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AN ACT relating to investor-owned electric utilities. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
SECTION 1. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 3
READ AS FOLLOWS: 4
In addition to the definitions in KRS 278.010, except KRS 278.010(3)(a), which shall 5
apply unless they conflict with or the context otherwise requires, as used in Sections 1 6
to 15 of this Act: 7
(1) "Ancillary agreement" means a bond, insurance policy, letter of credit, reserve 8
account, surety bond, interest rate lock or swap arrangement, hedging 9
arrangement, liquidity or credit support arrangement, or other financial 10
arrangement entered into in connection with securitized bonds; 11
(2) "Assignee" means a legally-recognized entity to which an electric utility assigns, 12
sells, or transfers, other than as security, all or a portion of its interest in or right 13
to securitized property. The term "assignee" includes a corporation, limited 14
liability company, general or limited partnership, public authority, trust, and 15
financing entity to which an assignee assigns, sells or transfers, other than as 16
security, its interest in or right to securitized property; 17
(3) "Bondholder" means a person who holds a securitized bond; 18
(4) "Code" means the Uniform Commercial Code, KRS Chapter 355; 19
(5) "Deferred costs" means costs that have occurred but will be accounted for as part 20
of a regulatory asset; 21
(6) "Financing costs" include the following: 22
(a) Interest and acquisition, defeasance, or redemption premiums payable on 23
securitized bonds; 24
(b) Any payment required under an ancillary agreement and any amount 25
required to fund or replenish a reserve account or other accounts 26
established under the terms of any indenture, ancillary agreement, or other 27 UNOFFICIAL COPY 23 RS BR 446
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financing document pertaining to securitized bonds; 1
(c) Any other cost related to issuing, supporting, repaying, refunding, or 2
servicing securitized bonds, including the following fees and costs without 3
limitation: 4
1. Servicing fees, accounting and auditing fees, trustee fees, consulting 5
fees, structuring adviser fees, financial advisor fees, administrative 6
fees, placement and underwriting fees, independent director and 7
manager fees, rating agency fees, stock exchange listing and 8
compliance fees, security registration fees, and filing fees; 9
2. Capitalized interest and information technology programming costs; 10
and 11
3. Any other costs necessary to otherwise ensure the timely payment of 12
securitized bonds or other amounts or charges payable in connection 13
with the bonds, including costs related to obtaining the financing 14
order; 15
(d) Any taxes and license fees or other fees imposed on the revenues generated 16
from the collection of the securitized surcharge or otherwise resulting from 17
the collection of securitized surcharges, in any such case whether paid, 18
payable, or accrued; 19
(e) Any state or local taxes, franchise taxes, gross receipts, and other taxes or 20
similar charges, including commission assessment fees, whether paid, 21
payable, or accrued; and 22
(f) Any costs associated with performance of the commission's responsibilities 23
under Sections 1 to 15 of this Act in connection with: 24
1. Approving, approving subject to conditions, or rejecting an application 25
for a financing order; and 26
2. Retaining counsel, one or more financial advisors, or other 27 UNOFFICIAL COPY 23 RS BR 446
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consultants as deemed appropriate by the commission and paid 1
pursuant to Sections 1 to 15 of this Act, for the issuance advice letter 2
process; 3
(7) "Financing order" means an order issued by the commission that authorizes the: 4
(a) Issuance of securitization bonds; 5
(b) Imposition, collection, and periodic adjustment of a securitized surcharge; 6
(c) Creation of securitized property; and 7
(d) Sale, assignment, or transfer of securitized property to an assignee; 8
(8) "Financing party" means bondholders and trustees, collateral agents, any party 9
under an ancillary agreement, or any other person acting for the benefit of 10
bondholders; 11
(9) "Financing statement" has the same meaning as in KRS 355.9-102; 12
(10) "Formula-based true-up mechanism" means a reconciliation or true-up process 13
that is used to identify over collection or under collection of the securitized 14
surcharge; 15
(11) "Issuance advice letter" means a letter from the utility to the commission that 16
describes the final terms and conditions for the bond issuance, including but not 17
limited to the actual structure of the bond issue, pricing, and other bond features 18
such as coupon rates, redemption, and call provisions, and current market 19
conditions affecting the bond issuance; 20
(12) "Nonbypassable" means the payment of a securitized utility charge may not be 21
avoided by any existing or future retail customer including special contract 22
customers; 23
(13) "Pledgee" means a financing party to which an electric utility or its successors or 24
assignees mortgages, negotiates, pledges, or creates a security interest or lien on 25
all or any portion of its interest in or right to securitized property; 26
(14) "Regulatory asset" means, under the standardized financial accounting standards 27 UNOFFICIAL COPY 23 RS BR 446
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adopted by the commission, expenses that have been authorized by the 1
commission to be capitalized for consideration of recovery in future rates that 2
would otherwise be treated as an expense in a current accounting period; 3
(15) "Retired generation costs" means: 4
(a) Pretax costs with respect to retired or abandoned facilities that are included 5
as deferred costs subject to an application for a financing order and include 6
but are not limited to: 7
1. The undepreciated investment in the retired or abandoned electric 8
generating facility and in any facilities ancillary thereto or used in 9
conjunction therewith; 10
2. Costs of decommissioning and restoring the site of the electric 11
generating facility; 12
3. Other applicable capital and operating costs; and 13
4. Accrued carrying charges and deferred costs; 14
(b) Reduced by: 15
1. Insurance, scrap, and salvage proceeds; 16
2. Applicable unamortized regulatory liabilities for excess deferred 17
income taxes; and 18
3. The present value of return on all accumulated deferred income taxes 19
related to pretax costs with respect to a retired or abandoned facility 20
and related facilities, including those due to bonus and accelerated tax 21
depreciation and abandonment losses; and 22
(c) Added to pretax costs the electric utility has previously incurred related to 23
the retirement or abandonment of an electric generating facility and related 24
facilities offering before the effective date of this Act including costs 25
associated with: 26
1. The decommissioning and restoration of the site; and 27 UNOFFICIAL COPY 23 RS BR 446
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2. Environmental compliance related to the operation and retirement of 1
the electric generating facility; 2
(16) "Securitization" means a structured process where interests in debt instruments 3
or other receivable income are packaged, underwritten, and sold as asset-backed 4
marketable securities such as bonds; 5
(17) "Securitized bonds" means bonds, debentures, notes, certificates of participation, 6
certificates of beneficial interest, certificates of ownership, or other evidences of 7
indebtedness or ownership that have a maturity date as determined reasonable by 8
the commission, but not later than thirty (30) years from the issue date, that are 9
issued by an electric utility or assignee pursuant to a financing order, the 10
proceeds of which are used directly or indirectly to recover, finance, or refinance 11
capitalized cost assets and financing costs that are secured by or payable from 12
securitized utility property; 13
(18) "Securitized costs" include retired generation costs, as well as the unamortized 14
book value of extraordinary storm costs or other deferred costs associated with 15
prior incurrences, but does not include ongoing utility investments or operating 16
costs; 17
(19) "Securitized property" means: 18
(a) All rights and interests of a utility, its successor, or assignee under a 19
financing order, including the right to impose, bill, charge, collect, and 20
receive securitized surcharges authorized under the financing order and to 21
obtain periodic adjustments to those charges authorized under Sections 1 to 22
15 of this Act and as provided in the financing order; and 23
(b) All revenues, collections, claims, rights to payments, payments, moneys, or 24
proceeds arising from the rights and interests specified in the financing 25
order, regardless of whether those revenues, collections, claims, rights to 26
payment, payments, moneys, or proceeds are imposed, billed, received, 27 UNOFFICIAL COPY 23 RS BR 446
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collected, or maintained together with or commingled with other revenues, 1
collections, rights to payment, payments, moneys, or proceeds; 2
(20) "Securitized surcharge" means the amounts authorized by the commission to 3
repay, finance, or refinance securitized costs and financing costs that are, except 4
as otherwise provided for in Section 1 to 15 of this Act: 5
1. Nonbypassable and imposed on, and are a part of, all retail customer 6
bills; 7
2. Collected, in full and separate from the utility's tariffed rates, special 8
contract rates or other mechanisms by an electric utility or by its 9
successors, assignees, or collection agents; and 10
3. Paid by all existing or future retail customers receiving electrical 11
service from the electric utility or its successors or assignees under 12
commission-approved rate schedules even if a retail customer elects to 13
purchase electricity from an alternative electricity supplier following a 14
fundamental change in regulation of public utilities in the 15
Commonwealth; and 16
(21) "Utility" has the same meaning as in KRS 278.010(3)(a) but shall not include 17
any utility organized under KRS Chapter 279. 18
SECTION 2. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 19
READ AS FOLLOWS: 20
(1) An electric utility may apply to the commission for a financing order to finance 21
extraordinary or other deferred costs from previous events for regulatory assets 22
existing and with a value calculated on June 30, 2023, as: 23
(a) Greater than two hundred million dollars ($200,000,00) for a single 24
regulatory asset; or 25
(b) Having a cumulative total value of greater than two hundred and seventy-26
five million ($275,000,000) for multiple regulatory assets. 27 UNOFFICIAL COPY 23 RS BR 446
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(2) An application for a financing order shall include: 1
(a) A description of the deferred costs the utility is seeking to securitize. If more 2
than fifty percent (50%) of the deferred costs are retired generation costs, 3
the application also shall describe: 4
1. The electric generating facility or facilities that have been retired or 5
abandoned prior to the date that all undepreciated investment relating 6
thereto has been recovered through rates; 7
2. The reasons for undertaking the early retirement or abandonment of 8
the facility or facilities; and 9
3. A copy of all previous commission orders related to the deferral of 10
costs applicable to the retirement or abandonment of the facility or 11
facilities; 12
(b) The dollar amount of the deferred costs; 13
(c) A statement of whether the electric utility proposes to finance all or a 14
portion of deferred costs using securitized bonds. If the electric utility 15
proposes to finance a portion of the costs, the electric utility shall identify 16
the specific portion of the deferred costs in the application. By electing not 17
to finance all or any portion of deferred costs using securitized bonds, an 18
electric utility shall not be deemed to waive its right to reflect those costs in 19
its retail rates pursuant to a separate proceeding with the commission. 20
However, at no point shall the electric utility apply to securitize less than the 21
amounts prescribed in subsection (1) of this section; 22
(d) An estimate of the financing costs related to the securitized bonds; 23
(e) An estimate of the securitized surcharges necessary to recover the 24
securitized costs and financing costs and the period for recovery of the 25
costs; 26
(f) A comparison between the net present value of the costs to ratepayers that 27 UNOFFICIAL COPY 23 RS BR 446
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are estimated to result from the issuance of securitized bonds and the cost 1
that would result from an alternative means of providing for the full 2
recovery of and return on those securitized costs from customers, using the 3
utility's current or expected weighted average cost of capital. The 4
comparison should demonstrate that the issuance of securitized bonds and 5
the imposition of securitized surcharges are expected to provide quantifiable 6
net present value benefits to customers; 7
(g) A proposed future ratemaking process to reconcile any differences between 8
securitized costs financed by securitized bonds and the final securitized 9
costs incurred by the electric utility, successor, or assignee, provided that 10
any reconciliation shall not affect the amount of securitized bonds or the 11
associated securitized surcharges paid by customers; and 12
(h) Testimony supporting the application. 13
SECTION 3. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 14
READ AS FOLLOWS: 15
(1) Proceedings on an application submitted pursuant to Section 2 of this Act shall 16
begin with the filing of an application by an electric utility and shall be disposed 17
of in accordance with the requirements of this section and the rules and 18
administrative regulations promulgated by the commission, except as follows: 19
(a) The commission shall establish a procedural schedule that requires that not 20
later than one hundred eighty (180) days after the application is filed: 21
1. A decision approving the application, approving the application 22
subject to conditions, or denying the application is issued; and 23
2. A financing order is issued if the application is approved and the 24
conditions are met, if conditions are imposed; and 25
(b) The commission shall approve the application for a financing order with or 26
without conditions if the commission finds: 27 UNOFFICIAL COPY 23 RS BR 446
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1. The application is in the public interest; and 1
2. The resulting rates are fair, just, and reasonable. 2
(2) Judicial review of a financing order shall only be done in accordance with KRS 3
278.410. 4
(3) In performing the responsibilities under Sections 1 to 15 of this Act, the 5
commission may retain counsel, one (1) or more financial advisors, or other 6
consultants as the commission deems appropriate. Outside counsel, advisors, or 7
other consultants engaged by the commission shall have no interest in the 8
proposed securitized bonds and shall not direct the placement of securitized 9
bonds. The costs associated with retaining counsel or advisors shall: 10
(a) Be paid by the applicant and be included as financing costs in the 11
securitized surcharge; 12
(b) Be assigned solely to the subject transaction; and 13
(c) Not be an obligation of the Commonwealth. 14
(4) The commission may designate one (1) or more representatives from commission 15
staff who may be advised by one (1) or more financial advisors contracted with 16
the commission to provide: 17
(a) Input to and collaborate with the electric utility during the process 18
undertaken to place the securitized bonds to market; and 19
(b) An opinion to the commission on the reasonableness of the pricing, terms, 20
and conditions of the securitized bonds on an expedited basis. 21
(5) The designated commission staff and any financial advisor providing advice to 22
commission staff shall: 23
(a) Have no authority to direct how the electric utility places the bonds to 24
market; and 25
(b) Be permitted to attend meetings convened by the electric utility to address 26
placement of the bonds to market. 27 UNOFFICIAL COPY 23 RS BR 446
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(6) If an electric utility's application for a financing order is denied or withdrawn, or 1
for any reason securitized bonds are not issued, any costs of retaining financial 2
advisors, consultants, and counsel on behalf of the commission shall be: 3
(a) Paid by the applicant; 4
(b) Recorded on the books of the utility using appropriate deferral accounting 5
as a regulatory asset; and 6
(c) Be eligible for full recovery, including carrying costs, subject to commission 7
approval. 8
(7) Prior to the issuance of each series of securitized bonds, the electric utility shall 9
provide an issuance advice letter to the commission following the determination 10
of the final terms of the series of securitized bonds no later than three (3) 11
business days after the pricing of the securitized bonds. 12
(8) The issuance advice letter shall: 13
(a) Report the initial securitized surcharges and other information specific to 14
the securitized bonds as required by the commission; 15
(b) Be included in the financing order which may contain additional provisions 16
relating to the issuance advice letter process as the commission deems 17
appropriate and not inconsistent with Sections 1 to 15 of this Act; 18
(c) Indicate the final structure of the securitized bonds; and 19
(d) Provide the best available estimate of total ongoing financing costs. 20
SECTION 4. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 21
READ AS FOLLOWS: 22
(1) A financing order issued by the commission, after a hearing, to an electric utility 23
shall include: 24
(a) The amount of securitized costs to be financed using securitized bonds and 25
a finding that recovery of those costs is fair, just, and reasonable and in the 26
public interest; 27 UNOFFICIAL COPY 23 RS BR 446
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(b) A description and estimate of the amount of financing costs that may be 1
recovered through securitized surcharges and the period over which 2
securitized costs and financing costs may be recovered; 3
(c) A finding that the proposed issuance of securitized bonds and the imposition 4
and collection of a securitized surcharge are fair, just, and reasonable, in 5
the public interest, and expected to provide quantifiable net present value 6
benefits to customers as compared to recovery of the components of 7
securitized costs that would have been incurred absent the issuance of 8
securitized bonds; 9
(d) A finding that the proposed structuring and pricing of the securitized bonds 10
are reasonably expected to result in the lowest securitized surcharges 11
consistent with market conditions at the time the securitized bonds are 12
priced under the terms of the financing order; 13
(e) A requirement that, for so long as the securitized bonds are outstanding and 14
until all financing costs have been paid in full, the imposition and collection 15
of securitized surcharges authorized under a financing order shall be 16
nonbypassable and paid by all existing and future retail customers receiving 17
electric service from the electric utility, its successors, or assignees under 18
commission-approved rate schedules even if a retail customer elects to 19
purchase electricity from an alternative electric supplier following a 20
fundamental change in regulation of public utilities in the Commonwealth; 21
(f) A formula-based true-up mechanism for making: 22
1. At least annually, expeditious periodic adjustments in the securitized 23
surcharges that customers are required to pay pursuant to the 24
financing order; and 25
2. Any adjustments that are necessary to correct for any over collection 26
or under collection of the surcharges and to ensure the timely payment 27 UNOFFICIAL COPY 23 RS BR 446
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of securitized bonds and financing costs and other required amounts 1
and surcharges payable under the securitized bonds; 2
(g) A requirement that the securitized property: 3
1. Is created or shall be created in favor of an electric utility, its 4
successors, or assignees; and 5
2. Shall be used to pay or secure securitized bonds and approved 6
financing costs; 7
(h) A statement regarding the degree of flexibility to be afforded to the electric 8
utility in establishing: 9
1. The terms and conditions of the securitized bonds, including but not 10
limited to repayment schedules, expected interest rates, and other 11
financing costs; 12
2. Subject to the issuance advice letter process, the terms and conditions 13
for the securitized bonds to accommodate changes in market 14
conditions, including repayment schedules, interest rates, financing 15
costs, collateral requirements, required debt service, and other 16
reserves; and 17
3. At its option, the issuance of a series of issuances of securitized bonds 18
and correlated assignments, sales, pledges, or other transfers of 19
securitized property; 20
(i) A requirement as to how securitized surcharges will be allocated among 21
retail customer classes; 22
(j) A requirement that, after the final terms of a proposed issuance of 23
securitized bonds has been established but before the issuance of the 24
securitized bonds, the electric utility shall determine the initial securitized 25
surcharge in the manner required by and consistent with the financing 26
order. The initial securitized surcharge shall be final and effective upon the 27 UNOFFICIAL COPY 23 RS BR 446
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issuance of the securitized bonds, with the surcharge to be reflected on a 1
compliance tariff and filing bearing the surcharge and the calculation 2
thereof; 3
(k) A method of: 4
1. Tracing funds collected as securitized surcharges or other proceeds of 5
securitized property; and 6
2. Determining that the method shall be used for tracing the funds and 7
the identifiable cash proceeds of any securitized property subject to a 8
financing order under applicable law; 9
(l) A statement specifying the details of a future ratemaking process used to 10
reconcile any differences between the actual securitized costs financed by 11
the electric utility, its successor, or assignee provided that any reconciliation 12
shall not affect the amount of securitized bonds or the associated securitized 13
surcharges paid by customers; 14
(m) A procedure that shall allow the electric utility to earn a return at its 15
weighted average cost of capital authorized by the commission in the 16
electric utility's rate proceedings, and subject to changes in interest rates, 17
any moneys advanced by the electric utility to fund reserves, if any, or 18
capital accounts established under the terms of any indenture, ancillary 19
agreement, or other financing documents pertaining to the securitized 20
bonds; 21
(n) An outside date, which shall not be earlier than one (1) year after the date 22
the financing order is no longer subject to appeal, when the authority to 23
issue securitized bonds granted in the financing order expires; and 24
(o) A statement that accumulated deferred income taxes and regulatory 25
liabilities for excess deferred income taxes used in calculating retired 26
generation costs shall be excluded from the rate base in future general rate 27 UNOFFICIAL COPY 23 RS BR 446
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cases and that no amortization of those excess deferred income taxes shall 1
be reflected in future general rate cases. 2
(2) Notwithstanding any provision of Sections 1 to 15 of this Act to the contrary, in 3
considering whether to find the proposed issuance of securitized bonds and the 4
imposition and collection of a securitized charge to be fair, just, and reasonable 5
and in the public interest, the commission may consider previous instances where 6
the commission has issued a financing order to the applicant and the applicant 7
has previously issued securitized bonds. 8
(3) A financing order issued to an electric utility may provide that the creation of the 9
electric utility's securitized property is conditioned upon, and simultaneous with, 10
the: 11
(a) Sale or other transfer of the securitized property to an assignee; and 12
(b) Pledge of the securitized property to secure securitized bonds. 13
SECTION 5. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 14
READ AS FOLLOWS: 15
(1) Upon the commission issuing a financing order and after the securitized bonds 16
have been issued, the electric utility shall file with the commission a: 17
(a) Tariff containing the mechanism for the assessment of a monthly surcharge 18
to existing rates for the collection of the securitized costs: and 19
(b) Formula-based true-up mechanism. 20
(2) The commission, in a financing order and subject to the issuance advice letter 21
process, shall specify the degree of flexibility to be afforded the electric utility in 22
establishing: 23
(a) The terms and conditions for the securitized bonds to accommodate changes 24
in market conditions, including repayment schedules, interest rates, 25
financing costs, collateral requirements, required debt service, and other 26
reserves; and 27 UNOFFICIAL COPY 23 RS BR 446
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(b) At its option, a series of issuances of securitized bonds and correlated 1
assignments, sales, pledges, or other transfers of securitized property. 2
(3) The electric utility shall file a monthly surcharge, based on estimates of 3
consumption for each rate class and other mathematical factors, to collect the 4
appropriate amount of securitized costs. The review by the commission of the 5
monthly surcharge assessed pursuant to this section shall be limited to: 6
(a) Determining whether there are any mathematical or clerical errors in the 7
application of the formula-based true-up mechanism relating to the 8
appropriate amount of any over collection or under collection of a 9
securitized surcharge; and 10
(b) The amount of an adjustment. 11
(4) The adjustments shall ensure solely for the recovery of: 12
(a) Revenues sufficient to provide for the payment of principal, interest, 13
acquisition, defeasance, financing costs, or redemption premium; and 14
(b) Other fees, costs, and charges with respect to securitized bonds approved 15
under the financing order. 16
(5) Withing ten (10) days after receiving an electric utility's filing of the billing 17
adjustment pursuant to this section, the commission shall either: 18
(a) Affix an official stamp on the filing indicating the commission's review is 19
complete; or 20
(b) Inform the electric utility of any mathematical or clerical errors in the 21
electric utility's calculation. 22
(6) If the commission informs the electric utility of mathematical or clerical errors in 23
its calculation, the electric utility shall correct its error and refile its monthly 24
surcharge. 25
(7) The time frames in subsection (5) of this section shall also apply to a refiled 26
request. 27 UNOFFICIAL COPY 23 RS BR 446
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(8) At the time of any transfer of securitized property to an assignee or the issuance 1
of securitized bonds authorized thereby, whichever is earlier, a financing order 2
shall be irrevocable and, except for changes made pursuant to the formula-based 3
true-up mechanism authorized in this section, the commission shall not: 4
(a) Amend, modify, or terminate the financing order by any subsequent action; 5
or 6
(b) Reduce, impair, postpone, terminate, or otherwise adjust securitized 7
surcharges approved in the financing order. 8
(9) After issuance of a financing order, the electric utility retains sole discretion 9
regarding whether to: 10
(a) Assign, sell, or otherwise transfer securitized property; or 11
(b) Cause securitized bonds to be issued, including the right to defer or 12
postpone the assignment, sale, transfer, or issuance of securitized bonds. 13
(10) Any changes made under this section to terms and conditions for the securitized 14
bonds shall be in conformance with the financing order. 15
SECTION 6. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 16
READ AS FOLLOWS: 17
(1) Subsequent to the issuance advice letter, and unless an earlier date is specified in 18
the financing order, the electric utility may proceed with the issuance of the 19
securitized bonds unless, prior to noon on the fourth business day after the 20
pricing of the securitized bonds, the commission issues a disapproval order: 21
(a) Directing that the securitized bonds, as proposed, not be issued; and 22
(b) Stating the basis for the disapproval. 23
(2) At the request of an electric utility, the commission may open a proceeding and 24
issue a subsequent financing order that provides for refinancing, retiring, or 25
refunding securitized bonds issued pursuant to the original financing order if the 26
commission finds that the subsequent financing order satisfies all the criteria 27 UNOFFICIAL COPY 23 RS BR 446
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specified in Sections 1 to 15 of this Act. Effective upon retirement of the refunded 1
securitized bonds and the issuance of new securitized bonds, the electric utility 2
shall adjust and the commission shall approve the related securitized surcharges 3
accordingly. 4
(3) A financing order remains in effect and securitized property under the financing 5
order continues to exist until: 6
(a) Securitized bonds issued pursuant to the financing order have been paid in 7
full or defeased; and 8
(b) In each case, all commission-approved financing costs of the securitized 9
bonds have been recovered in full. 10
(4) A financing order issued to an electric utility remains in effect and unabated 11
notwithstanding the reorganization, bankruptcy, or other insolvency proceedings, 12
merger, or sale of the electric utility or its successors or assignees. 13
(5) The commission shall not, in exercising its powers and carrying out its duties 14
regarding any matter within its authority: 15
(a) Consider the securitized bonds issued pursuant to a financing order to be 16
the debt of the electric utility other than for federal and state income tax 17
purposes; 18
(b) Consider the securitized surcharges paid under the financing order to be the 19
revenue of the electric utility for any purpose; 20
(c) Consider the securitized costs or financing costs specified in the financing 21
order to be the costs of the electric utility; 22
(d) Consider the presence of securitized assets as impacting the relative risk of 23
the utility as it relates to determining an appropriate return on equity for 24
ratemaking purposes; or 25
(e) Determine any action taken by an electric utility which is consistent with the 26
financing order to be unjust or unreasonable. 27 UNOFFICIAL COPY 23 RS BR 446
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(6) No electric utility shall be: 1
(a) Required to apply for a financing order; or 2
(b) If not under or applying for a financing order, otherwise be required to 3
utilize any of the provisions under Sections 1 to 15 of this Act. 4
(7) An electric utility's decision not to apply for a financing order shall not be 5
admissible, utilized, or relied on by the commission in any commission 6
proceeding respecting the electric utility's rates or its accounting. The 7
commission shall not directly or indirectly: 8
(a) Order or require an electric utility to use securitized bonds to recover 9
deferred costs for a regulatory asset; 10
(b) Consider the debt reflected by the securitized bonds in establishing the 11
electric utility's capital structure used to determine any regulatory matter, 12
including the electric utility's revenue requirement used to set its rates; and 13
(c) Consider the existence of securitized bonds or the potential use of 14
securitized bond financing proceeds in determining the electric utility's 15
authorized rate of return used to determine the electric utility's revenue 16
requirement used to establish its rates. 17
(8) After the issuance of a financing order, the electric utility retains sole discretion 18
regarding the issuance of the securitized bonds, including the right to defer or 19
postpones the sale, assignment, transfer, or issuance. Nothing shall prevent the 20
electric utility from abandoning the issuance of securitized bonds under the 21
financing order by filing with the commission a statement of abandonment and 22
the reasons therefor. 23
SECTION 7. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 24
READ AS FOLLOWS: 25
(1) If the commission has approved an electric utility's financing order and 26
securitization bonds are issued on the electric utility's behalf, the electric utility 27 UNOFFICIAL COPY 23 RS BR 446
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shall: 1
(a) Explicitly state on the customer's bill the portion of securitized surcharges 2
applicable to the rate class as approved in the financing order issued to the 3
electric utility; and 4
(b) Include the securitized surcharge on each customer's bill as a separate line 5
item and include both the base rate for the customer's electricity and the 6
amount of the surcharge. 7
(2) If the securitized property has been transferred to an assignee, the customer bill 8
shall include a statement that the assignee is the owner of the rights to securitized 9
surcharges, and the electric utility or other entity, if applicable, is acting as a 10
collection agent or servicer for the assignee. 11
(3) Each tariff of the electric utility with a commission-approved financing order 12
shall indicate the applicable securitized surcharge and the ownership of the 13
surcharge. 14
SECTION 8. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 15
READ AS FOLLOWS: 16
(1) All securitized property that is specified in a financing order constitutes an 17
existing, present, intangible property right or interest therein, notwithstanding the 18
fact that the imposition and collection of securitized surcharges depends on the 19
electric utility performing its servicing functions relating to the collection of 20
securitized surcharges and on future electricity consumption. The property right 21
or interest therein exists regardless: 22
(a) Of whether the revenues or proceeds arising from the property have been 23
billed, accrued, or collected; and 24
(b) That the value or amount of the property is dependent on the future 25
provision of service to customers by the electric utility, its successors, or 26
assignees and on the future consumption of electricity by its customers. 27 UNOFFICIAL COPY 23 RS BR 446
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(2) Securitized property specified in a financing order exists until the securitized 1
bonds issued pursuant to the financing order are paid in full and all financing 2
costs and other costs of the securitized bonds have been recovered in full. 3
(3) Any portion of securitized property specified in a financing order issued to an 4
electric utility may be transferred, sold, conveyed, or assigned to a successor or 5
assignee that is wholly-owned, directly or indirectly, by the electric utility and 6
created for the limited purpose of acquiring, owning, or administering securitized 7
property or issuing securitized bonds under the financing order. Any portion of 8
securitized property may be pledged to secure: 9
(a) Securitized bonds issued pursuant to the financing order; 10
(b) Amounts payable to financing parties and to counterparties under any 11
ancillary agreements; and 12
(c) Other financing costs. 13
(4) Any transfer, sale, conveyance, assignment, grant of a security interest in, or 14
pledge of securitized property by an electric utility or an affiliate of the electric 15
utility to an assignee, to the extent previously authorized in a financing order, 16
does not require the prior consent and approval of the commission. 17
(5) If an electric utility defaults on any required remittance of securitized surcharges 18
arising from securitized property specified in a financing order, a court, upon 19
application by an interested party and without limiting any other remedies 20
available to the applying party, shall order the sequestration and payment of the 21
revenues arising from the securitized property to the financing parties, their 22
successors, or assignees. The financing order shall remain in full force and effect 23
notwithstanding any reorganization, bankruptcy, or other insolvency proceedings 24
with respect to the electric utility, its successors, or assignees. 25
(6) The interest of a transferee, purchaser, acquirer, assignee, or pledgee in 26
securitized property specified in a financing order issued to an electric utility, and 27 UNOFFICIAL COPY 23 RS BR 446
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in the revenue and collections arising from that property, shall not be subject to 1
setoff, counterclaim, surcharge, or defense by: 2
(a) The electric utility; or 3
(b) Any other person in connection with the reorganization, bankruptcy, or 4
other insolvency of the electric utility or of any other entity. 5
(7) Any successor to an electric utility, whether pursuant to any reorganization, 6
bankruptcy, or other insolvency proceeding, any merger or acquisition, sale or 7
other business combination, transfer by operation of law as a result of the electric 8
utility restructuring or otherwise, shall perform and satisfy all obligations of, and 9
have the same rights under a financing order as, the electric utility under the 10
financing order in the same manner and to the same extent as the electric utility, 11
including collecting and paying to the person entitled to receive the revenues, 12
collections, payments, or proceeds of the securitized property. Nothing in Sections 13
1 to 15 of this Act shall limit or impair any authority of the commission 14
concerning the transfer or succession of interests of electric utilities. 15
(8) Securitized bonds shall be nonrecourse to the credit or any assets of the electric 16
utility other than the securitized property as specified in the financing order and 17
any rights under any ancillary agreement. 18
SECTION 9. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 19
READ AS FOLLOWS: 20
(1) The creation, perfection, priority, and enforcement of any security interest in 21
securitized property to secure the repayment of the principal and interest and 22
other amounts payable in respect of securitized bonds, amounts payable under 23
any ancillary agreement, and other financing costs are governed by Sections 1 to 24
15 of this Act and not by the provisions of the code, except as otherwise provided 25
in Sections 1 to 15 of this Act. 26
(2) A security interest in securitized property is created, valid, and binding when the 27 UNOFFICIAL COPY 23 RS BR 446
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last of all the following actions has occurred: 1
(a) The financing order is issued; 2
(b) A security agreement is executed and delivered by the debtor granting the 3
security interest; 4
(c) The debtor has rights to the securitized property or the power to transfer 5
rights in the securitized property; or 6
(d) The value is received for the securitized property. 7
(3) A description of securitized property in a security agreement shall be sufficient if 8
the description refers to Section 1 to 15 of this Act and the financing order 9
creating the securitized property. A security interest shall attach as provided in 10
this section without any physical delivery of collateral or other act. 11
(4) Upon the filing of a financing statement with the Office of the Secretary of State 12
as provided in this section, a security interest in securitized property shall be 13
perfected against all parties having claims of any kind in tort, contract, or 14
otherwise against the person granting the security interest, and regardless of 15
whether the parties have notice of the security interest. Without limiting the 16
foregoing, upon the time of filing a security interest in securitized property shall 17
be perfected against all claims of lien creditors, and shall have priority over all 18
competing security interests and other claims other than any security interest 19
previously perfected in accordance with this section. 20
(5) The priority of a security interest in securitized property shall not be affected by 21
the commingling of securitized surcharges with other amounts. Any pledgee or 22
secured party shall have a perfected security interest in the amount of all 23
securitized surcharges that are deposited in any cash or deposit account of the 24
qualifying electric utility where securitized surcharges have been commingled 25
with other funds, and any other security interest that may apply to those funds 26
shall be terminated when the funds are transferred to a segregated account for 27 UNOFFICIAL COPY 23 RS BR 446
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the assignee or a financing party. 1
(6) No application of the formula-based true-up mechanism as provided in Section 1 2
to 15 of this Act shall affect the validity, perfection, or priority of a security 3
interest in or a transfer of securitized property. 4
(7) If a default occurs of the securitized bonds that are secured by a security interest 5
in the securitized property, the financing parties or their representatives may 6
exercise the rights and remedies available to a secured party under the code, 7
including the rights and remedies available under Article 9, Part 6 of the code. 8
The commission also may order amounts arising from securitized charges be 9
transferred to a separate account for the benefit of the financing party, to which 10
their lien and security interest shall apply. On application by or on behalf of the 11
financing parties, the Circuit Court for the county or city in which the electric 12
utility's headquarters is located shall order the sequestration and payment of 13
revenues arising from the securitized charges to the financing parties. 14
SECTION 10. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 15
READ AS FOLLOWS: 16
(1) Any sale, assignment, or other transfer of securitized property shall be an 17
absolute transfer and true sale of, and not a pledge of or secured transaction 18
relating to the seller's right, title, and interest in, to, and under the securitized 19
property if the documents governing the transaction expressly state that the 20
transaction is a sale or other absolute transfer other than for federal and state 21
income tax purposes. 22
(2) For all purposes other than federal and state income tax purposes, the parties' 23
characterization of a transaction as a sale of an interest in securitized property 24
shall be conclusive that the transaction is a true sale and that ownership has 25
passed to the party characterized as the purchaser, regardless of whether the 26
purchaser has possession of any documents evidencing or pertaining to the 27 UNOFFICIAL COPY 23 RS BR 446
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interest. A sale or similar outright transfer of an interest in securitized property 1
may occur only when all the following actions have occurred: 2
(a) The financing order creating the securitized property has become effective; 3
(b) The documents evidencing the transfer of securitized property have been 4
executed by the assignor and delivered to the assignee; and 5
(c) Value is received for the securitized property. 6
The securitized property shall not be subject to any claims of the transferor or the 7
transferor's creditors, other than creditors holding a prior security interest in the 8
securitized property perfected in accordance with this section. 9
(3) The characterization of the sale, assignment, or other transfer as an absolute 10
transfer and true sale and the corresponding characterization of the property 11
interest of the purchaser shall not be affected or impaired by the occurrence of 12
any of the following factors: 13
(a) Commingling of securitized charges with other amounts; 14
(b) The retention by the seller of: 15
1. A partial or residual interest, including an equity interest in the 16
securitized property, whether direct or indirect, or whether 17
subordinate or otherwise; or 18
2. The right to recover costs associated with taxes, franchise fees, or 19
license fees imposed on the collection of securitized charges; 20
(c) Any recourse that the purchaser may have against the seller; 21
(d) Any indemnification rights, obligations, or repurchase rights made or 22
provided by the seller; 23
(e) The obligation of the seller to collect securitized surcharges on behalf of an 24
assignee; 25
(f) The transferor acting as the servicer of the securitized surcharges or the 26
existence of any contract that authorizes or requires the electric utility, to 27 UNOFFICIAL COPY 23 RS BR 446
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the extent that any interest in securitized property is sold or assigned, to 1
contract with the assignee or any financing party that it will: 2
1. Continue to operate its system to provide service to its customers; 3
2. Collect amounts in respect of the securitized surcharges for the benefit 4
and account of the assignee or financing party; and 5
3. Account for and remit required amounts to or for the account of the 6
assignee or financing party; 7
(g) The treatment of the sale, conveyance, assignment, or other transfer for tax, 8
financial reporting, or other purposes; 9
(h) The granting or providing to bondholders a preferred right to the securitized 10
property or credit enhancement by the electric utility or its affiliates with 11
respect to the securitized bonds; or 12
(i) Any application of the formula-based true-up mechanism as provided in 13
Sections 1 to 15 of this Act. 14
(4) Any right that an electric utility has in the securitized property before its pledge, 15
sale, or transfer, or any other right created under Sections 1 to 15 of this Act, 16
created in the financing order and assignable under Section 1 to 15 of this Act, or 17
assignable pursuant to a financing order is property in the form of a contract 18
right or a right to sue. Transfer of an interest of securitized property to an 19
assignee shall be enforceable only upon the later of: 20
(a) The issuance of a financing order; 21
(b) The assignor having rights in the securitized property or the power to 22
transfer rights in the securitized property to an assignee; 23
(c) The execution and delivery by the assignor of transfer documents in 24
connection with the issuance of securitized bonds; and 25
(d) The receipt of value for the securitized property. 26
An enforceable transfer of an interest in securitized property to an assignee is 27 UNOFFICIAL COPY 23 RS BR 446
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perfected against all third parties, including subsequent judicial or other lien 1
creditors, when a notice of that transfer has been given by the filing of a 2
financing statement in accordance with Section 12 of this Act. 3
SECTION 11. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 4
READ AS FOLLOWS: 5
(1) The priority of transfer perfected under Sections 9 to 12 of this Act shall not be 6
impaired by any later modification of the financing order or securitized property 7
or by the commingling of funds arising from securitized property with other 8
funds. Any other security interest that may apply to those funds, other than a 9
security interest perfected under Sections 9 and 10 of this Act and this section is 10
terminated when those funds are transferred to a segregated account for the 11
assignee or a financing party. If securitized property has been transferred to an 12
assignee or financing party, any proceeds of that property shall be held in trust 13
for the assignee or financing party. 14
(2) The priority of the conflicting interest of assignees in the same interest or rights 15
in any securitized property shall be determined as follows: 16
(a) Conflicting perfected interests or rights of assignees rank according to 17
priority in time of perfection. Priority dates from the time of filing covering 18
the transfer shall be made in accordance with Section 12 of this Act; 19
(b) A perfected interest or right of an assignee has priority over a conflicting 20
unperfected interest or right of an assignee; and 21
(c) A perfected interest or right of an assignee has priority over a person who 22
becomes a lien creditor after the perfection of the assignee's interest or 23
right. 24
(3) The description of securitized property being transferred to an assignee in any 25
sale agreement, purchase agreement, or other transfer agreement, granted or 26
pledged to a pledgee in any security agreement, pledge agreement, or other 27 UNOFFICIAL COPY 23 RS BR 446
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security document, or indicated in any financing statement shall be sufficient 1
only if the description or indication: 2
(a) Refers to the financing order that created the securitized property; and 3
(b) States that the agreement or financing statement covers all or part of the 4
property described in the financing order. 5
(4) Section 1 to 15 of this Act shall apply to all purported transfers of, and all 6
purported grants, liens, or security interests in, securitized property, regardless of 7
whether the related sale agreement, purchase agreement, or transfer agreement, 8
security agreement, pledge agreement, or other security document was entered 9
into, or any financing statement was filed. 10
SECTION 12. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 11
READ AS FOLLOWS: 12
(1) The Secretary of State shall maintain any financing statement filed to perfect a 13
sale or other transfer of securitized property and any security interest in 14
securitized property under Sections 1 to 15 of this Act in the same manner that 15
the Secretary of State maintains financing statements filed under the code to 16
perfect a security interest in collateral owned by a transmitting utility. 17
(2) Except as otherwise provided in this section, all financing statements filed 18
pursuant to this section shall be governed by the provisions regarding financing 19
statements and the filing thereof under the code, including Article 9, Part 5 of the 20
code. A security interest in securitized property may be perfected only by the filing 21
of a financing statement in accordance with this section, and no other method of 22
perfection shall be effective. Notwithstanding any provision of the code to the 23
contrary, a financing statement filed pursuant to this section shall be effective 24
until a termination statement is filed under the code, and no continuation 25
statement shall need to be filed to maintain its effectiveness. 26
(3) A financing statement filed pursuant to this section may indicate that the debtor 27 UNOFFICIAL COPY 23 RS BR 446
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is a transmitting utility, and without regard to whether the debtor is an electric 1
utility, an assignee, or otherwise qualifies as a transmitting utility under the code, 2
but the failure to make a transmitting utility's indication shall not impair the 3
duration and effectiveness of the financing statement. 4
SECTION 13. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 5
READ AS FOLLOWS: 6
(1) The laws of the Commonwealth shall govern the validity, enforceability, 7
attachment, perfection, priority, and exercise of remedies with respect to the 8
transfer of an interest or right or the pledge or creation of a security interest in 9
any securitized property. 10
(2) Neither the Commonwealth nor its political subdivisions shall be liable on any 11
securitized bonds. The bonds shall not be a: 12
(a) Debt or a general obligation of the Commonwealth or any of its political 13
subdivisions, agencies, or instrumentalities; or 14
(b) Special obligations or indebtedness of the Commonwealth or any of its 15
political subdivisions, agencies, or instrumentalities. 16
(3) An issue of securitized bonds shall not directly, indirectly, or contingently, 17
obligate the Commonwealth or any agency, po litical subdivision, or 18
instrumentality of the Commonwealth to levy any tax or make any appropriation 19
for payment of the securitized bonds, other than in their capacity as consumers of 20
electricity. All securitized bonds shall contain on their face a statement to the 21
following effect: "Neither the full faith and credit nor the taxing power of the 22
Commonwealth of Kentucky is pledged to the payment of the principal of, or 23
interest on, this bond." 24
SECTION 14. A NEW SECTION OF KRS CHAPTER 65 IS CREATED TO 25
READ AS FOLLOWS: 26
(1) All of the following entities may legally invest any sinking funds, moneys, or 27 UNOFFICIAL COPY 23 RS BR 446
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other funds, in securitized bonds: 1
(a) Subject to applicable statutory restrictions on state or local investment 2
authority, the Commonwealth, units of local government, political 3
subdivisions, public bodies, and public officers, except for: 4
1. Members of the commission; 5
2. The commission's technical advisory and other staff; and 6
3. Employees of the Attorney General's Office of Rate Intervention; 7
(b) Banks and bankers, savings and loan associations, credit unions, trust 8
companies, savings banks and institutions, investment companies, 9
insurance associations, and other persons carrying on a banking or 10
insurance business; 11
(c) Personal representatives, guardians, trustees, and other fiduciaries; and 12
(d) All other persons authorized to invest in bonds or other obligations of a 13
similar nature. 14
(2) The Commonwealth and its agencies, including the commission, pledge and 15
agree with bondholders, the owners of the securitized property, and other 16
financing parties that the Commonwealth and its agencies shall not undertake 17
any of the prohibited actions listed in this subsection. This subsection shall not 18
preclude limitation or alteration, if full compensation is made by law for the full 19
protection of the securitized surcharges collected pursuant to a financing order 20
and of the bondholders, any assignee, or financing party entering into a contract 21
with the electric utility. The Commonwealth and its agencies, including the 22
commission, shall not: 23
(a) Alter the provisions of Sections 1 to 15 of this Act which authorize the 24
commission to create an irrevocable contract right or right to sue by the 25
issuance of a financing order creating securitized property, making the 26
securitized surcharges imposed by a financing order irrevocable, binding, or 27 UNOFFICIAL COPY 23 RS BR 446
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affecting the nonbypassable charges for all existing and future retail 1
customers of the electric utility; 2
(b) Take or permit any action that impairs or would impair the value of 3
securitized property or the security for the securitized bonds or revises the 4
securitized costs for which recover is authorized; 5
(c) In any way impair the rights and remedies of the bondholders, assignees, 6
and other financing parties; and 7
(d) Except for changes made pursuant to the formula-based true-up 8
mechanism authorized under Section 5 of this Act, reduce, alter, or impair 9
securitized surcharges that are to be imposed, billed, charge, collected, and 10
remitted for the benefit of the bondholders, any assignee, and any other 11
financing parties until any and all principal, interest, premium, financing 12
costs, and other fees, expenses, or charges incurred, and any contracts to be 13
performed, in connection with the related securitized bonds have been paid 14
and performed in full. 15
(3) Any person or entity that issues securitized bonds may include the language 16
specified in this subsection in the securitized bonds and related documentation. 17
SECTION 15. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO 18
READ AS FOLLOWS: 19
(1) An assignee or financing party shall not be deemed an electric utility or person 20
providing electric service by virtue of engaging in the transactions described in 21
Sections 1 to 15 of this Act. 22
(2) If there is a conflict between any of the provisions of Sections 1 to 15 of this Act 23
and any other law regarding the attachment, assignment, perfection or the effect 24
of perfection, priority of, assignment, or transfer of, or security interest in 25
securitized property, the provisions of Sections 1 to 15 of this Act shall govern. 26
(3) If any provision of Sections 1 to 15 is held invalid or is invalidated, superseded, 27 UNOFFICIAL COPY 23 RS BR 446
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replaced, repealed, or expires for any reason: 1
(a) The occurrence does not affect the validity of any action allowed under 2
Sections 1 to 15 of this Act which is taken by an electric utility, assignee, 3
financing party, collection agent, or party to an ancillary agreement; and 4
(b) All actions remain in full force and effect with respect to all securitized 5
bonds issued or authorized in a financing order issued under Sections 1 to 6
15 of this Act before the date the provision is held invalid or is invalidated, 7
superseded, replaced, repealed, or expires for any reason. 8