UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

____________________

 

FORM 10-Q

 

 

[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER  30, 2013

 

― OR ―

 

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

____________________

 

 

Commission File Number 333-91935

 

 

Oncor Electric Delivery Transition Bond Company LLC

(Exact Name of Registrant as Specified in its Charter)

 

 

____________________

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    ü         No ___

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ___ Accelerated filer ___ Non-Accelerated filer    ü     (Do not check if a smaller reporting company)

Smaller reporting company ___

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ___   No   ü 

 

As of October 31,  2013,  all outstanding membership interests in Oncor Electric Delivery Transition Bond Company LLC were held by Oncor Electric Delivery Company LLC.

 

Oncor Electric Delivery Transition Bond Company LLC meets the conditions set forth in General Instructions (H) (1) (a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format.

 

 

 

---

 

 

 

 

TABLE OF CONTENTS

 

 

Oncor Electric Delivery Transition Bond Company LLC’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are made available to the public, free of charge, on the Oncor Electric Delivery Company LLC website at http://www.oncor.com as soon as reasonably practicable after they have been filed with or furnished to the Securities and Exchange Commission.  The information on Oncor Electric Delivery Company LLC’s website or available by hyperlink from the website shall not be deemed a part of, or incorporated by reference into, this quarterly report on Form 10-Q.

 

---

 

GLOSSARY

 

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.

 

---

 

 

 

 

---

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  FINANCIAL STATEMENTS

 

ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

CONDENSED STATEMENTS OF INCOME

(Unaudited)

 

See Notes to Financial Statements.

 

 

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

See Notes to Financial Statements.

---

 

ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

CONDENSED BALANCE SHEETS

(Unaudited)

 

 

 

See Notes to Financial Statements.

 

---

 

ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1.SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business

 

References in this report to “we,” “our,” “us” and “the company” are to Bondco as apparent in the context.  See “Glossary” for definition of terms and abbreviations.

 

We are a bankruptcy-remote, special-purpose Delaware limited liability company, wholly-owned by Oncor.  We were organized for the limited purposes of purchasing and owning transition property and issuing Transition Bonds to recover generation-related regulatory assets and other qualified costs.  Oncor is a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs, including subsidiaries of TCEH, that sell power in the north-central, eastern and western parts of Texas.  Oncor is a majority-owned (approximately 80%) subsidiary of Oncor Holdings, which is a direct, wholly-owned subsidiary of EFIH, a direct, wholly-owned subsidiary of EFH Corp.

 

Various “ring-fencing” measures have been taken to enhance the separateness between the Oncor Ring-Fenced Entities and the Texas Holdings Group and Oncor’s credit quality.  These measures serve to mitigate Oncor’s and Oncor Holdings’ credit exposure to the Texas Holdings Group and to reduce the risk that the assets and liabilities of Oncor or Oncor Holdings would be substantively consolidated with the assets and liabilities of the Texas Holdings Group in the event of a bankruptcy of one or more of those entities.  Such measures include, among other things: Oncor’s sale of a 19.75% equity interest to Texas Transmission in November 2008; maintenance of separate books and records for the Oncor Ring-Fenced Entities; Oncor’s board of directors being comprised of a majority of independent directors; and prohibitions on the Oncor Ring-Fenced Entities providing credit support to, or receiving credit support from, any member of the Texas Holdings Group.  The assets and liabilities of the Oncor Ring-Fenced Entities are separate and distinct from those of the Texas Holdings Group, including TXU Energy and Luminant, and none of the assets of the Oncor Ring-Fenced Entities are available to satisfy the debt or contractual obligations of any member of the Texas Holdings Group.  Oncor does not bear any liability for debt or contractual obligations of the Texas Holdings Group, and vice versa.  Accordingly, Oncor’s operations are conducted, and its cash flows are managed, independently from the Texas Holdings Group.

 

Basis of Presentation

 

Our condensed financial statements have been prepared in accordance with US GAAP and on the same basis as the audited financial statements included in the 2012 Form 10-K.  All adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position have been included therein.  Certain information and footnote disclosures normally included in our annual consolidated financial statements prepared in accordance with US GAAP have been omitted pursuant to the rules and regulations of the SEC.  Because the condensed interim financial statements do not include all of the information and footnotes required by US GAAP, they should be read in conjunction with the audited financial statements and related notes included in the 2012 Form 10-K.  The results of operations for an interim period may not give a true indication of results for a full year due to seasonality.  All dollar amounts in the financial statements and tables in the notes are stated in US dollars unless otherwise indicated.

 

Use of Estimates

 

The preparation of our financial statements requires management to make estimates and assumptions about future events that affect the reporting and disclosure of assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses, including fair value measurements of debt at the period end and unbilled revenue estimates.  In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.  No material adjustments were made to previous estimates or assumptions during the current year.

 

---

 

Over/(Under) Recovery of Transition Charges

 

We account for the difference between transition charge revenues and the total of interest expense, amortization of the transition property and other fees and expenses as an over- or under-recovery of transition charges.  To the extent revenues exceed expenses, we record an increase to expense with a corresponding increase to a regulatory liability.  To the extent revenues are less than expenses, we record a decrease to expense with a corresponding decrease to the regulatory liability.

 

Annual and Interim True-Up Adjustments

 

Variations in customer usage impact transition charge revenues resulting in temporary over/(under) recovery of transition charges. In such instances where sufficient funds are not collected through transition charges, the over-collateralization and the capital subaccounts are drawn down on the payment date to make scheduled payments on the Transition Bonds.  Oncor files, on behalf of the company, an annual true-up adjustment with the PUCT with respect to each series of Transition Bonds.  The annual true-up adjustments for the 2003 Bonds and the 2004 Bonds are filed in August and May, respectively.  In any true-up filing, Oncor requests the PUCT to increase or decrease the authorized transition charges such that, based on the then current forecast of customer usage, sufficient funds will be collected during the following period to meet the scheduled debt service payments and replenish the over-collateralization and capital subaccounts to their required levels.  We also have the right, under certain circumstances, to file interim true-up adjustment requests semi-annually, if needed, to make scheduled payments. 

 

2.RELATED–PARTY TRANSACTIONS

 

Pursuant to administration and servicing agreements between us and Oncor, Oncor furnishes to us, at a fixed fee per year, billing, payment processing, collection, accounting and other administrative services, which are reflected as administrative and general expenses in the income statement.  Our expenses for servicing and administration activities performed by Oncor totaled approximately $206,000 for each of the three-month periods ended September 30, 2013 and 2012 and approximately $619,000 for each of the nine-month periods ended September 30, 2013 and 2012.

 

Transition charges billed to the REP subsidiaries of TCEH, which are included in operating revenues, totaled $12,893,000 and $13,303,000 for the three months ended September 30, 2013 and 2012, respectively, and $32,888,000  and $33,667,000 for the nine months ended September 30, 2013 and 2012, respectively.  The balance of the transition charge receivable due from the REP subsidiaries of TCEH totaled $8,153,000 and $3,794,000 at September 30, 2013 and December 31, 2012, respectively.    

 

Oncor, as servicer of the Transition Bonds, collects security deposits from REPs for payment of the REPs’ transition charges and remits these amounts to the Indenture Trustee as they are collected.  No amounts were outstanding from Oncor at September 30, 2013 or December 31, 2012.  Oncor reviews the security amount for the REPs quarterly and requests increases when required.  At September 30, 2013 and December 31, 2012, the Indenture Trustee held security in the amount of $9,768,000 and  $10,927,000, respectively, for the REP subsidiaries of TCEH.

 

Also see discussion in Note 4 regarding cash distributions.

 

 

---

 

3.FINANCING ARRANGEMENTS

 

Long-Term Debt

 

At September 30, 2013 and December 31, 2012, our long-term debt consisted of the following:

 

 

The transition property sold to us, as well as restricted cash of $6,449,000 in the capital subaccount at September  30, 2013,  is pledged as collateral for the Transition Bonds.  Collections of transition charges will be used to pay the principal, interest and associated costs of the Transition Bonds.  We are required to maintain restricted cash pledged as collateral for the Transition Bonds in an amount equal to 0.50% of the initial aggregate principal amount of Transition Bonds outstanding.  Should the transition charges collected through the specified payment dates listed above not provide adequate funds to make the scheduled payments of principal, the transition charges can continue to be collected for approximately two years before the Transition Bonds go into default for nonpayment of principal.

 

The fair value of the outstanding Transition Bonds was approximately $372,711,000 and $471,448,000 at September 30, 2013 and December 31, 2012, respectively.  The fair values are estimated based upon market values as determined by quoted market prices, representing Level 1 valuations under accounting standards related to the determination of fair value.

 

Covenants

 

The terms of the Indenture contain various covenants, including payment covenants, covenants to file certain information with the SEC and covenants to deliver certain information to the Indenture Trustee.  At September  30, 2013, we were in compliance with these covenants.

 

4.MEMBER’S INTEREST

 

Subject to certain provisions of the Indenture and favorable interest rates, we receive interest income with respect to the Indenture Trustee reserve account and capital subaccounts.  Cash distributions to Oncor, the amounts of which represent interest income released by the Indenture Trustee, totaled zero in each of the nine-month periods ended September  30, 2013 and 2012.  Distributions, if any, are recorded as a reduction in member’s interest.

 

 

 

---

 

5.RESTRICTED CASH

 

 

 

 

---

 

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations for the nine months ended September  30, 2013 and 2012 should be read in conjunction with our condensed financial statements and the notes to those statements.

 

The information required hereunder is in its reduced format as allowed for under General Instruction (H) (1) of Form 10-Q.  All dollar amounts in the following discussion and analysis are stated in US dollars unless otherwise indicated.

 

BUSINESS

 

We are a bankruptcy-remote, special-purpose Delaware limited liability company, wholly-owned by Oncor.  We were organized for the limited purpose of purchasing and owning transition property and issuing Transition Bonds to recover generation-related regulatory assets and other qualified costs.  Oncor is a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs, including subsidiaries of TCEH, that sell power in the north-central, eastern and western parts of Texas.  Oncor is a majority-owned (approximately 80%) subsidiary of Oncor Holdings, which is a direct, wholly-owned subsidiary of EFIH, a direct, wholly-owned subsidiary of EFH Corp.  See Note 1 to Financial Statements for discussion of certain “ring-fencing” measures taken by EFH Corp. and Oncor to enhance the separateness between the Oncor Ring-Fenced Entities and the Texas Holdings Group and Oncor’s credit quality.

 

RESULTS OF OPERATIONS — Nine Months Ended September  30, 2013 Compared to Nine Months Ended September  30, 2012

 

Our operations are restricted by our organizational documents to billing and collecting transition charges and using those funds to service the Transition Bonds.  Other than investment income on funds held by the Indenture Trustee, all revenues are restricted for servicing the Transition Bonds.  Therefore, the difference between transition charge revenue and the total of interest expense, amortization of the transition property (which is equal to the Transition Bonds’ scheduled principal payments) and other fees and expenses is accounted for as an over- or under-recovery of transition charges resulting in minimal net income.

 

Transition charge revenue necessary to service the Transition Bonds can be impacted by variations in electricity volumes delivered by Oncor resulting in temporary over- or under-recovery of transition charges.  In such instances where sufficient funds are not collected through transition charges, the over-collateralization and the capital subaccounts are drawn down on the payment date to make scheduled payments on the Transition Bonds.  Oncor files, on our behalf, an annual true-up adjustment with the PUCT with respect to each series of Transition Bonds.  The annual true-up adjustments for the 2003 Bonds and the 2004 Bonds are filed in August and May, respectively.  In any true-up filing, Oncor requests the PUCT to increase or decrease the authorized transition charges such that, based on the then current forecast of customer usage, sufficient funds will be collected during the following period to meet the scheduled debt service payments and replenish the over-collateralization and capital subaccounts to their required levels.  See Note 1 to Financial Statements.

 

Transition charge revenue increased 2% for the nine months ended September 30, 2013 reflecting a net increase in the transition charge tariff rates reflecting annual true-ups, partially offset by lower electricity volumes delivered by Oncor due to the effects of milder weather in 2013 as compared to 2012.

 

Interest expense decreased 23% for the nine months ended September 30, 2013 and will continue to decrease each period, reflecting lower average debt balances due to scheduled principal payments on the Transition Bonds.

 

Amortization of transition property increased 5% for the nine months ended September 30, 2013 and will continue to increase each period, reflecting increased principal payments on the Transition Bonds.

 

---

 

Fluctuations in the over/(under) recovery of transition charges primarily result from variances in revenues from the revenue forecast used to set the transition charges.  See discussion under “Over/(Under) Recovery of Transition Charges” in Note 1 to Financial Statements.

 

Net income was zero for each of the nine-month periods ended September 30, 2013 and 2012.  Net income includes interest earned on the Indenture Trustee reserve account and capital subaccounts, which we expect to periodically distribute to Oncor as released by the Indenture Trustee.  See Note 4 to Financial Statements.

 

FINANCIAL CONDITION — Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

 

Cash Flows — Cash provided by operating activities increased $3,458,000, or 4%, for the nine months ended September  30, 2013.  The change was driven by a $4,127,000 decrease in cash interest payments as a result of principal payments that have been made on the Transition Bonds and a $2,480,000 increase in transition charge receipts reflecting changes in certain transition charge tariffs, partially offset by lower volumes delivered due to more normal weather in 2013 compared to 2012.  These increases were partially offset by a $3,010,000 increase in accounts receivables mostly due to the timing of payments in December 2012 and a $139,000 decrease in customer deposits received (reported in other current liabilities on the balance sheet).

 

Cash used in financing activities increased 5% for the nine months ended September 30, 2013 and was driven by scheduled principal payments on the Transition Bonds.

 

Cash used in investing activities totaled $6,169,000 and $6,839,000 for the nine months ended September 30, 2013 and 2012, respectively.  The 10% decrease represents changes in the balances of restricted cash accounts. See Note 5 to Financial Statements for information regarding restricted cash.

 

As discussed in Note 1 to Financial Statements, Oncor, as servicer, files for increases or decreases (true-ups) in transition charges with the PUCT to ensure sufficient funds will be collected during the following period to meet scheduled payments on the Transition Bonds and to maintain the capital and over-collateralization subaccounts at the required levels.  The latest filings of the annual true-ups for the Transition Bonds were in August 2013 and May 2013 for the 2003 Bonds and the 2004 Bonds, respectively.  Based on the approved transition charges and current forecast of customer usage, we expect that revenues collected will be sufficient to make the scheduled payments.

 

At September 30, 2013, restricted cash included the balances in the capital subaccount totaling $2,500,000 and $3,949,000 for the 2003 Bonds and the 2004 Bonds, respectively, which are equal to the required levels under the Indenture.  Additionally, at September 30, 2013, the balance in the over-collateralization subaccount for the 2003 Bonds totaled $2,083,000 and for the 2004 Bonds totaled $2,962,000, which are equal to the respective required levels.  Required levels are determined at the respective scheduled payment dates.  Required level amounts reported above are as of the most recent payment dates.  There are no penalties as a result of being above or below the required levels in the capital and over-collateralization subaccounts.  Any future shortfalls in the subaccounts for either series of Transition Bonds would be addressed in future true-up filings.

 

FINANCING ACTIVITIES

 

Our financing activities are limited to issuance of the Transition Bonds.  There is no provision to allow for any other borrowings.

 

Covenants and Cross Default Provisions — The terms of the Indenture contain various covenants, including payment covenants, covenants to file certain information with the SEC and covenants to deliver certain information to the Indenture Trustee.  At September 30, 2013,  we were in compliance with these covenants.

 

Certain financing arrangements contain provisions that may result in an event of default if there were a failure under other financing arrangements to meet payment terms or to observe other covenants that could or do result in an acceleration of payments due.  Such provisions are referred to as “cross default” provisions.  Under the Indenture, each of the 2003 Bonds and 2004 Bonds are cross-defaulted to each other.  The Indenture does not contain any cross default provisions in respect of any indebtedness of Oncor as servicer.

---

 

 

CHANGES IN ACCOUNTING STANDARDS

 

There have been no recently issued accounting standards effective after September 30, 2013 that are expected to materially impact us.

 

FORWARD-LOOKING STATEMENTS

 

This report and other presentations made by us contain “forward-looking statements.”  All statements, other than statements of historical facts, that are included in this report, or made in presentations, in response to questions or otherwise, that address activities, events or developments that we expect or anticipate to occur in the future (often, but not always, through the use of words or phrases such as “intends,” “plans,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “should,” “projection,” “target,” “goal,” “objective” and “outlook”), are forward-looking statements.  Although we believe that in making any such forward-looking statement our expectations are based on reasonable assumptions, any such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the discussion of risk factors under “Item 1A. Risk Factors”  and the discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2012 Form 10-K and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and the following important factors, among others, that could cause our actual results to differ materially from those projected in such forward-looking statements:

 

 

Any forward-looking statement speaks only at the date on which it is made, and, except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time, and it is not possible for us to predict all of them; nor can we assess the impact of each such factor 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.

 

Item 4.  CONTROLS AND PROCEDURES

 

An evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures in effect at the end of the current period included in this report.    Based on the evaluation performed, management, including the principal executive officer and principal financial officer, concluded that the disclosure controls and procedures were effective.  During the most recent fiscal quarter covered by this report, no changes in internal controls over financial reporting have occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

---

 

PART II.  OTHER INFORMATION

 

REQUIRED REPORTS

 

We have included in this quarterly report on Form 10-Q or furnished on Oncor’s website at www.oncor.com, as indicated, the following information in respect of each series of outstanding Transition Bonds, as required by the terms of the Indenture relating to the Transition Bonds.  Exhibits that are filed as a part of this Form 10-Q are listed in Item 6.

 

 

 

---

 

Item 1A.RISK FACTORS

 

We believe that there have been no material changes to the risks disclosed in the 2012 Form 10-K, including under the heading "Risk Factors" in Item 1A of the 2012 Form 10-K, except for information disclosed elsewhere in this Form 10-Q that provides factual updates to risks contained in the 2012 Form 10-K.  The risks disclosed in the 2012 Form 10-K are not the only risks we face.   

 

Item 6.EXHIBITS

 

---

 

SIGNATURE

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

 

 

 

 

 

 

 

Date:  October 31, 2013

---

 

EXHIBIT INDEX

 

 

 

---