ratings on the bonds (unsolicited ratings), which may be lower, and could be significantly lower, than the ratings assigned by the hired NRSROs. The Unsolicited Ratings may be issued prior to, or after, the closing date in respect of the bonds. Issuance of any Unsolicited Rating will not affect the issuance of the bonds. Issuance of an unsolicited rating lower than the ratings assigned by the hired NRSRO on the bonds might adversely affect the value of the bonds and, for regulated entities, could affect the status of the bonds as a legal investment or the capital treatment of the bonds. Investors in the bonds should consult with their legal counsel regarding the effect of the issuance of a rating by a non-hired NRSRO that is lower than the rating of a hired NRSRO. None of SCE, us, the underwriters or any of their affiliates will have any obligation to inform you of any unsolicited ratings assigned after the date of this prospectus. In addition, if we or SCE fail to make available to a non-hired NRSRO any information provided to any hired rating agency for the purpose of assigning or monitoring the ratings on the bonds, a hired NRSRO could withdraw its ratings on the bonds, which could adversely affect the market value of your bonds and/or limit your ability to resell your bonds.

The bonds’ credit ratings might affect the market value of your bonds

A downgrading of the credit ratings of the bonds might have an adverse effect on the market value of the bonds. Credit ratings might change at any time and an NRSRO has the authority to revise or withdraw its rating based solely upon its own judgment. In addition, any downgrade in the credit ratings of the bonds may result in the bonds becoming ineligible to be held by certain funds or investors, which may require such investors to liquidate their investment in the bonds and result in lower prices and a less liquid trading market for the bonds.

The absence of a secondary market for the bonds might limit your ability to resell your bonds

The underwriters for the bonds might assist in resales of the bonds, but they are not required to do so. A secondary market for the bonds might not develop, and we do not expect to list the bonds on any securities exchange. If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of your bonds. Please read “Plan of Distribution” in this prospectus.

 

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You might receive principal payments for the bonds later than you expect

The amount and the rate of collection of the fixed recovery charges for the bonds, together with the related fixed recovery charge adjustments, will generally determine whether there is a delay in the scheduled repayments of bond principal. If the servicer collects the fixed recovery charges at a slower rate than expected from any ESP, it might have to request adjustments of the fixed recovery charges. If those adjustments are not timely and accurate, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in the bonds.

SCE intends to cause the creation of additional recovery property and the issuance of additional recovery bonds through other affiliated entities and may issue other bonds secured by a nonbypassable charge on customers which may cause a delay in the payment of the bonds

As noted, SCE intends to recover additional recovery costs through the issuance of additional recovery bonds. In its application for the financing order, SCE stated its intention to seek additional financing orders from the California commission under the Securitization Law to approve the recovery of an additional $1.2 billion of recovery costs through the issuance of additional recovery bonds. The issuance of additional recovery bonds by an affiliate of SCE is subject to receipt of a financing order from the California commission but is not subject to your prior review or approval. In addition, if authorized by law, SCE may in the future sell other recovery property (including recovery property relating to the recovery of COVID-19 costs as described in the next paragraph) or property similar to recovery property to one or more entities other than us in connection with the issuance of additional securitization bonds similar to the bonds without your prior review or approval. Any new issuance may include terms and provisions that would be unique to that particular issue. We may not issue additional recovery bonds or additional securitization bonds. SCE has covenanted in the sale agreement that the satisfaction of the rating agency condition and the execution and delivery of an intercreditor agreement are a condition precedent to the sale of property consisting of nonbypassable charges payable by customers comparable to the recovery property sold by SCE pursuant to the sale agreement. Please read “Security for the Bonds—Intercreditor Agreement” and “Sale Agreement—Covenants of the Seller” in this prospectus.

In addition, the California legislature recently passed AB 913 which amended the Securitization Law to authorize an electrical corporation to file an application with the California commission to issue a financing order to authorize the recovery of certain incremental undercollected amounts for calendar year 2020 resulting from COVID-19. SCE may file for a financing order under AB 913 and any recovery bonds issued pursuant to such a financing order would be payable from additional fixed recovery charges, the right to which is owned by another entity. SCE may also cause the issuance of additional securitization bonds secured by nonbypassable charges for other purposes, as authorized by the State legislature, in the future.

In the event a customer does not pay in full all amounts owed under any bill, including fixed recovery charges, SCE, as servicer, is required to allocate any resulting shortfalls in fixed recovery charges ratably based on the amounts of fixed recovery charges owing in respect of the bonds, and amounts owing to the other affiliated entities in respect of additional recovery bonds. However, if a dispute arises with respect to the allocation of such fixed recovery charges or other delays occur on account of the administrative burdens of making such allocation, we cannot assure you that any new issuance would not cause reductions or delays in payment of your bonds.

Regulatory provisions affecting certain investors could adversely affect the liquidity of the bonds

European Union (EU) legislation comprising Regulation (EU) 2017/2402 (as amended, the EU Securitization Regulation) and certain related regulatory technical standards, implementing technical standards and official guidance (together, the European Securitization Rules) imposes certain restrictions and obligations with regard to securitizations (as such term is defined for purposes of the EU Securitization Regulation). The European Securitization Rules are in force throughout the EU (and are expected also to be implemented in the non-EU member states of the European Economic Area) in respect of securitizations the securities of which were issued (or the securitization positions of which were created) on or after January 1, 2019.

 

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Pursuant to the European Securitization Rules, EU Institutional Investors investing in a securitization (as so defined) must, amongst other things, verify that (a) certain credit-granting requirements are satisfied, (b) the originator, sponsor or original lender retains on an ongoing basis a material net economic interest which, in any event, shall not be less than 5%, determined in accordance with Article 6 of the EU Securitization Regulation, and discloses that risk retention, and (c) the originator, sponsor or relevant securitisation special purpose entity has, where applicable, made available information as required by Article 7 of the EU Securitization Regulation. EU Institutional Investors include: (a) insurance undertakings and reinsurance undertakings as defined in Directive 2009/138/EC; (b) institutions for occupational retirement provision falling within the scope of Directive (EU) 2016/2341 (subject to certain exceptions), and certain investment managers and authorized entities appointed by such institutions; (c) alternative investment fund managers as defined in Directive 2011/61/EU which manage and/or market alternative investment funds in the EU; (d) certain internally-managed investment companies authorized in accordance with Directive 2009/65/EC, and managing companies as defined in that Directive; (e) credit institutions as defined in Regulation (EU) No 575/2013 (CRR) (and certain consolidated affiliates thereof); and (f) investment firms as defined in CRR (and certain consolidated affiliates thereof).

Neither we nor SCE believe that the bonds fall within the definition of a “securitization” for purposes of the EU Securitization Regulation as there is no tranching of credit risk associated with exposures under the transactions described in this prospectus. Therefore, such transactions are not subject to the European Securitization Rules. As such, neither we nor SCE, nor any other party to the transactions described in this prospectus, intend, or are required under the transaction documents, to retain a material net economic interest in respect of such transactions, or to take, or to refrain from taking, any other action, in a manner prescribed or contemplated by the European Securitization Rules. In particular, no such person undertakes to take, or to refrain from taking, any action for purposes of compliance by any investor (or any other person) with any requirement of the European Securitization Rules to which such investor (or other person) may be subject at any time.

However, if a competent authority were to take a contrary view and determine that the transactions described in this prospectus do constitute a securitization for purposes of the EU Securitization Regulation, then any failure by an EU Institutional Investor to comply with any applicable European Securitization Rules with respect to an investment in the bonds may result in the imposition of a penalty regulatory capital charge on that investment or of other regulatory sanctions and remedial measures.

Consequently, the bonds may not be a suitable investment for EU Institutional Investors. As a result, the price and liquidity of the bonds in the secondary market may be adversely affected.

Prospective investors are responsible for analyzing their own legal and regulatory position and are advised to consult with their own advisors and any relevant regulator or other authority regarding the scope, applicability and compliance requirements of the European Securitization Rules, and the suitability of the bonds for investment. Neither we nor SCE, nor any other party to the transactions described in this prospectus, make any representation as to any such matter, or have any liability to any investor (or any other person) for any non-compliance by any such person with the European Securitization Rules or any other applicable legal, regulatory or other requirements.

If the investment of collected fixed recovery charges and other funds held by the trustee in the collection account results in investment losses or the investments become illiquid, you may receive payment of principal and interest on the bonds later than you expect

Funds held by the trustee in the collection account will be invested in eligible investments at the written direction of the servicer. Eligible investments include money market funds having a rating from Moody’s and S&P of “Aaa” and “AAA,” respectively. Although investments in these money market funds have traditionally been viewed as highly liquid with a low probability of principal loss, illiquidity and principal losses have been experienced by investors in certain of these funds as a result of disruptions in the financial markets in recent years. If investment losses or illiquidity is experienced, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in the bonds.

 

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REVIEW OF RECOVERY PROPERTY

Pursuant to the rules of the SEC, SCE, as sponsor, has performed, as described below, a review of the recovery property underlying the bonds. As required by these rules, the review was designed and effected to provide reasonable assurance that disclosure regarding the recovery property is accurate in all material respects. SCE did not engage a third party in conducting its review.

The bonds will be secured under the indenture by the indenture’s trust estate. The principal asset of the indenture’s trust estate is the recovery property relating to the bonds. The recovery property includes the right to impose, bill, collect and receive nonbypassable irrevocable fixed recovery charges in amounts necessary to pay principal on and interest of the bonds and other required amounts and charges owing in connection with the bonds, the right under the financing order to obtain true-up adjustments of fixed recovery charges under Securitization Law (with respect to adjustments, in the manner and with the effect provided in the servicing agreement) and all revenue, collections, claims, right to payments, payments, money and proceeds arising out of the rights and interests created under the financing order. Under the Securitization Law and the financing order, the fixed recovery charges are payable by any existing or future individual, governmental body, trust, business entity, or nonprofit organization located in the service territory of SCE as of the date of the financing order, except those customers enrolled in the CARE or FERA programs, that consumes electricity that has been transmitted or distributed by means of electric transmission or distribution facilities, whether those electric transmission or distribution facilities are owned by the customer, SCE, or any other party.

The recovery property is not a receivable, and the recovery property and other collateral held by the trustee securing the bonds do not constitute a pool of receivables. Fixed recovery charges that relate to the recovery property are irrevocable and not subject to reduction, impairment, postponement, termination or, except for the specified true-up adjustments to correct any overcollections or undercollections, adjustment by further action of the California commission. The rates at which fixed recovery charges are billed to customers will be adjusted to correct any overcollections or undercollections from prior periods. These adjustments are intended to ensure the recovery of revenues sufficient to retire the principal amount of the bonds in accordance with the expected sinking fund schedule, to pay all interest on the bonds when due, to pay fees and expenses of servicing the bonds and premiums, if any, associated with the bonds and to fund any required credit enhancement for the bonds. In addition to the annual true-up adjustments, the servicer is also required to implement (a) quarterly true-up adjustments if bonds are outstanding following the latest scheduled final payment date for such bonds, and (b) may request an interim true-up adjustment at any time for any reason to ensure timely payment of scheduled principal of and interest on the bonds and other required amounts and charges owing in connection with the bonds on the next payment date. There is no cap on the level of fixed recovery charges that may be imposed on customers as a result of the true-up adjustment process to pay principal of and interest on the bonds when due and other required amounts and charges owing in connection with the bonds. All revenues and collections resulting from fixed recovery charges provided for in the financing order are part of the recovery property. The recovery property relating to the bonds is described in more detail under “The Recovery Property and the Securitization Law” in this prospectus.

In the financing order, the California commission, among other things:

 

•

orders that the fixed recovery charges shall be nonbypassable and recovered from existing and future customers in SCE’s service territory as of the date of the financing order except for customers participating in the CARE or FERA programs, and that the fixed recovery charges shall be imposed on all customers in accordance with the methodology approved in the financing order;

 

•

orders that the owner of the recovery property will be entitled to recover fixed recovery charge revenues in amounts sufficient to pay the principal and interest on the bonds together with all operating expenses, all as the same become due; and

 

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•

orders that the transfer of the recovery property to us by SCE shall be treated as an absolute transfer of all of SCE’s right, title, and interest, as in a true sale, and not as a pledge or other financing, of the recovery property, other than for federal income tax and state income and franchise tax purposes.

Please read “The Recovery Property and the Securitization Law” and “SCE’s Financing Order” in this prospectus for more information.

The characteristics of recovery property are unlike the characteristics of assets underlying mortgage and other commercial asset-based financings because recovery property is a creature of statute and state regulatory commission proceedings. Because the nature and characteristics of recovery property and many elements of recovery bond financings are set forth in and constrained by the Securitization Law and the financing order, SCE, as sponsor, does not select the assets to be pledged as collateral in ways common to many traditional asset-based financings. Moreover, the bonds do not contain origination or underwriting elements similar to typical mortgage or other loan transactions involved in other forms of asset-backed securities. The Securitization Law and the financing order require the imposition on, and collection of fixed recovery charges from, existing and future customers and any other consumers of electricity within SCE’s service territory, subject to the exceptions. Please read “The Recovery Property and the Securitization Law—The Financing Order is Irrevocable—Exemptions from Fixed Recovery Charges” in this prospectus. Since the fixed recovery charges are assessed against all such customers and the true-up mechanism adjusts for the impact of consumer defaults, the collectability of the fixed recovery charges is not ultimately dependent upon the credit quality of particular SCE customers, as would be the case in the absence of the true-up adjustment.

The review by SCE of the recovery property underlying the bonds has involved a number of discrete steps and elements as described in more detail below. First, SCE has analyzed and applied the Securitization Law’s requirements for recovering recovery costs and approval of the California commission for the issuance of the financing order and in its proposal with respect to the characteristics of the recovery property to be created pursuant to the financing order. In preparing this proposal, SCE worked with its counsel and its structuring advisor in preparing the application for a financing order. Moreover, SCE worked with its counsel and the underwriters in preparing the legal agreements that provide for the terms of the bonds and the security for the bonds. SCE has analyzed economic issues and practical issues for the scheduled payment of principal of and interest on the bonds, including the impact of economic factors, potential for disruptions due to weather or catastrophic events, including the current COVID-19 pandemic, and its own forecasts for customer growth as well as the historic accuracy of its prior forecasts.

In light of the unique nature of the recovery property, SCE has taken (or prior to the offering of the bonds, will take) the following actions in connection with its review of the recovery property and the preparation of the disclosure for inclusion in this prospectus describing the recovery property, the bonds and the proposed securitization:

 

•

reviewed the Securitization Law, other relevant provisions of California statutes and any applicable rules, regulations and orders of the California commission as they relate to the recovery property in connection with the preparation and filing of the application with the California commission for the approval of the financing order in order to confirm that the application and proposed financing order satisfied applicable statutory and regulatory requirements;

 

•

actively participated in the proceeding before the California commission relating to the approval of the requested financing order;

 

•

reviewed the financing order and the process by which it was adopted to confirm that the financing order satisfied the requirements of the securitization law;

 

•

compared the proposed terms of the bonds to the applicable requirements in the Securitization Law, other relevant provisions of California statutes, the financing order and any applicable regulations of the California commission to confirm that they met such requirements;

 

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•

prepared and reviewed the agreements to be entered into in connection with the issuance of the bonds and compared such agreements to the applicable requirements in the Securitization Law, other relevant provisions of California statutes, the financing order and any applicable regulations of the California commission to confirm that they met such requirements;

 

•

reviewed the disclosure in this prospectus regarding the Securitization Law, other relevant provisions of California statutes, the financing order and the agreements to be entered into in connection with the issuance of the bonds, and compared such descriptions to the relevant provisions of the Securitization Law, other relevant provisions of California statutes, the financing order and such agreements to confirm the accuracy of such descriptions;

 

•

consulted with legal counsel to assess if there is a basis upon which the bondholders (or the trustee acting on their behalf) could successfully challenge the constitutionality of any legislative action by the State of California (including action by the California commission or the voters by amendment to the California Constitution) that could repeal or amend the provisions of the Securitization Law in a way that could substantially impair the value of the recovery property, or substantially reduce, alter or impair the fixed recovery charges;

 

•

reviewed the process and procedures in place for it, as servicer, to perform its obligations under the servicing agreement, including billing, collecting, receiving and posting the fixed recovery charges to be provided for under the recovery property, forecasting fixed recovery charges, and preparing and filing advice letters for true-up adjustments to the fixed recovery charges;

 

•

reviewed the operation of the true-up adjustment mechanism for adjusting fixed recovery charge levels to meet the scheduled payments on the bonds and in this context took into account its experience with the California commission; and

 

•

with the assistance of its advisors, prepared financial models in order to set the initial fixed recovery charges to be provided for under the recovery property at levels sufficient to pay principal of and interest on the bonds when due and other required amounts and charges owing in connection with the bonds.

In connection with the preparation of such models, SCE:

 

•

reviewed (i) the historical electric consumption and customer growth within its service territory and (ii) forecasts of expected energy sales and customer growth; and

 

•

analyzed the sensitivity of the weighted average life of the bonds in relation to variances in actual energy consumption levels and related charge collections from forecasted levels and in relation to the true-up adjustment in order to assess the probability that the weighted average life of the bonds may be extended as a result of such variances, and in the context of the operation of the true-up adjustment for adjustment of fixed recovery charges to address undercollections or overcollections in light of scheduled payments on the bonds to prevent an event of default.

As a result of this review, SCE has concluded that:

 

•

the recovery property, the financing order and the agreements to be entered into in connection with the issuance of the bonds meet in all material respects the applicable statutory and regulatory requirements;

 

•

the disclosure in this prospectus regarding the Securitization Law, the financing order and the agreements to be entered into in connection with the issuance of the bonds is as of its date, accurate in all material respects and fails to omit any material information;

 

•

the servicer has adequate processes and procedures in place to perform its obligations under the servicing agreement;

 

•

fixed recovery charge revenues, as adjusted from time to time as provided in the Securitization Law and the financing order, are expected to be sufficient to pay on a timely basis scheduled principal and interest on the bonds; and

 

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•

the design and scope of SCE’s review of the recovery property as described above is effective to provide reasonable assurance that the disclosure regarding the recovery property in this prospectus is accurate in all material respects.

THE RECOVERY PROPERTY AND THE SECURITIZATION LAW

The Securitization Law Generally

The risk of catastrophic wildfires has been increasing in California for years, largely due to multiple factors, including the buildup of dry vegetation in areas severely impacted by years of historic drought, lack of adequate clearing of hazardous fuels by responsible parties, higher temperatures and lower humidity. In 2017 and 2018, a number of catastrophic wildfires occurred in California that caused substantial damage to residential and business properties in the state and damaged the transmission and distribution infrastructure of SCE and other utilities. In addition, utility property was determined to be associated with the ignition of certain of these wildfires, and California law has held utilities strictly liable for property damage if the utilities’ facilities are a substantial cause of wildfires that caused the property damage.

In response to these catastrophic wildfires and their consequences the California legislature in 2019 enacted comprehensive emergency legislation, known as AB 1054, to financially stabilize the State’s electric utilities. As part of AB 1054 and a subsequent bill known as AB 1513, the Legislature amended the Public Utilities Code to enact the Securitization Law to allow for the recovery of recovery costs if the California commission deems such costs to be just and reasonable.

The Securitization Law permits electric corporations to recover recovery costs through the issuance of recovery bonds pursuant to and supported by an irrevocable financing order issued by the CPUC and permits the CPUC to impose an irrevocable nonbypassable fixed recovery charge on existing and future customers located in the service territory of the electrical corporation as of the date of the financing order, subject to certain exceptions. Please read “—Exemptions from Fixed Recovery Charges” below and “SCE’s Financing Order” in this prospectus. The Securitization Law authorized the fixed recovery charge to recover: (a) recovery costs equal to the principal amount of the recovery bonds and (b) costs of recovering, financing, or refinancing those recovery costs, including the costs of servicing and retiring the recovery bonds.

The Securitization Law provides that fixed recovery charges are nonbypassable, meaning that they are payable by any individual, governmental body, trust, business entity, or nonprofit organization, subject to the exceptions described below, that consumes electricity that has been transmitted or distributed by means of electric transmission or distribution facilities, whether those electric transmission or distribution facilities are owned by the consumer, the electrical corporation, or any other party. In addition, under the Securitization Law, fixed recovery charges may consist of distribution, connection, disconnection and termination rates and charges and other rates and charges authorized by a financing order.

 

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The Financing Order and the Recovery Property

The Securitization Law contains a number of provisions designed to facilitate the securitization of recovery costs, including the following:

The Securitization Law Provides for the Creation of Recovery Property

The Securitization Law authorizes the California commission, through issuance of a financing order, to provide for the creation of recovery property to secure repayment of recovery bonds. Recovery property is defined under the Securitization Law to include, without limitation, the right, title, and interest of the electrical corporation or its transferee:

 

•

in and to the fixed recovery charges established pursuant to a financing order, including all rights to obtain adjustments to the fixed recovery charges in accordance with the provisions of the Securitization Law and the financing order; and

 

•

all revenues, collections, claims, payments, moneys, or proceeds of or arising from the fixed recovery charges that are the subject of a financing order described in the bullet point above.

The Securitization Law provides that recovery property that is specified in a financing order shall constitute an existing, present property right, notwithstanding the fact that the imposition and collection of fixed recovery charges depend on the electrical corporation continuing to provide electricity service or continuing to perform its servicing functions relating to the collection of fixed recovery charges or on the level of future electricity consumption. Recovery property shall exist whether or not the fixed recovery charges have been billed, have accrued, or have been collected and notwithstanding the fact that the value for a security interest in the recovery property, or amount of the recovery property, is dependent on the future provision of service to customers. All recovery property specified in a financing order shall continue to exist until the recovery bonds issued pursuant to a financing order and all associated financing costs are paid in full.

A Financing Order is Irrevocable

The Securitization Law provides that the financing order is irrevocable. In addition, under the Securitization Law, the California commission may not, either by rescinding, altering, or amending the financing order or otherwise, revalue or revise for ratemaking purposes the recovery costs or the costs of recovering, financing, or refinancing the recovery costs, in any way reduce or impair the value of recovery property either directly or indirectly by taking fixed recovery charges into account when setting other rates for the electrical corporation. Moreover, the amount of revenues generated by the fixed recovery charges shall not be subject to reduction, impairment, postponement, or termination.

Fixed Recovery Charges May Be Adjusted

The Securitization Law requires the California commission to provide, in any financing order, for a procedure for periodic true-up adjustments to fixed recovery charges, which shall be made at least annually and may be made more frequently. The electrical corporation shall file an application with the commission to implement any true-up adjustment. Please read “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Requires the Servicer to Periodically to “True-Up” the Fixed Recovery Charge” and “The Servicing Agreement—True-Up Adjustment Filings” in this prospectus. The Securitization Law and the financing order do not impose a cap on the fixed recovery charge.

The Securitization Law Provides for the Creation of Consensual and Statutory Liens on Recovery Property

The Securitization Law provides that consensual security interests can be granted in recovery property and that a statutory lien will be established on recovery property upon the effective date of the financing order. With

 

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respect to consensual security interests, the Securitization Law provides that a valid and enforceable security interest in recovery property attaches when (a) the California commission has issued the financing order, (b) the pledgee of the recovery property (such as the trustee) has given value for the recovery property, and (c) the pledgor (such as us) has signed a security agreement covering the recovery property. The security interest in the recovery property is perfected when it has attached and when a financing statement has been filed with the California Secretary of State in accordance with the Securitization Law. A statutory lien on recovery property with respect to recovery bonds arises under the Securitization Law. This statutory lien arises automatically, without further action by the servicer, us or any other person. Under the financing order, a statutory lien will exist on the recovery property then existing or thereafter arising relating to recovery bonds and will secure all obligations, then existing or subsequently arising, to the holders of those recovery bonds and the indenture trustee for those holders. This statutory lien will be a first priority lien on all recovery property then in existence or that subsequently arises for that series of recovery bonds pursuant to the terms of the financing order.

Under the Securitization Law, if a default or termination occurs under the terms of the bonds, the pledgees of the recovery bonds (such as the trustee) are entitled to foreclose or otherwise enforce their security interest in the recovery property. In addition, the California commission may require in the financing order that, in the event of default by the electrical corporation in payment of recovery property revenues, the California commission and any successor thereto, upon the application by the pledgees or transferees (such as trustee or us), and without limiting any other remedies available to the pledgees or transferees by reason of the default, shall order the sequestration and payment to the pledgees or transferees of recovery property revenues. The Securitization Law provides that any such order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, or transferor of the recovery property. Please read “Risk Factors—Risks Associated with the Unusual Nature of the Recovery Property—Foreclosure of the trustee’s lien on the recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might have little practical effect” in this prospectus.

The Securitization Law Provides that the Transfer of Recovery Property is a True Sale

The Securitization Law provides that an electric corporation’s transfer of recovery property is a “true sale” and shall be treated as an absolute transfer of all of the transferor’s right, title, and interest, as in a true sale, and not as a pledge or other financing, of the recovery property, other than for federal and state income and franchise tax purposes. The transfer as a sale, assignment, or transfer as an absolute transfer and true sale true sale is not affected by:

 

•

commingling of fixed recovery charge revenues with other amounts,

 

•

the retention by the seller of either of the following:

 

•

a partial or residual interest, including an equity interest, in the financing entity or the recovery property, whether direct or indirect, subordinate or otherwise, or

 

•

the right to recover costs associated with taxes, franchise fees, or license fees imposed on the collection of fixed recovery charges.

 

•

any recourse that the purchaser may have against the seller,

 

•

any indemnification rights, obligations, or repurchase rights made or provided by the seller,

 

•

the obligation of the seller to collect fixed recovery charges on behalf of an assignee,

 

•

the treatment of the sale, assignment, or transfer for tax, financial reporting, or other purposes, and

 

•

any true-up adjustment of the fixed recovery charges as provided in the financing order.

Please read “Risk Factors—Risks Associated with Potential Bankruptcy Proceedings of the Seller and the Servicer” and “How A Bankruptcy May Affect Your Investment” in this prospectus.

 

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The Securitization Law Requires the Electrical Corporation and its Successors to Service the Recovery Property

The Securitization Law requires the California commission to authorize the electrical corporation to enter into a servicing contract with the issuer of the recovery bonds (i.e., the issuing entity). This contract must require the electrical utility to continue to operate its system to provide service to consumers within its service territory, to collect amounts in respect of the fixed recovery charges for the benefit and account of the issuer, and to account for and remit these amounts to or for the account of the issuer. The Securitization Law further provides to the extent that billing, collection, and other related services with respect to the provision of electric service are provided to a consumer by any person or entity other than the electrical corporation in whose service territory the consumer is located, that person or entity must collect the fixed recovery charges from the consumer for the benefit and account of the issuer of the recovery bonds as a condition to the provision of electric service to that consumer.

The Securitization Law further provides that any successor to the electrical corporation, whether pursuant to any bankruptcy, reorganization, or other insolvency proceeding, or pursuant to any merger, sale, or transfer, by operation of law, or otherwise, must perform and satisfy all obligations of the electrical corporation under the Securitization Law in the same manner and to the same extent as the electrical corporation. Please read “The Servicing Agreement—Successor Servicer” in this prospectus.

State Pledge

Under the Securitization Law, the State of California has pledged, that it will neither limit nor alter the fixed recovery charges, recovery property, financing orders, or any rights thereunder, except for adjustments discussed above and in “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Requires the Servicer to Periodically to “True-Up” the Fixed Recovery Charge” and “The Servicing Agreement—True-Up Adjustment Filings,” until the recovery bonds, together with the interest thereon, are fully paid and discharged. However, the Securitization Law further provides that nothing in the State pledge precludes the State of California from limiting or altering the fixed recovery charges, recovery property or any financing order of the California commission, if and when adequate provision is made by law for the protection of SCE, owners of recovery property and holders of recovery bonds.

Constitutional Matters

To date, no federal or California cases addressing the repeal or amendment of statutory provisions analogous to those contained in the Securitization Law have been decided. There have been cases in which courts have applied the Contract Clause of the United States constitution and the Contract Clause of the California constitution to strike down legislation regarding similar matters, such as legislation reducing or eliminating taxes, public charges or other sources of revenues servicing other types of bonds issued by public instrumentalities or private issuers (or issuing entities), or otherwise substantially impairing or eliminating the security for bonds or other indebtedness. Based upon this case law, Norton Rose Fulbright US LLP expects to deliver a reasoned opinion, prior to the closing of the offering of the bonds to the effect that, a reviewing court of competent jurisdiction, in a properly prepared and presented case, would conclude that the State pledge constitutes a contractual relationship between the bondholders and the State of California, and that, absent a demonstration by the State of California that any legislative action by the State of California, whether by the State legislature or the voters pursuant to their initiative rights, which becomes law (such action being referred to as a legislative action) that limits, alters, impairs or reduces the value of the recovery property or the fixed recovery charges so as to impair (a) the terms of the indenture or the bonds or (b) the rights and remedies of the bondholders (or the trustee acting on their behalf) (each such act, an impairment), the bondholders could successfully challenge under the Federal Contract Clause or the California Contract Clause the constitutionality of any legislative action determined by such court to limit, alter, impair or reduce the value of the recovery property or the fixed recovery charges so as to cause an impairment prior to the time that the bonds are fully paid and discharged. The cases also indicate that the State’s justification would be subjected to a higher degree of scrutiny, and that the State

 

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would bear a more substantial burden, if the legislative action impairs a contract to which the State is a party (which we believe to be the case here), as contrasted to a contract solely between private parties. It may be possible for the California legislature to repeal or amend the Securitization Law or for the California commission to amend or revoke the financing order notwithstanding the State pledge, if the legislature or the California commission acts in order to serve a significant and legitimate public purpose, such as protecting the public health and safety or responding to a national or regional catastrophe affecting SCE, or if the legislature otherwise acts in the valid exercise of the state’s police power. We will file a copy of the Norton Rose Fulbright US LLP opinion as an exhibit to an amendment to the registration statement of which this prospectus is a part, or to one of our periodic filings with the SEC.

In addition, any legislative action adversely affecting the recovery property or the ability to collect fixed recovery charges may be considered a “taking” under the United States or California constitutions. Norton Rose Fulbright US LLP has advised us that it is not aware of any federal or California court cases addressing the applicability of the Takings Clause of the United States or California constitutions in a situation analogous to that which would be involved in an amendment or repeal of the Securitization Law. It is possible that a court would decline even to apply a Takings Clause analysis to a claim based on an amendment or repeal of the Securitization Law, since, for example, a court might determine that a Contract Clause analysis rather than a Takings Clause analysis should be applied. Norton Rose Fulbright US LLP expects to render a reasoned opinion, prior to the closing of the offering of the bonds, to the effect that under existing case law, assuming a Takings Clause analysis were applied under the United States constitution or California constitution, the State of California would be required under either such constitution to pay just compensation to the bondholders if the State’s repeal or amendment of the Securitization Law or taking of any other action in contravention of the State pledge, (a) constituted a permanent appropriation of a substantial property interest of the bondholders in the recovery property or denied all economically productive use of the recovery property; (b) destroyed the recovery property other than in response to emergency conditions; or (c) substantially reduced, altered or impaired the value of the recovery property so as to unduly interfere with the reasonable expectations of the bondholders arising from their investments in the bonds, provided that the court might take a more expansive view of emergency conditions under the California Takings Clause, leading to correspondingly narrower restrictions on State action under the California Takings Clause than under the Federal Takings Clause. There is no assurance, however, that, even if a court were to award just compensation, it would be sufficient for you to recover fully your investment in the bonds.

In connection with the foregoing, Norton Rose Fulbright US LLP has advised us that issues relating to the Contract and Takings Clauses of the United States and California constitutions are essentially decided on a case-by-case basis and that the courts’ determinations, in most cases, appear to be strongly influenced by the facts and circumstances of the particular case, and Norton Rose Fulbright US LLP has further advised us that there are no reported controlling judicial precedents that are directly on point. The opinions described above will be subject to the qualifications included in them. The degree of impairment necessary to meet the standards for relief under a Takings Clause analysis or Contract Clause analysis could be substantially in excess of what a recovery bondholder would consider material.

For a discussion of risks associated with potential judicial, legislation or regulatory actions, please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions” in this prospectus.

Exemptions from Fixed Recovery Charges

Under the Securitization Law, customers enrolled in the CARE or FERA programs are exempted from the payment of fixed recovery charges. See “SCE’s Financing Order” in this prospectus.

 

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SCE’s FINANCING ORDER

SCE’s Financing Order

In April 2020, the California commission approved a settlement of and, in accordance with the Securitization Law, determined the reasonableness of certain of SCE’s fire risk mitigation capital expenditures included in SCE’s approved wildfire mitigation plan. In July 2020, SCE filed an application with the California commission for a financing order seeking recovery of a portion of these recovery costs in the amount of $326.981 million, together with certain interim financing costs relating to these costs and financing costs relating to the issuance of the bonds (collectively, the Authorized Amount).

On                     , the California commission issued its financing order which authorized SCE to securitize and cause to be issued bonds in an aggregate principal amount not to exceed the sum of the Authorized Amount as of the date of bond issuance, or approximately             , including related interim financing costs, estimated to be $        , and financing costs relating to the issuance of the bonds, estimated to be $        .

The financing order became final and non-appealable on                     .

The financing order, pursuant to the provisions of the Securitization Law, is irrevocable and is not subject to reduction, impairment or adjustment by further action of the California commission, except as contemplated by the periodic true-up adjustments.

We have filed the financing order with the SEC as an exhibit to the registration statement of which this prospectus forms a part. We have summarized portions of the financing order below.

Fixed Recovery Charges

The Financing Order Requires the Imposition and Collection of Fixed Recovery Charges

Under the financing order, the California commission authorizes the owner of recovery property to impose, bill, collect and adjust from time to time a fixed recovery charge, to be collected on a per kWh basis from all customers (based on their FRC consumer class) until the bonds are paid in full and all other operating expenses have been recovered in full. Such fixed recovery charges will be in amounts sufficient to retire the principal amount of the bonds in accordance with the expected sinking fund schedule, to pay all interest on the bonds when due, and to pay all operating expenses relating to the bonds (operating expenses). Under the financing order, there is no limit on the amount of the fixed recovery charge.

The Financing Order Provides that Fixed Recovery Charges are Nonbypassable

As required by the Securitization Law, the financing order provides that the fixed recovery charges are “nonbypassable” and must be paid by all customers in SCE’s service territory. The financing order provides that customers with departing load must pay the fixed recovery charge on the departing load. Please read “The Depositor, Seller, Initial Servicer and Sponsor—Community Choice Aggregation, Direct Access and Departing Load” in this prospectus.

The financing order specifies that any successor to an electric utility shall perform and satisfy all obligations of the electric utility pursuant to the Securitization Law, including collecting and paying to the bondholders revenues arising with respect to the recovery property. The financing order states that it is binding on SCE and any successor to SCE that provides electric distribution service directly to consumers of electricity within SCE’s Service Territory.

In the servicing agreement, SCE will covenant to assert in an appropriate forum that any municipality, or any other person or entity, that acquires any portion of SCE’s electric distribution facilities must be treated as a

 

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successor to SCE under the Securitization Law and the financing order and that its retail customers remain responsible for payment of fixed recovery charges. Please read “The Servicing Agreement—Servicing Standards and Covenants” in this prospectus.

In addition, under the financing order and the Securitization Law, if any local municipality or tribe acquires SCE’s electric facilities though the power of eminent domain, consumers that no longer take transmission and distribution retail service from SCE, or that depart or reduce SCE service after the date of the financing order, or that meet relevant criteria in the applicable tariff will be treated as departing load customers and will be subject to pay the fixed recovery charges based on an approach that is consistent with the method currently in place for calculating Municipal DL obligations. SCE’s Municipal DL tariffs provide for calculation of certain nonbypassable charges based on consumption as metered or estimated. Historically, SCE has administered these tariffs by reaching agreement with the Municipal DL customer or the local municipality serving the Municipal DL customer for the payment of one or more lump sums based on a mutually acceptable estimate of the Municipal DL customer’s nonbypassable cost obligations, including obligations similar to the fixed recovery charges.

In addition, recent amendments to California law require approval of the California commission to the voluntary or involuntary change in ownership of the assets of an electrical or gas corporation to ownership by a public entity. In the financing order, the California commission also commits, in furtherance of the State pledge, in connection with any Commission proceeding to review the municipalization of SCE facilities by an entity that does not set retail rates subject to the California commission, to establish conditions to the approval of such municipalization transaction by the California commission which either (a) establish procedures to ensure that such entity will continue to bill and collect fixed recovery charges from customers and remit such collections to SCE or a new servicer for the bonds or (b) ensure the upfront funding of the fixed recovery charges that would otherwise be paid by customers where rate payment would be affected by the ownership change. See “The Depositor, Seller, Initial Servicer and Sponsor—Municipalization; Municipal Departing Load” in this prospectus.

The Financing Order Establishes the Methodology used to Calculate the Fixed Recovery Charges

The financing order describes the methodology by which the fixed recovery charges will be calculated and adjusted from time to time by the servicer pursuant to true-up advice letters filed with the California commission as described below. Pursuant to the financing order, the fixed recovery charge will be a per kilowatt-hour charge assessed against each customer as part of each customer’s regular monthly billing. A different fixed recovery charge will be calculated for each customer class (each, a FRC consumer class), based upon the allocation factor assigned to such class in SCE’s most-recent general rate case preceding the issuance of the bonds (GRC allocation factors, as further described below).

The servicer will determine the fixed recovery charge for each FRC consumer class in the following manner:

 

•

first, the servicer will determine the amount necessary to provide for the timely payment of scheduled principal of and interest on the bonds and operating expenses payable in connection with the bonds (the periodic payment requirement) for each of the two payment periods (each, a payment period) following the true-up adjustment date (adjustment date). The first payment period is the period from the adjustment date through and including first payment date following the adjustment date (the first payment period); the second payment period is the period from the adjustment date through and including second payment date following adjustment date (the second payment period);

 

•

next, using the most recently available delinquency and write-off experience, the servicer will determine the amount of fixed recovery charges which must be billed during each payment period in order to generate sufficient fixed recovery charges revenues prior to the last day of the calendar month immediately preceding the end of each payment period (collection cut-off date). We refer to this amount as the periodic billing requirement;

 

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•

next, the servicer will allocate the periodic billing requirement for each payment period among each FRC consumer class based on its GRC allocation factor, and

 

•

finally, the servicer will divide the periodic billing requirement for each payment period by the forecasted consumption of each FRC consumer class to determine the fixed recovery charge for the FRC consumer class for the respective payment period. In making such calculations, the servicer will use the most recently approved consumption forecast data.

The above calculations by the servicer will result in two fixed recovery charges for each FRC consumer class, one charge for the first payment period and one charge for the second payment period. The financing order provides that the higher of the two charges for the FRC consumer class will be the fixed recovery charge for that FRC consumer class requested in the true-up adjustment.

The initial GRC allocation factors as approved by the California commission in SCE’s most recent filed general rate case and approved in the financing order are set forth in the table below. These initial GRC allocation factors set forth below are estimated. Under the financing order, SCE retains the right to change the GRC allocation factors to conform to any revised allocation of costs in any subsequent GRC or related proceeding before the California commission. Please read “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Requires the Servicer to Periodically to “True-Up” the Fixed Recovery Charge” in this prospectus.

The GRC allocation factors shown below reflect the allocation of cost in the general rate case, and include within such factors customers who participate in CARE or FERA programs. As noted, under the Securitization Law, these customers are exempt from the payment of the fixed recovery charges. In accordance with the financing order, costs allocable to the CARE and FERA FRC customer classes will be reallocated to the remaining FRC customer classes on an equal-cents per kWh basis. In 2019, these exempt customers accounted for approximately 8.00% of total energy deliveries and approximately 24.28% of deliveries to the residential domestic FRC consumer classes. The table below also includes an estimate of the GRC allocation factors after this reallocation of costs.

 

FRC Consumer Class		GRC allocation factors
Residential Domestic (CARE)			12.78	%
Residential Domestic (Non-CARE)			37.85	%
Res/Dom Income Qualified (FERA)			0.26	%
Small C&I (<20 kW)			7.25	%
Traffic Control			0.12	%
Medium C&I (20 kW – 200 kW)			17.31	%
Medium C&I (200 kW – 500 kW)			7.81	%
Large C&I (Sec) including standby customers			7.31	%
Large C&I (Pri) including standby customers			4.70	%
Large C&I (Sub) including standby customers			1.38	%
Small Ag & Pump (< 200 kw)			2.02	%
Large Ag & Pump (³ 200 kw)			1.15	%
Street/Area Lighting			0.07	%

 

*	Note: Percentages may not add up due to rounding.

Although the fixed recovery charges payable by each FRC consumer class will differ, any deficiency in the payment of such charges by any class of customers, including write-offs, will be included in determining the periodic payment requirement used in calculating the next “true-up” adjustment for all customers (other than exempted customers). Thus, all customers (other than exempted customers) will be responsible for paying the fixed recovery charges. Please read “SCE’s Financing Order—Fixed Recovery Charges—The Financing Order Requires the Servicer to Periodically to “True-Up” the Fixed Recovery Charge” in this prospectus.

 

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The Financing Order Requires the Servicer to Periodically to “True-Up” the Fixed Recovery Charge

The financing order requires that the servicer file with the California commission at least annually an advice letter (each, an advice filing), applying the true-up methodology described above, to adjust the fixed recovery charges to ensure the recovery of revenues sufficient to provide for the timely payment of the periodic payment requirement. In addition to the mandatory annual true-up adjustment, the servicer is authorized under the financing order to make interim routine adjustments at any time the servicer deems necessary to ensure the recovery of revenues sufficient to provide for the timely payment of the periodic payment requirement.

In addition, the financing order requires the servicer to implement quarterly true-up adjustments if bonds are outstanding following the scheduled final payment date for the latest maturing tranche of bonds. Mandatory annual true-up adjustments, interim true-up adjustments and mandatory quarterly true-up adjustments as described above are referred to as routine true-up adjustments. Each such routine true-up adjustment shall utilize the methodology described above under the heading “—The Financing Order Establishes the Methodology used to Calculate the Fixed Recovery Charges” to determine the fixed recovery charges requested on the next adjustment date.

Routine annual true-up adjustment advice filings must be filed at least fifty days prior to proposed effective date of the adjustment, and routine interim true-up adjustment filings must be filed at least thirty days prior to proposed effective date of the adjustment. In each case, the California commission has committed in the financing order to provide a negative or affirmative response within twenty days of the submission of any routine true-up adjustment filing. Under the financing order, the California commission’s review of any routine true-up adjustment advice filing, and any protest, will be limited solely to determining whether there is any mathematical error in such advice filing. Any required correction of mathematical errors will not delay the effective date of such adjustment and, if such correction cannot be corrected prior to the effective date, such correction will be reflected in the next adjustment request.

The servicer is also authorized under the financing order to file an advice filing at any time coincident with or following a decision approving SCE’s base rates to alter the GRC allocation factors for each FRC consumer class consistent with such base rate case or related proceeding. We refer to such an adjustment herein as an allocation factor non-routine true-up adjustment. An allocation factor non-routine true-up adjustment advice letter must be filed at least sixty days before the proposed effective date. The California commission has committed in the financing order to provide a negative or affirmative response within twenty days of the submission of the routine annual true-up adjustment filing. Any protest, review or correction of an allocation factor non-routine true-up adjustment advice filing will be limited to the correction of mathematical errors, provided that the California commission may delay the effective date for up to thirty days so that a correction may be made. During such thirty-day period, fixed recovery charges would continue to be imposed at the levels established in connection with the last annual or other routine true-up adjustment advice filing.

The servicer is also authorized under the financing order to seek a non-routine true-up at any time to revise the logic of the methodology approved in the financing order to determine the fixed recovery charges. We refer to such an adjustment as an other factor non-routine true-up adjustment. An other factor non-routine true-up adjustment advice filing must be filed with the California commission at least ninety days prior to the effective date specified therein. In connection with an other factor non-routine true-up adjustment, the energy division of the California commission will have the opportunity to prepare a resolution that adopts, modifies or rejects the changes to the methodology proposed by the servicer. If the California commission adopts a resolution adopting, modifying or rejecting an other factor non-routine true-up adjustment advice filing prior to the effective date requested in such other factor non-routine true-up adjustment advice filing, the request will become effective on the effective date specified in the other factor non-routine true-up adjustment advice filing. Under the servicing agreement, an other factor non-routine true-up adjustment may not be requested unless the rating agency condition will be satisfied prior to the adjustment going into effect.

 

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The Initial Fixed Recovery Charges

The initial fixed recovery charges will be determined and approved by the California commission as part of the issuance advice letter process described below. Please read “SCE’s Financing Order—Issuance Advice Letter” in this prospectus. As of                     , the approximate initial fixed recovery charge for an average 1000 kWh residential customer will be $         per month. The fixed recovery charges will become effective on the date specified in the issuance advice letter, provided that the fixed recovery charges will not be included on customer bills sooner than April 2021 or fourteen weeks after closing of the bonds, whichever date is sooner, and will be subject to periodic true-up as described below. This delay will enable SCE to implement the necessary adjustments to its billing process.

Partial Payments of the Fixed Recovery Charges will be Pro-rated

The financing order provides that, if a customer pays only a portion of its bill, a pro-rata amount of such payment will be allocated to the payment of fixed recovery charges, based on the amount of the fixed recovery charges billed to all charges billed to such customer. The portion owed in respect of fixed recovery charges may be further allocated among different series of recovery bonds, including the bonds, issued pursuant to a financing order to SCE by the California commission, based upon the fixed recovery charges billed with respect to each such series of nuclear asset-recovery bonds. Please read “—Additional Bonds” in this prospectus.

Issuance Advice Letter

Within one business day after the pricing date of the bonds, SCE is required to file with the California commission an issuance advice letter, which will:

 

•

identify the recovery property to be sold to us,

 

•

evidence the final terms on which the bonds will be issued,

 

•

show the actual dollar amount of the fixed recovery charges relating to the bonds for each FRC consumer class, and

 

•

identify us.

The financing order provides that the issuance advice letter will be automatically approved and become effective at noon on the fourth business day after pricing unless before noon on the fourth business day after pricing the California commission issued an order finding that the proposed issuance does not comply with the financing order.

Servicing Agreement

In the financing order, the California commission authorized SCE, as the servicer, to enter into the servicing agreement described under “The Servicing Agreement” in this prospectus. Fixed recovery charges will be collected by SCE from customers as part of its normal collection activities. Fixed recovery charges will be deposited by SCE into the collection account under the terms of the indenture, the series supplement and the servicing agreement. Estimated fixed recovery charge collections will be remitted to the trustee on each business day. The estimated payments made by SCE will be based on daily billed amounts and the average number of days customer bills remain outstanding (ADO). Estimated fixed recovery charge collections will be reconciled with actual fixed recovery charge collections, which, provided no servicer default has occurred and is continuing, may be based on estimated actual fixed recovery charge collections, which collections will be adjusted for ADO during the applicable reconciliation period, at least semi-annually. Please read “The Servicing Agreement—Remittances to Collection Account” in this prospectus.

Additional Bonds

The Securitization Law permits SCE, upon receipt of an additional financing order (each, an additional financing order) to finance recovery costs through the issuance of other recovery bonds (additional recovery

 

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bonds) issued pursuant to a separate financing order and secured by separate recover property. In its application for the financing order, SCE stated its intention to seek additional financing orders from the California commission under the Securitization Law to approve the recovery of an additional $1.2 billion of recovery costs through the issuance of additional recovery bonds.

In addition, SCE may seek additional financing orders to recover additional recovery costs or other costs. Please read “Risk Factors—Other Risks Associated with an Investment in the Bonds—SCE intends to cause the creation of additional recovery property and the issuance of additional recovery bonds through other affiliated entities and may issue other bonds secured by a nonbypassable charge on customers which may cause a delay in the payment of the bonds” in this prospectus. The financing order provides that, in the event additional recovery bonds or any similar bonds are issued by an affiliate of SCE or similar special purpose entities on behalf of SCE, the fixed recovery charges or similar nonbypassable charges should be allocated ratably between the trustee and other bond trustees for each series of additional recovery bonds or similar bonds. In addition, SCE has covenanted in the sale agreement that it will not sell recovery property or property comparable to the recovery property unless, among other conditions, the rating agency condition is satisfied and until it has entered into an intercreditor agreement described in “Security for the Bonds—Intercreditor Agreement” in this prospectus. Please read “The Sale Agreement—Covenants of the Seller” in this prospectus.

 

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THE DEPOSITOR, SELLER, INITIAL SERVICER AND SPONSOR

General

SCE will be the depositor, seller and initial servicer of the recovery property securing the bonds, and will be the sponsor of the securitization in which bonds covered by this prospectus are issued.

SCE is an investor-owned public utility, organized under California law, primarily engaged in the business of supplying and delivering electricity through SCE’s electrical infrastructure to an approximately 50,000 square-mile area of southern California, excluding the City of Los Angeles and certain other cities. At September 30, 2020, SCE provided transmission and distribution service of electric power to 5.174 million retail consumers and, for the twelve months ended September 30, 2020, its total operating revenue was derived as follows:    % commercial customers,     % residential customers,    % industrial customers,    % public authorities,    % agricultural and other, and    % other operating revenue. SCE is an operating subsidiary of Edison International, a parent holding company based in Rosemead, California. The bonds do not constitute a debt, liability or other legal obligation of SCE or Edison International

Community Choice Aggregation, Direct Access and Departing Load

Customers within SCE’s service territory may purchase their energy from certain other energy suppliers. In 2002, California Assembly Bill 117 was signed into law, allowing cities and counties to form CCAs. Community choice aggregation is a program that allows cities, counties, other California public agencies and Joint Power Authorities to procure electricity for customers located within the city or county or public agency’s jurisdictional area, including within SCE’s service territory. Customers not wishing to participate must opt out. As of year-end 2019, SCE had six CCAs serving customers in its service territory that represent less than 20% of SCE’s total service load. One CCA significantly expanded in 2019 and approximately six new or expanded CCAs have been approved by the CPUC to serve customers in 2020. Based on recent load statistics, SCE anticipates that direct access and CCA load will be approximately 35% of its total service load by the end of 2020. When customers are served by a CCA, SCE continues to be responsible for the transmission and distribution of the electricity, as well as metering and billing and consumers must pay the fixed recovery charges on all electricity consumption

California law also provides limited opportunities for customers in SCE’s service territory to choose to purchase power directly from an ESP or a Community Aggregator (which do not include CCAs). A limited, phased-in partial reopening of direct access for nonresidential customers was authorized in 2010, and an additional limited partial reopening of direct access was authorized in 2018. During 2019, an average of 27,244 customers, consuming 16,130,611 MWh of electricity, took service on direct access. SCE’s forecasts of electricity demand assume that the limitations on direct access (described below as the DA cap) will be increased from and after 2021. Please read “The Depositor, Seller, Initial Servicer and Sponsor—Forecasting Electricity Consumption” in this prospectus. As with the CCAs, when a customer who previously took bundled service from SCE converts to taking procurement service from an ESP or Community Aggregator, SCE remains that customer’s transmission and distribution provider and customers must pay the fixed recovery charges on all electric consumption.

Other forms of departing load (DL) include customer generation, and load that departs SCE service entirely to take electricity service from a publicly owned utility or a tribal utility. Please read “—Municipalization; Municipal Departing Load” in this prospectus.

Another form of departing load include customer generation. Under current CPUC decisions, DL customers taking NEM service with solar generation are billed on a net-metered basis. Pursuant to the financing order, and in accordance with SCE’s existing tariffs, fixed recovery charges will be imposed only on each kilowatt-hour of electricity that is imported from the SCE net of exports in each metered interval. Under SCE’s current tariffs, DL customers who self-generate using generation facilities which do not qualify for NEM but which interconnect to and operate in parallel with SCE’s electric system must also pay the fixed recovery charges based on metered

 

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consumption, or if metered consumption is not available, then estimated based on historical load, and also pay the fixed recovery charges on electric service they receive from SCE when the customer’s load is not served by the customer’s generation facility (i.e., in a partial or complete outage of the generation facility).

Under SCE’s existing tariff applicable to customer generation departing load, customers are not subject to a departing load charge in certain circumstances, including when the customer physically disconnects from SCE’s grid, when customers experience changes in usage in the normal course of business, and customers whose load is served from a back-up unit during certain emergency conditions.

Pursuant to the financing order, SCE is required to utilize DL tariffs existing as of the effective date of the financing order to determine the consumption on which fixed recovery charges will be imposed on DL customers. Current departing load tariffs do not apply to customers who disconnect entirely from SCE’s grid. However, the financing order requires that the fixed recovery charges be paid by such disconnected customers using the same methodology as that applied to other DL customers under existing DL tariffs.

SCE Retail Consumer Base and Electric Energy Consumption

SCE’s retail consumer base currently consists of thirteen revenue reporting rate classes, referred to herein as FRC consumer classes: Residential Domestic (Non-CARE), Residential Domestic (FERA), Res/Dom Income Qualified (CARE), Small C&I (<20 kW), Medium C&I (20 kW-200 kW), Medium C&I (200 kW-500 kW), Traffic Control, Large C&I (Sec), Large C&I (Pri), Large C&I (Sub), Small Ag & Pump (<200 kW), Large Ag & Pump (>200 kW), Street/Area Lighting. Under the Securitization Law, the Residential Domestic (FERA) and Res/Dom Income Qualified (CARE) are exempt from paying the fixed recovery charges and the costs associated with these groups is allocated to the remaining FRC consumer classes.

The following tables show the electricity delivered to retail consumers, electric delivery revenues and number of retail consumers at distribution voltage for each of the thirteen revenue reporting rate classes for 2019 and each of the four preceding years. There can be no assurances that the retail electricity sales, retail electric revenues and number of retail consumers or the composition of any of the foregoing will remain at or near the levels reflected in the following tables.

 

Electricity Delivered to Retail Consumers, Electric Delivery Revenues and Retail Consumers Retail Electric Usage (As Measured by Billed GWh Sales) by FRC Consumer Class and Percentage Composition(1)
FRC Consumer Group		2015								2016								2017								2018								2019
Residential Domestic (Non-CARE)			21,421				24.9	%			21,151				25.1	%			21,743				25.8	%			21,337				25.5	%			20,830				25.7	%
Small C&I (<20 kW)			5,978				6.9	%			5,929				7.0	%			5,948				7.1	%			5,888				7.0	%			5,812				7.2	%
Traffic Control			61				0.1	%			60				0.1	%			59				0.1	%			59				0.1	%			58				0.1	%
Medium C&I (20 kW-200 kW)			14,757				17.1	%			14,491				17.2	%			14,534				17.2	%			14,311				17.1	%			13,934				17.2	%
Medium C&I (200 kW-500 kW)			8,513				9.9	%			8,224				9.7	%			8,098				9.6	%			7,971				9.5	%			7,751				9.5	%
Large C&I (Sec)			8,613				10.0	%			8,547				10.1	%			8,392				10.0	%			8,419				10.1	%			8,147				10.0	%
Large C&I (Pri)			6,349				7.4	%			6,300				7.5	%			6,248				7.4	%			6,059				7.2	%			6,044				7.4	%
Large C&I (Sub)			8,480				9.9	%			8,373				9.9	%			8,465				10.0	%			8,713				10.4	%			8,585				10.6	%
Small Ag & Pump (< 200 kW)			2,086				2.4	%			1,944				2.3	%			1,672				2.00	%			1,860				2.2	%			1,573				1.9	%
Large Ag & Pump (>200 kW)			1,386				1.6	%			1,417				1.7	%			1,346				1.6	%			1,417				1.7	%			1,350				1.7	%
Street/Area Lighting			724				0.8	%			717				0.9	%			706				0.8	%			654				0.8	%			603				0.7	%
Residential Domestic (CARE)			7,684				8.9	%			7,247				8.6	%			7,093				8.4	%			6,990				8.4	%			6,498				8.00	%
Aggregate			86,051				100.0	%			84,400				100.0	%			84,305				100.0	%			83,678				100.0	%			81,184				100.0	%

 

(1)	Amounts may not recalculate due to rounding.

 

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Revenue by FRC Consumer Class(1)
(dollars in thousands)
FRC Consumer Class		2015				2016				2017				2018				2019
Residential Domestic (Non-CARE)		$	4,959,830			$	4,728,492			$	5,005,011			$	4,950,925			$	4,588,212
Traffic Control			11,389				10,581				10,578				10,697				10,089
Small C&I (<20 kW)			1,061,527				935,409				981,376				985,621				919,475
Medium C&I (20 kW-200 kW)			2,373,853				2,157,363				2,295,135				2,277,883				2,101,306
Medium C&I (200 kW-500 kW)			1,163,846				1,030,166				1,076,196				1,060,124				975,267
Large C&I (Sec)			1,089,992				942,749				1,002,618				1,007,444				931,011
Large C&I (Pri)			679,913				583,332				632,203				619,684				596,660
Large C&I (Sub)			626,480				408,451				518,942				547,302				553,596
Small Ag & Pump (<200 kW)			296,683				250,506				234,891				262,860				218,627
Large Ag & Pump (>200 kW)			161,945				147,912				150,941				159,419				151,261
Street/Area Lighting			135,971				127,165				127,464				119,012				111,334
Total		$	12,561,429			$	11,322,125			$	12,035,355			$	12,000,969			$	11,156,837

 

(1)	Amounts may not recalculate due to rounding.

 

Number of Average Metered Retail Electric Consumers(1)
FRC Consumer Class		2015				2016				2017				2018				2019
Residential Domestic (Non-CARE)			4,326,967				4,353,680				4,381,765				4,412,702				4,439,672
Small C&I (<20 kW)			509,488				510,979				513,118				515,148				517,696
Traffic Control			15,680				15,749				15,846				15,956				15,991
Medium C&I (20 kW-200 kW)			92,482				93,260				93,274				92,984				92,239
Medium C&I (200 kW-500 kW)			7,935				7,974				7,896				7,826				7,468
Large C&I (Sec)			2,516				2,547				2,514				2,510				2,380
Large C&I (Pri)			816				809				802				789				763
Large C&I (Sub)			247				249				246				241				237
Small Ag & Pump (<200 kW)			23,601				23,536				21,121				23,576				22,868
Large Ag & Pump (>200 kW)			1,624				1,648				1,536				1,587				1,572
Street/Area Lighting			38,541				38,762				33,656				38,556				38,447
Total			5,019,897				5,049,192				5,071,773				5,111,876				5,139,331

 

(1)	Amounts may not recalculate due to rounding.

Forecasting Electricity Consumption

SCE develops retail electricity sales forecasts at least once a year and does limited updates to reflect bundled load migration and other minor changes more often for regulatory filings. SCE most recently updated its retail sales forecast in May 2020 to account for the impacts of the COVID-19 pandemic and is in the process of updating the bundled forecast for the CPUC in connection with the approval of SCE’s revenue requirement for calendar year 2021. SCE is currently forecasting a decrease in bundled sales of approximately 10% in calendar year 2021, due largely to CCA departures and other conditions (such as COVID-19).

SCE develops econometric models to forecast electricity sales for the residential, commercial, industrial, government, and agricultural market segments. These forecasts will be used to calculate the fixed recovery charges for any given period, in order to determine the revenue required to meet the expected sinking fund schedules for the bonds.

For the residential sector, electricity consumption is modeled as a function of electricity prices, cooling and heating degree days, and metro economic output. The commercial sector is modeled as a function of electricity prices, cooling and heating degree days, and regional economic output for SCE’s service territory. Electricity usage for the industrial sector is modeled as a function of cooling degree days and electricity prices. Government electric usage is modeled as a function of cooling degree days, electricity prices, and government employment in

 

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SCE’s service territory. Finally, agricultural usage is projected using San Joaquin Valley river runoff from the Eastern Sierra Mountains and regional economic output for SCE’s service territory. Forecasted weather-related drivers assume normal weather conditions. Thirty-year averages for such weather drivers as heating and cooling degree-days, and rainfall are employed in developing the sales forecast.

SCE’s electricity demand forecast models have been in use in their current form for more than five years and have undergone extensive review by the CPUC and the California Energy Commission, respectively. Each year SCE updates these models with the most recent recorded data, and conducts testing to ensure that model statistics meet the highest standards possible.

SCE’s forecast reflects the lifting of the existing direct access cap (DA cap) starting in 2021, including a partial increase in the DA cap in 2021. This assumption will be adjusted at the end of 2020 as more information about likely DA increases under the expanded cap become available. As discussed above, SCE has had various CCAs form and become operational, which resulted in departing load starting in May 2015 and continuing. To account for this departing CCA load, SCE will, beginning in 2022, incorporate a probabilistic model to produce a Monte Carlo simulation to forecast additional CCA load departure. SCE has incorporated its best estimate of the departing CCA load to this forecast based on the best information SCE had received at the time that this forecast was made. As a result, SCE’s bundled sales growth in the current forecast has been reduced relative to retail sales growth as compared to earlier forecasts.

The table below shows energy forecasts and variances from the forecast for the five years 2015-2019. SCE most recently updated sales forecast in May 2020 to account for the impacts of the COVID-19 pandemic and estimates that 2020 deliveries will be lower than its 2020 projections by approximately 3.0%.

 

Annual Forecast Variance For Ultimate Electric Delivery (GWh)
		2015				2016				2017				2018				2019
Forecast			84,600				85,600				83,400				81,700				80,300
Actual			86,100				84,400				84,300				83,700				81,200
Variance (%)			-1.7	%			1.4	%			-1.1	%			-2.4	%			-1.1	%

Variances among the FRC consumer classes, which are used to allocate payment responsibility for the bonds, may differ from the variances shown above, as the classifications relate to distribution voltage only.

Billing and Collections

In 2019, SCE received approximately 75% of total bill payments electronically, through means such as electronic funds transfer, electronic data interchange, and online and credit card payments. Approximately 19% of bill payments were received via U.S. Mail and the remaining 6% were received through Authorized Payment Agencies (walk in payments).

If a customer (residential or commercial) does not pay their bill on time, SCE applies a LPC except for CARE customers, who are not subject to the LPC. For residential customers, SCE mails a 15-day overdue notice and a subsequent 48-hour (Disconnect) notice. SCE makes a reasonable attempt to contact an adult person residing at the customer’s residence at least 24 hours prior to termination of service. For small commercial accounts, a five-day overdue notice is mailed if payment is not received when due and a LPC is charged. A 48-hour disconnect notice is also provided prior to disconnection of service or small commercial customers. All other commercial accounts receive a five-day overdue notice and although not required, these commercial customers may also be provided with a 48-hour disconnect notice prior to disconnection of service.

For residential and non-residential customers, a closing bill including all unpaid amounts is generally issued within three to ten days of service termination. Once the closing bill is issued, a closing bill notice is mailed if the balance remains unpaid 30 days after issuance of the closing bill. If amounts remain outstanding after 60 days, a letter is mailed to customers advising them of a potential placement with credit bureaus. Accounts are placed

 

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with credit bureaus at day 90. Under current policies, unpaid closed account balances are written off 180 days after the final bill is issued. The unpaid balance may be referred to a collection agency 185 days after the account closes and remains with the agency for six months.

Generally, service may be disconnected if payment is not received after all notifications have been provided. Please read “—COVID-19 Customer Protections” below for current measure restricting SCE’s ability to disconnect customers for non-payment. The California commission adopted certain additional regulations relating to disconnection that would make permanent certain of the provisions of the temporary protections enacted in connection with the COVID-19 pandemic which may make extend the time it takes to complete the process of disconnecting customers for nonpayment.

Before restoring service that has been shut-off for non-payment, SCE has the right to require the payment of the past due amount, a reconnection fee, and a deposit, if applicable.

Credit Policy

Under California law and CPUC regulatory guidelines, SCE is obligated to provide service to electricity customers in its service territory regardless of their creditworthiness.

Certain accounts are secured with deposits or guarantees to reduce losses. Since the vast majority of customers pay their bills within the allotted time, it is not necessary to require deposits from all customers. Specific criteria have been developed for establishing credit. These criteria are based on multiple factors, including prior service, payment history, or external credit score.

In June 2020, the CPUC issued a decision that prohibits investor-owned utilities, such as SCE, from collecting deposits from residential customers for the establishment and reestablishment of service. Therefore, SCE will not secure any new residential customer accounts, or those reconnected after June 11, 2020 after a service disconnection for non-payment.

Non-residential customers may establish credit by depositing cash equal to twice the highest monthly electric charge or furnishing a satisfactory guarantor, or other credit support such as a surety bond, a certificate of deposit or an irrevocable letter of credit.

SCE may change its credit and collections policies from time to time.

COVID-19 Customer Protections

Effective March 2020, SCE implemented various protections for residential and small businesses customers as ordered by the CPUC. These protections include:

 

•

Cessation of all service disconnections for non-payment;

 

•

Payment arrangements for a period of up to 12 months; and

 

•

Suspension of the collection of establishment and re-establishment of credit deposits.

These protections will remain in effect until April 16, 2021, or until the COVID-19 customer protections are lifted, except those made permanent or extended by Decision 20-06-003, issued by the California commission in June 2020.

In addition to the above mandated protections, SCE suspended the assessment of LPCs, mailing of disconnect notices, and mailing of commercial overdue notices.

 

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Loss Experience

The following table sets forth information relating to SCE’s annual net write-offs as a percentage of billed revenue for its retail customers for the five years ending December 31, 2015 through 2019:

 

Net Write-Offs as a Percentage of Billed Revenues (dollars in thousands)
		2015				2016				2017				2018				2019
Billed Electric Revenues ($000)		$	12,561,430			$	11,322,125			$	12,035,355			$	12,000,969			$	11,156,837
Net Write-Offs ($000)		$	26,580			$	22,751			$	17,309			$	21,307			$	18,062
Percentage of Billed Revenue*			0.21	%			0.20	%			0.14	%			0.18	%			0.16	%
*  Revenue included in calculation of ratio does not include CCA revenue.

The net write-offs as a percentage of billed revenue for its retail customers for the first six months of 2019 and 2020 was 0.17% and 0.16%, respectively.

Days Sales Outstanding

The following table sets forth information relating to the average number of days retail customer electricity bills remained outstanding for the five years ending December 31, 2015 through 2019:

 

Average Days Sales Outstanding
		2015				2016				2017				2018				2019
Average Days Sales Outstanding			18.0				16.6				18.3				17.2				16.4

The average days sales outstanding for June 2019 compared to the average days sales outstanding for June 2020 increased from 16.8 days to 17.6 days, or a 4.8% increase reflecting the impact of COVID-19, including customer impacts and implementation of the California commission disconnection policies.

Delinquencies

The following table sets forth information relating to the delinquencies as a percentage of total billed revenues for all classes of customers on December 31st of years 2015 to 2019. Payments are aged when the following month’s bill is rendered.

 

Delinquencies as a Percentage of Total Billed Revenues
		2015				2016				2017				2018				2019
20-30 days			0.49	%			0.52	%			0.49	%			0.47	%			0.60	%
31-60 days			0.50	%			0.53	%			0.50	%			0.50	%			0.60	%
61-90 days			0.18	%			0.14	%			0.15	%			0.15	%			0.19	%
91+days			0.25	%			0.23	%			0.22	%			0.25	%			0.33	%
Total			1.43	%			1.41	%			1.36	%			1.36	%			1.71	%

Municipalization; Municipal Departing Load

California law may authorize certain local municipalities to seek to acquire portions of SCE’s electric distribution facilities through the power of eminent domain for use as part of municipally-owned utility systems and serve customers with those facilities. Additionally, local municipalities may extend their own facilities to take over service of customers located within their jurisdictional areas which overlap with SCE’s service territory. Moreover, tribal governments may operate their own utilities and, from time to time, may assert the right to acquire SCE’s facilities located within the borders of tribal land through the power of eminent domain. These circumstances involve what is referred to in the tariffs as Municipal DL, where the affected customers are no longer interconnected with SCE’s electric facilities. As the date of this prospectus, we are not aware of any local municipality or tribe which is actively seeking or threatening to acquire portions of SCE’s electric distribution system.

 

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The Securitization Law provides that the fixed recovery charges must be paid by all existing and future customers within SCE’s service territory as it existed on the date of the financing order. The financing order provides that consumers that no longer take transmission and distribution retail service or that depart or reduce SCE service after the date of the financing order, or that meet relevant criteria in the applicable departing load tariff, will be treated as DL customers using applicable tariffs for DL customers, will be subject to pay the fixed recovery charges, and shall pay the fixed recovery charges using an approach that is consistent with the method currently in place for calculation of Municipal DL obligations. SCE’s Municipal DL tariffs provide for calculation of certain nonbypassable charges based on consumption as metered or estimated. Historically, SCE has administered these tariffs by reaching agreement with the Municipal DL customer or the local municipality serving the Municipal DL customer for the payment of one or more lump sums based on a mutually acceptable estimate of the Municipal DL customer’s nonbypassable cost obligations, including the fixed recovery charges. If such agreements relating to Municipal DL are, however, reached, the payments allocable to the fixed recovery charges will constitute recovery property.

The Securitization Law also specifies that any successor to an electric utility shall perform and satisfy all obligations of the electric utility pursuant to the Securitization Law, including collecting and paying to the bondholders revenues arising with respect to the recovery property. In the servicing agreement, SCE will covenant to assert in an appropriate forum that any municipality that acquires any portion of SCE’s electric distribution facilities must be treated as a successor to SCE under the Securitization Law and the financing order and that retail customers in such municipalities remain responsible for payment of fixed recovery charges.

In the financing order, the California commission has committed, in furtherance of the State pledge, in connection with any Commission proceeding to review the municipalization of SCE facilities by an entity that does not set retail rates subject to the California commission, to establish conditions to the approval of such municipalization transaction by the California commission which either (a) establish procedures to ensure that such entity will continue to bill and collect fixed recovery charges from customers and remit such collections to SCE or a new servicer for the bonds or (b) ensure the upfront funding of the fixed recovery charges that would otherwise be paid by customers where rate payment would be affected by the ownership change. Any such upfront funding would constitute recovery property pledged to the payment of the recovery bonds.

Successors

California law also provides the merger, acquisition or control of SCE, either directly or indirectly, by any person or corporation must be approved by the California commission. The Securitization Law specifies that any successor to an electric utility shall perform and satisfy all obligations of the electric utility pursuant to the Securitization Law, including collecting and paying to the bondholders revenues arising with respect to the recovery property. Further, the financing order states that it is binding on SCE and any successor to SCE that provides electric distribution service directly to consumers of electricity within SCE’s service territory. In the servicing agreement, SCE has covenanted to assert in an appropriate forum that any person or corporation that merges with, acquires or controls SCE directly or indirectly must be treated as a successor to SCE under the Securitization Law and the financing order and that customers remain responsible for payment of fixed recovery charges.

Prior Securitizations

SCE has previously served as sponsor and servicer in the issuance of $2,463,000,000 original aggregate principal amount of rate reduction certificates by the California Infrastructure and Economic Development Bank, issued on December 11, 1997 (the 1997 rate reduction certificates), issued to permit SCE to recover certain stranded costs associated with the restructuring of the electric utility industry in California.

The underlying structure of the 1997 certificates is comparable to the underlying structure of the bonds, with the exception of the use of an issuer created by the State of California, in that SCE, pursuant to the authority

 

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granted by the California commission in a financing order that created property, namely, the right to impose, bill and receive the charges to another entity, and each such entity financed the purchase of the property through the issuance of indebtedness. The charges were included on the bills of SCE’s customers, collected via SCE’s bills, and the revenues related to such charges were remitted to the trustee for such rate reduction certificates to make payments on the certificates.

In the prior transaction, SCE serviced the charges authorized by an order of the California commission that were subject to regular and periodic true-up adjustments following similar processes as in the current transaction, including filing with and review and approval by the California commission. In addition, SCE services “nonbypassable charges” on behalf of the California Department of Water Resources to support bonds issued to finance power purchase costs during the State of California’s energy crisis in 2000 and 2001. In servicing the recovery property, SCE will draw upon its prior servicing experience with the 1997 rate reduction certificates and the charges it collects on behalf of the California Department of Water Resources, each similar to the fixed recovery charges, and in calculating and implementing rates and charges under various cost recovery clauses and billing those amounts to customers as a result of the prior transactions.

Beyond its experience serving stranded cost recovery charges in connection with the 1997 rate reduction certificates, SCE has a long history of collecting charges from its customers and allocating them accordingly. SCE has over 110 years of experience in collecting charges from its customers, which it will be doing on our behalf, as initial servicer of the recovery property.

Where to Find Information About SCE

SCE files periodic reports with the SEC as required by the Exchange Act. SCE makes available at www.edisoninvestor.com: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, as soon as reasonably practicable after SCE electronically files such material with, or furnishes it to, the SEC. Such reports are also available on the SEC’s website at http://www.sec.gov. No information contained on that website (other than the materials specifically incorporated by reference herein) constitutes part of this prospectus related to the bonds.

 

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SCE RECOVERY FUNDING LLC, THE ISSUING ENTITY

We are a special purpose limited liability company formed under the Delaware Limited Liability Company Act pursuant to a limited liability company agreement executed by our sole member, SCE, and the filing of a certificate of formation with the Secretary of the State of Delaware. Our limited liability company agreement restricts us from engaging in activities other than those described in this section. We do not have any employees, but we will pay our member for out-of-pocket expenses incurred by the member in connection with its services to us in accordance with our limited liability company agreement. We have summarized selected provisions of our limited liability company agreement below, a copy of which has been filed as an exhibit to the registration statement of which this prospectus is a part. On the date of issuance of the bonds, our capital will be equal to 0.5% of the principal amount of such bonds issued or such other amount as may allow the bonds to achieve the desired security rating and treat the bonds as debt under applicable guidance issued by the Internal Revenue Service, which we also refer to as the IRS.

As of the date of this prospectus, we have not carried on any business activities and have no operating history.

Our assets will consist of:

 

•

the recovery property,

 

•

our rights under the sale agreement and under the administration agreement,

 

•

our rights under the servicing agreement and any subservicing, agency, administration, intercreditor or collection agreements executed in connection with such servicing agreement,

 

•

the collection account and all subaccounts of such collection account,

 

•

our rights in all deposits, guarantees, surety bonds, letters of credit and other forms of credit support provided by or on behalf of ESPs pursuant to the financing order or a tariff,

 

•

all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and

 

•

all payments on or under and all proceeds in respect of any or all of the foregoing.

The indenture provides that the recovery property, as well as our other assets, will be pledged by us to the trustee to secure our obligations in respect of the bonds. Pursuant to the indenture, the collected fixed recovery charges remitted to the trustee by the servicer must be used to pay principal and interest on the bonds and our other obligations specified in the indenture.

Restricted Purpose

We have been created for the sole purpose of:

 

•

purchasing, owning, administering and servicing the recovery property and the other collateral;

 

•

issuing and registering the bonds;

 

•

making payment on the bonds;

 

•

distributing amounts released to us;

 

•

managing, selling, assigning, pledging, collecting amounts due on, or otherwise dealing with the recovery property and the other bond collateral and related assets;

 

•

negotiating, executing, assuming and performing our obligations under the basic documents;

 

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•

pledging our interest in the recovery property and other collateral to the trustee under the indenture in order to secure the bonds; and

 

•

performing other activities that are necessary, suitable or convenient to accomplish these purposes.

Our limited liability company agreement does not permit us to engage in any activities not directly related to these purposes, including issuing securities (other than the bonds), borrowing money or making loans to other persons. The list of permitted activities set forth in our limited liability company agreement may not be altered, amended or repealed without the affirmative vote of a majority of our managers, which vote must include the affirmative vote of our independent manager(s). Our limited liability company agreement and the indenture will prohibit us from issuing any recovery bonds (as such term is defined in the Securitization Law) other than the bonds that we will offer pursuant to this prospectus.

Our Relationship with SCE

On the issue date for the bonds, SCE will sell recovery property to us pursuant to a sale agreement between us and SCE. SCE will service the recovery property pursuant to a servicing agreement between us and SCE and will provide administrative services to us pursuant to an administration agreement between us and SCE.

Our Management

Pursuant to our limited liability company agreement, our business will be managed by three or more managers, of whom at least one of whom will be an independent manager, in each case appointed from time to time by SCE or, in the event that SCE transfers its interest in us, by our owner or owners. Following the initial issuance of bonds, we will have at least one independent manager, who among other things, must be a natural person who, for the five-year period prior to his or her appointment as an independent manager has not been and during the continuation of his or her service as independent manager is not:

 

•

Our employee, director, stockholder, manager, partner, agent, consultant, attorney, accountant, advisor or officer or an employee, director, manager, stockholder, partner, agent, consultant, attorney, accountant, advisor or officer of any of our affiliates, other than his or her service as independent manager;

 

•

Our creditor or supplier, or a creditor, service provider or supplier of any of its affiliates, except that an independent manager may be an employee of a supplier of corporate related services to us or any of our affiliates; or

 

•

Any member of the immediate family of a person described in either of the above bullets.

SCE, as our sole member, will appoint the independent managers prior to the issuance of the bonds. None of our managers or officers has been involved in any legal proceedings which are specified in Item 401(f) of the SEC’s Regulation S-K. None of our managers or officers beneficially own any equity interest in us.

 

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The following is a list of our managers as of the date of this prospectus:

 

Name		Age		Title		Background
William (“Tres”) M. Petmecky III		51		Manager		Senior Vice President and Chief Financial Officer, SCE. From September 2014 to September 2016, Tres was Vice President and Treasurer of SCE. In September 2016, Tres was promoted to Senior Vice President and Chief Financial Officer.
Natalia Woodward		52		Manager		Vice President and Treasurer, SCE. From March 2015 to February 2016, Natalia Woodward was Director of Risk Management. She returned to SCE in October 2016 as Director of Financial Planning & Analysis and in October 2019, Natalia was promoted to Vice President & Treasurer.
Sean L. Emerick		55		Independent Manager		Director, Special Services, CT Corporation System. From 2007 to 2011, Sean was the Vice President and General Manager of NRAI Corporate Services. From 2011 to 2014 he was Regional Service Manager, Special Services for CT Corporation. Sean has been a Director, Special Services for CT Corporation from 2014 to present.

Manager Fees and Limitation on Liabilities

We have not paid any compensation to any manager since we were formed. We will not compensate our managers, other than the independent manager, for their services on our behalf. We will pay the annual fees of the independent manager from our revenues and will reimburse them for reasonable expenses. These expenses include the reasonable compensation, expenses and disbursements of the agents, representatives, experts and counsel that the independent managers may employ in connection with the exercise and performance of his or her rights and duties under our limited liability company agreement.

Our limited liability company agreement provides that to the extent permitted by law, the managers will not be personally liable for any of our debts, obligations or liabilities. Our limited liability company agreement further provides that, except as described below, to the fullest extent permitted by law, we will indemnify the managers against any liability incurred in connection with their services as managers for us if they acted in good faith and in a manner which they reasonably believed to be in or not opposed to our best interests. With respect to a criminal action, the managers will be indemnified unless they had reasonable cause to believe their conduct was unlawful. We will not indemnify the manager for any judgment, penalty, fine or other expense directly caused by their fraud, gross negligence or willful misconduct. In addition, unless ordered by a court, we will not indemnify the managers if a final adjudication establishes that their acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. We will pay any indemnification amounts owed to the managers out of funds in the collection accounts, subject to the priority of payments described under “Security for the Bonds—How Funds in the Collection Account will be Allocated” in this prospectus.

We Are a Separate and Distinct Legal Entity from SCE

Under our limited liability company agreement, we may not file a voluntary petition for relief under the Bankruptcy Code, without the affirmative vote of our member and the affirmative vote of all of our managers, including the independent manager(s). SCE has agreed that it will not cause us to file a voluntary petition for relief under the Bankruptcy Code. Our limited liability company agreement requires us, except for financial reporting purposes (to the extent required by generally accepted accounting principles) and for federal income

 

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tax purposes, and, to the extent consistent with applicable state law, state income and franchise tax purposes, to maintain our existence separate from SCE including:

 

•

taking all necessary steps to continue our identity as a separate legal entity;

 

•

making it apparent to third persons that we are an entity with assets and liabilities distinct from those of SCE, other affiliates of SCE, the managers or any other person; and

 

•

making it apparent to third persons that, except for federal and certain other tax purposes, we are not a division of SCE or any of its affiliated entities or any other person.

Administration Agreement

SCE will, pursuant to an administration agreement between SCE and us, provide administrative services to us, including services relating to the preparation of financial statements, required filings with the SEC, any tax returns we might be required to file under applicable law, qualifications to do business, and minutes of our managers’ meetings. We will pay SCE a fixed fee of $                 per annum, payable in installments of $                 on each payment date for performing these services, plus we will reimburse SCE for all costs and expenses for services performed by unaffiliated third parties and actually incurred by SCE in performing such services described above.

 

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DESCRIPTION OF THE BONDS

General

We have summarized below selected provisions of the indenture and the bonds. A form of the indenture and series supplement are filed as exhibits to the registration statement of which this prospectus forms a part. Please read “Where You Can Find More Information” in this prospectus.

The bonds are not a debt, liability or other obligation of the State of California, the California commission or of any political subdivision, governmental agency, authority or instrumentality of the State or California and do not represent an interest in or legal obligation of SCE or any of its affiliates, other than us. Neither SCE nor any of its affiliates will guarantee or insure the bonds. The financing order authorizing the issuance of the bonds does not constitute a pledge of the full faith and credit of the State of California or of any of its political subdivisions. The issuance of the bonds under the Securitization Law will not directly, indirectly or contingently obligate the State of California or any of its political subdivisions to levy or to pledge any form of taxation for the bonds or to make any appropriation for their payment.

We will issue the bonds and secure their payment under an indenture that we will enter into with The Bank of New York Mellon Trust Company, N.A., as trustee, referred to in this prospectus as the trustee. We will issue the bonds in minimum denominations of $100,000 and in integral multiples of $1,000 in excess thereof, except that we may issue one bond in each tranche in a smaller denomination. The initial principal balance, scheduled final payment date, final maturity date and interest rate for each tranche of the bonds are stated in the table below:

 

Tranche

Expected Weighted Average Life (Years)

Principal Amount Offered

Scheduled Final Payment Date

Final Maturity Date

Interest Rate

$

%

 

*	Principal amounts are approximate and subject to change.

The scheduled final payment date for each tranche of the bonds is the date when the outstanding principal balance of that tranche will be reduced to zero if we make payments according to the expected sinking fund schedule for that tranche. The final maturity date for each tranche of bonds is the date when we are required to pay the entire remaining unpaid principal balance, if any, of all outstanding bonds of that tranche. The failure to pay principal of any tranche of bonds by the final maturity date for that tranche is an event of default, but the failure to pay principal of any tranche of bonds by the respective scheduled final payment date will not be an event of default. Please read “—Interest Payments” and “—Principal Payments” and “—Events of Default; Rights Upon Event of Default” in this prospectus.

Payment and Record Dates and Payment Sources

Beginning                , we will make payments of principal and interest on the bonds semi-annually on                 and                 of each year, or, if that day is not a business day, the following business day (each, a payment date). So long as the bonds are in book-entry form, on each payment date, we will make interest and principal payments to the persons who are the holders of record as of the business day immediately prior to that payment date, which is referred to herein as the record date. If we issue certificated bonds to beneficial owners of the bonds, the record date will be the last business day of the calendar month immediately preceding the payment date. On each payment date, we will pay amounts on outstanding bonds from amounts available in the collection account and the related subaccounts held by the trustee in the priority set forth under “Security for the Bonds—How Funds in the Collection Account Will Be Allocated” in this prospectus. These available amounts, which will include amounts collected by the servicer for us with respect to the fixed recovery charges, are described in greater detail under “Security for the Bonds—How Funds in the Collection Account will be Allocated” and “The Servicing Agreement—Remittances to Collection Account” in this prospectus.

 

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Interest Payments

Interest on each tranche of bonds will accrue from and including the issue date to but excluding the first payment date, and thereafter from and including the previous payment date to but excluding the applicable payment date until the bonds have been paid in full, at the interest rate indicated on the cover of this prospectus and in the table above. Each of those periods is referred to as an interest accrual period. We will calculate interest on tranches of the bonds on the basis of a 360-day year of twelve 30-day months.

On each payment date, we will pay interest on each tranche of the bonds equal to the following amounts:

 

•

if there has been a payment default, any interest payable but unpaid on any prior payment date, together with interest on such unpaid interest, if any, and

 

•

accrued interest on the principal balance of each tranche of the bonds as of the close of business on the preceding payment date (or with respect to the initial payment date, the date of the original issuance of the bonds) after giving effect to all payments of principal made on the preceding payment date, if any.

We will pay interest on the bonds before we pay principal on the bonds. Interest payments will be made from collections of fixed recovery charges, including amounts available in the excess funds subaccount and, if necessary, the amounts available in the capital subaccount.

If there is a shortfall in the amounts available in the collection account to make interest payments on the bonds, the trustee will distribute interest pro rata to each tranche of bonds based on the amount of interest payable on each such outstanding tranche. Please read “Security for the Bonds—How Funds in the Collection Account will be Allocated” in this prospectus.

Principal Payments

On each payment date, we will pay principal of the bonds to the bondholders equal to the sum, without duplication, of:

 

•

the unpaid principal amount of any bond whose final maturity date is on that payment date, plus

 

•

the unpaid principal amount of any bond upon acceleration following an event of default relating to the bonds, plus

 

•

any overdue payments of principal, plus

 

•

any unpaid and previously scheduled payments of principal, plus

 

•

the principal scheduled to be paid on any bond on that payment date,

but only to the extent funds are available in the collection account after payment of certain of our fees and expenses and after payment of interest as described above under “—Interest Payments” in this prospectus. If the trustee receives insufficient collections of fixed recovery charges for any payment date, and amounts in the collection account (and the applicable subaccounts of the collection account) are not sufficient to make up the shortfall, principal of any tranche of bonds may be payable later than expected. Please read “Risk Factors—Other Risks Associated with an Investment in the Bonds” in this prospectus. To the extent funds are so available, we will make scheduled payments of principal of the bonds in the following order:

 

(1)

to the holders of the tranche bonds, until the principal balance of that tranche has been reduced to zero, and

 

(2)

to the holders of the tranche bonds, until the principal balance of that tranche has been reduced to zero.

However, on any payment date, unless an event of default has occurred and is continuing and the bonds have been declared due and payable, the trustee will make principal payments on the bonds only until the

 

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outstanding principal balances of those bonds have been reduced to the principal balances specified in the applicable expected sinking fund schedule for that payment date. Accordingly, principal of the bonds may be paid later, but not sooner, than reflected in the expected sinking fund schedule, except in the case of an acceleration. The entire unpaid principal balance of each tranche of the bonds will be due and payable on the final maturity date for that tranche. The failure to make a scheduled payment of principal on the bonds because there are not sufficient funds in the collection account does not constitute a default or an event of default under the indenture, except for the failure to pay in full the unpaid balance of any tranche upon the final maturity date for such tranche.

Unless the bonds have been accelerated following an event of default, any excess funds remaining in the collection account after payment of principal, interest, applicable fees and expenses and payments to the applicable subaccounts of the collection account will be retained in the excess funds subaccount until applied on a subsequent payment date.

If an event of default (other than a breach by the State of California of the State pledge) has occurred and is continuing, then the trustee or the holders of not less than a majority in principal amount of the bonds then outstanding may declare the bonds to be immediately due and payable, in which event the entire unpaid principal amount of the bonds will become due and payable. Please read “—Events of Default; Rights Upon Event of Default” in this prospectus. However, the nature of our business will result in payment of principal upon an acceleration of the bonds being made as funds become available. Please read “Risk Factors—Risks Associated With the Unusual Nature of the Recovery Property—Foreclosure of the trustee’s lien on the recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might have little practical effect” and “Risk Factors—You may experience material payment delays or incur a loss on your investment in the bonds because the source of funds for payment is limited” in this prospectus.

If there is a shortfall in the amounts available to make principal payments on the bonds that are due and payable, including upon an acceleration following an event of default, the trustee will distribute principal from the collection account pro rata to each tranche of bonds based on the principal amount then due and payable on the payment date; and if there is a shortfall in the remaining amounts available to make principal payments on the bonds that are scheduled to be paid, the trustee will distribute principal from the collection account pro rata to each tranche of bonds based on the principal amount then scheduled to be paid on the payment date.

The expected sinking fund schedule below sets forth the corresponding principal payment that is scheduled to be made on each payment date for each tranche of the bonds from the issuance date to the scheduled final payment date. Similarly, the expected sinking fund schedule below sets forth the principal balance that is scheduled to remain outstanding on each payment date for each tranche of the bonds from the issuance date to the scheduled final payment date.

 

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EXPECTED SINKING FUND SCHEDULE

 

Semi-Annual Payment Date
Total Payments

 

(1)	Terms are preliminary and subject to change.

(2)	Totals may not add up due to rounding.

We cannot assure you that the principal balance of any tranche of the bonds will be reduced at the rate indicated in the table above. The actual reduction in tranche principal balances may occur more slowly. The actual reduction in tranche principal balances will not occur more quickly than indicated in the above table, except in the case of acceleration due to an event of default under the indenture. The bonds will not be in default if principal is not paid as specified in the schedule above unless the principal of any tranche is not paid in full on or before the final maturity date of that tranche.

 

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EXPECTED OUTSTANDING PRINCIPAL BALANCE PER TRANCHE

 

Semi-Annual Payment Date
Issuance Date		$

 

(1)	Terms are preliminary and subject to change.

(2)	Totals may not add up due to rounding.

On each payment date, the trustee will make principal payments to the extent the principal balance of each tranche of the bonds exceeds the amount indicated for that payment date in the table above and to the extent of funds available in the collection account after payment of certain of our fees and expenses and after payment of interest.

Distribution Following Acceleration

Upon an acceleration of the maturity of the bonds, the total outstanding principal balance of and interest accrued on the bonds will be payable, without regard to tranche. Although principal will be due and payable upon acceleration, the nature of our business will result in principal being paid as funds become available. Please read “Risk Factors—Risks Associated with the Unusual Nature of the Recovery Property—Foreclosure of the trustee’s lien on the recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might have little practical effect” and “Risk Factors—You may experience material payment delays or incur a loss on your investment in the bonds because the source of funds for payment is limited” in this prospectus.

Optional Redemption

We may not voluntarily redeem any tranche of the bonds.

Payments on the Bonds

The trustee will pay on each payment date to the holders of each tranche of bonds, to the extent of available funds in the collection account, all payments of principal and interest then due. The trustee will make each payment other than the final payment with respect to any bonds to the holders of record of the bonds of the applicable tranche on the record date for that payment date. The trustee will make the final payment for each tranche of bonds, however, only upon presentation and surrender of the bonds of that tranche at the office or

 

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agency of the trustee specified in the notice given by the trustee of the final payment. The trustee will mail notice of the final payment to the bondholders no later than five days prior to the final payment date, specifying the date set for the final payment and the amount of the payment.

The failure to pay accrued interest on any payment date (even if the failure is caused by a shortfall in fixed recovery charges received) will result in an event of default for the bonds unless such failure is cured within five business days. Please read “—Events of Default; Rights Upon Event of Default” in this prospectus. Any interest not paid when due (plus interest on the defaulted interest at the applicable interest rate to the extent lawful) will be payable to the bondholders on a special record date. The special record date will be at least fifteen business days prior to the date on which the trustee is to make such special payment (a special payment date). We will fix any special record date and special payment date. At least 10 days before any special record date, the trustee will mail to each affected bondholder a notice that states the special record date, the special payment date and the amount of defaulted interest (plus interest on the defaulted interest) to be paid.

The entire unpaid principal amount of the bonds will be due and payable:

 

•

on the final maturity date,

 

•

if an event of default under the indenture occurs and is continuing and the trustee or the holders of a majority in principal amount of the bonds have declared the bonds to be immediately due and payable.

However, the nature of our business will result in payment of principal upon an acceleration of the bonds being made as funds become available. Please read “Risk Factors—Risks Associated with the Unusual Nature of the Recovery Property—Foreclosure of the trustee’s lien on the recovery property securing the bonds might not be practical, and acceleration of the bonds before maturity might have little practical effect” and “Risk Factors—You may experience material payment delays or incur a loss on your investment in the bonds because the source of funds for payment is limited” in this prospectus.

At the time, if any, we issue the bonds in the form of definitive bonds and not to DTC or its nominee, the trustee will make payments with respect to that tranche on a payment date or a special payment date by wire transfer to each holder of a definitive bond of the tranche of record on the applicable record date to an account maintained by the payee.

If any special payment date or other date specified for any payments to bondholders is not a business day, the trustee will make payments scheduled to be made on that special payment date or other date on the next succeeding business day and no interest will accrue upon the payment during the intervening period.

Fees and Expenses

As set forth in the table below, the issuing entity is obligated to pay fees to the servicer, the trustee, its independent managers and SCE as administrator. The following table illustrates this arrangement.

 

Recipient		Source of Payment		Fees and Expenses Payable
Servicer		Fixed recovery charge collections and investment earnings.		% of the initial principal balance of the bonds on an annualized basis (so long as servicer is SCE or an affiliate), plus expenses
Trustee		Fixed recovery charge collections and investment earnings.		$             per annum plus expenses
Independent Managers		Fixed recovery charge collections and investment earnings.		$2,500 per annum plus expenses
Administration Fee		Fixed recovery charge collections and investment earnings.		$             per annum plus expenses

 

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The annual servicing fee payable to any servicer not affiliated with SCE shall not at any time exceed     % of the original principal amount of the bonds unless such higher rate is approved by the California commission.

Bonds Will Be Issued in Book-Entry Form

The bonds will be available to investors only in the form of book-entry bonds. You may hold your bonds through DTC in the United States, Clearstream Banking, Luxembourg, S.A., referred to as Clearstream, or Euroclear in Europe. You may hold your bonds directly with one of these systems if you are a participant in the system or indirectly through organizations that are participants.

The Role of DTC, Clearstream and Euroclear

Cede & Co., as nominee for DTC, will hold the global bond or bonds representing the bonds. Clearstream and Euroclear will hold omnibus positions on behalf of the Clearstream consumers and Euroclear participants, respectively, through consumers’ securities accounts in Clearstream’s and Euroclear’s names on the books of their respective depositaries. These depositaries will, in turn, hold these positions in consumers’ securities accounts in the depositaries’ names on the books of DTC.

The Function of DTC

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (direct participants) deposit with DTC. DTC also facilitates the post-trade settlement among direct participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between direct participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (DTCC). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a direct participants, either directly or indirectly (indirect participants). The DTC Rules applicable to its Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org.

The Function of Clearstream

Clearstream holds securities for its consumers and facilitates the clearance and settlement of securities transactions between Clearstream consumers through electronic book-entry changes in accounts of Clearstream consumers, thereby eliminating the need for physical movement of securities. Transactions may be settled by Clearstream in any of various currencies, including United States dollars. Clearstream provides to its consumers, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream also deals with domestic securities markets in various countries through established depositary and custodial relationships. Clearstream is registered as a bank in Luxembourg and therefore is subject to regulation by the Luxembourg Commission de Surveillance du Secteur Financier, which supervises Luxembourg banks. Clearstream’s consumers are world-wide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations, among others, and may include the underwriters of the bonds. Clearstream’s U.S. consumers are limited to securities

 

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brokers and dealers and banks. Clearstream has consumers located in various countries. Indirect access to Clearstream is also available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream. Clearstream has established an electronic bridge with Euroclear to facilitate settlement of trades between Clearstream and Euroclear.

The Function of Euroclear

The Euroclear System was created in 1968 in Brussels. Euroclear holds securities and book-entry interests in securities for Euroclear participants and facilitates the clearance and settlement of securities transactions between Euroclear participants, and between Euroclear participants and participants of certain other securities intermediaries through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash. Such transactions may be settled in any of various currencies, including United States dollars. The Euroclear System includes various other services, including, among other things, safekeeping, administration, clearance and settlement, securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described below. The Euroclear System is operated by Euroclear Bank SA/NV. Euroclear participants include central banks and other banks, securities brokers and dealers and other professional financial intermediaries and may include the underwriters of the bonds. Indirect access to the Euroclear System is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.

Terms and Conditions of Euroclear

Securities clearance accounts and cash accounts with Euroclear are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and applicable Belgian law (collectively, the Terms and Conditions). These Terms and Conditions govern transfers of securities and cash within the Euroclear System, withdrawals of securities and cash from the Euroclear System and receipts of payments with respect to securities in the Euroclear System. All securities in Euroclear are held on a fungible basis without attribution of specific securities to specific securities clearance accounts. Euroclear acts under the Terms and Conditions only on behalf of Euroclear participants and has no record of or relationship with persons holding through Euroclear participants.

The Rules for Transfers Among DTC, Clearstream or Euroclear Participants

Transfers between DTC participants will occur in accordance with DTC rules. Transfers between Clearstream consumers or Euroclear participants will occur in the ordinary way in accordance with their applicable rules and operating procedures and will be settled using procedures applicable to conventional securities held in registered form.

Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream consumers or Euroclear participants, on the other, will be effected through DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its depositary; however, those cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in that system in accordance with its rules and procedures and within its established deadlines, which will be based on European time. The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its depositary to take action to effect final settlement on its behalf by delivering or receiving bonds in DTC and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream consumers and Euroclear participants may not deliver instructions directly to Clearstream’s and Euroclear’s depositaries.

Because of time-zone differences, credits of securities in Clearstream or Euroclear as a result of a transaction with a participant will be made during the subsequent securities settlement processing, dated the

 

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business day following the DTC settlement date, and those credits or any transactions in those securities settled during that processing will be reported to the relevant Clearstream consumer or Euroclear participant on that business day. Cash received in Clearstream or Euroclear as a result of sales of securities by or through a Clearstream consumer or a Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of the business day following settlement in DTC.

DTC Will Be the Holder of the Bonds

Bondholders that are not participants or indirect participants but desire to purchase, sell or otherwise transfer ownership of, or other interest in, bonds may do so only through direct participants and indirect participants. In addition, bondholders will receive all payments of principal of and interest on the bonds from the trustee through the participants, who in turn will receive them from DTC. Under a book-entry format, bondholders may experience some delay in their receipt of payments because payments will be forwarded by the trustee to Cede & Co., as nominee for DTC. DTC will forward those payments to its participants, who thereafter will forward them to indirect participants or bondholders. It is anticipated that the only “bondholder” will be Cede & Co., as nominee of DTC. The trustee will not recognize bondholders as bondholders, as that term is used in the indenture, and bondholders will be permitted to exercise the rights of bondholders only indirectly through the participants, who in turn will exercise the rights of bondholders through DTC.

Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers of book-entry certificates among participants on whose behalf it acts with respect to the bonds and is required to receive and transmit payments of principal and interest on the bonds. Direct participants and indirect participants with whom bondholders have accounts with respect to the bonds similarly are required to make book-entry transfers and receive and transmit those payments on behalf of their respective bondholders. Accordingly, although bondholders will not possess bonds, bondholders will receive payments and will be able to transfer their interests.

Because DTC can act only on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of a recovery bondholder to pledge bonds to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of those bonds, may be limited due to the lack of a physical certificate for those bonds.

DTC has advised us that it will take any action permitted to be taken by a recovery bondholder under the indenture only at the direction of one or more participants to whose account with DTC the bonds are credited. Additionally, DTC has advised us that it will take those actions with respect to specified percentages of the collateral amount only at the direction of and on behalf of participants whose holdings include interests that satisfy those specified percentages. DTC may take conflicting actions with respect to other interests to the extent that those actions are taken on behalf of participants whose holdings include those interests.

Except as required by law, none of any underwriter, the servicer, SCE, the trustee, us or any other party will have any liability for any aspect of the records relating to or payments made on account of beneficial interests in the certificates held by Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial interests.

How Bond Payments Will Be Credited by Clearstream and Euroclear

Payments with respect to bonds held through Clearstream or Euroclear will be credited to the cash accounts of Clearstream consumers or Euroclear participants in accordance with the applicable system’s rules and operating procedures, to the extent received by its depositary. Those payments will be subject to tax reporting in accordance with relevant United States tax laws and regulations. Please read “Material U.S. Federal Income Tax Consequences” in this prospectus. Clearstream or the Euroclear operator, as the case may be, will take any other

 

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action permitted to be taken by a recovery bondholder under the indenture on behalf of a Clearstream consumer or Euroclear participant only in accordance with its applicable rules and operating procedures and subject to its depositary’s ability to effect those actions on its behalf through DTC.

Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of the bonds among participants of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform those procedures, and those procedures may be discontinued at any time.

Definitive Bonds

We will issue bonds in registered, certificated form to bondholders, or their nominees, rather than to DTC, only under the circumstances provided in the indenture, which will include: (1) us advising the trustee in writing that DTC is no longer willing or able to properly discharge its responsibilities as nominee and depositary with respect to the book-entry bonds and that we are unable to locate a recovery successor, (2) our electing to terminate the book-entry system through DTC, with written notice to the trustee, or (3) after the occurrence of an event of default under the indenture, holders of bonds aggregating not less than a majority of the aggregate outstanding principal amount of the bonds maintained as book-entry bonds advising us, the trustee, and DTC in writing that the continuation of a book-entry system through DTC (or a successor) is no longer in the best interests of those bondholders. Upon issuance of definitive bonds, the bonds evidenced by such definitive bonds will be transferable directly (and not exclusively on a book-entry basis) and registered holders will deal directly with the trustee with respect to transfers, notices and payments.

Upon surrender by DTC of the definitive securities representing the bonds and instructions for registration, the issuing entity will sign and the trustee will authenticate and deliver the bonds in the form of definitive bonds, and thereafter the trustee will recognize the registered holders of the definitive bonds as bondholders under the indenture.

The trustee will make payment of principal of and interest on the bonds directly to bondholders in accordance with the procedures set forth herein and in the indenture. The trustee will make interest payments and principal payments to bondholders in whose names the definitive bonds were registered at the close of business on the related record date. The trustee will make payments by wire transfer to the bondholder as described in the indenture or in such other manner as may be provided in the series supplement. The trustee will make the final payment on any bond (whether definitive bonds or notes registered in the name of Cede & Co.), however, only upon presentation and surrender of the bond on the final payment date at the office or agency that is specified in the notice of final payment to bondholders. The trustee will provide the notice to registered bondholders not later than the fifth day prior to the final payment date.

Definitive bonds will be transferable and exchangeable at the offices of the transfer agent and registrar, which initially will be the trustee. There will be no service charge for any registration of transfer or exchange, but the transfer agent and registrar may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection therewith.

Access of Bondholders

Upon written request of any bondholder or group of bondholders of bonds evidencing not less than 10 percent of the aggregate outstanding principal amount of the bonds, the trustee will afford the bondholder or bondholders making such request a copy of a current list of bondholders for purposes of communicating with other bondholders with respect to their rights under the indenture.

The indenture does not provide for any annual or other meetings of bondholders.

 

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Reports to Bondholders

On or prior to each payment date, special payment date or any other date specified in the indenture for payments with respect to any tranche of bonds, the servicer will deliver to the trustee, and the trustee will make available on its website (currently located at https:// https://gctinvestorreporting.bnymellon.com), a statement prepared by the servicer with respect to the payment to be made on the payment date, special payment date or other date, as the case may be, setting forth the following information:

 

•

the amount of the payment to bondholders allocable to (1) principal and (2) interest,

 

•

the aggregate outstanding principal balance of the bonds, before and after giving effect to payments allocated to principal reported immediately above,

 

•

the difference, if any, between the amount specified immediately above and the principal amount scheduled to be outstanding on that date according to the related expected sinking fund schedule,

 

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any other transfers and payments to be made on such payment date, including amounts paid to the trustee and the servicer, and

 

•

the amounts on deposit in the capital subaccount and the excess funds subaccount, after giving effect to the foregoing payments.

Unless and until bonds are no longer issued in book-entry form, the reports will be provided to the depository for the bonds, or its nominee, as sole beneficial owner of the bonds. The reports will be available to bondholders upon written request to the trustee or the servicer. Such reports will not constitute financial statements prepared in accordance with generally accepted accounting principles. The financial information provided to bondholders will not be examined and reported upon by an independent public accountant. In addition, an independent public accountant will not provide an opinion on the financial information.

Within the prescribed period of time for tax reporting purposes after the end of each calendar year during the term of the bonds, the trustee, so long as it is acting as paying agent and transfer agent and registrar for the bonds, will, upon written request by us or any recovery bondholder, mail to persons who at any time during the calendar year were bondholders and received any payment on the bonds, a statement containing certain information for the purposes of the bondholder’s preparation of United States federal and state income tax returns.

Website Disclosure

We will, to the extent permitted by and consistent with our legal obligations under applicable law, cause to be posted on a website associated with SCE, currently located at www.edisoninvestor.com, periodic reports containing to the extent such information is reasonably available to us:

 

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the final prospectus for the bonds,

 

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a statement of fixed recovery charge remittances made to the trustee,

 

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a statement reporting the balances in the collection account and in each subaccount of the collection account as of the end of each quarter or the most recent date available,

 

•

a statement showing the balance of outstanding bonds that reflects the actual periodic payments made on the bonds during the applicable period,

 

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the semi-annual servicer’s certificate delivered for the bonds pursuant to the servicing agreement,

 

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the monthly servicer’s certificate delivered for the bonds pursuant to the servicing agreement,

 

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the reconciliation certificate as required to be submitted pursuant to the servicing agreement;

 

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the text (or a link to the website where a reader can find the text) of each true-up filing in respect of the outstanding bonds and the results of each such true-up filing,

 

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