By: Flynn H.B. No. 3457
A BILL TO BE ENTITLED
AN ACT
relating to the methods of recovery of stranded environmental
compliance costs by certain non-ERCOT electric utilities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 36, Utilities Code, is amended by adding
Subchapter J to read as follows:
SUBCHAPTER J. RECOVERY OF STRANDED ENVIRONMENTAL COMPLIANCE COSTS
Sec. 36.501. APPLICABILITY. This subchapter applies only
to an electric utility described by Section 39.501.
Sec. 36.502. SECURITIZATION FOR RECOVERY OF STRANDED
ENVIRONMENTAL COMPLIANCE COSTS; PURPOSE. (a) The purpose of this
subchapter is to enable an electric utility to use securitization
financing to recover stranded environmental compliance costs,
because that type of debt will lower the carrying costs associated
with the recovery of these costs, relative to the costs that would
be incurred using conventional financing methods. The proceeds of
the transition bonds may be used only for the purposes of reducing
the amount of stranded environmental compliance costs, as
determined by the commission in accordance with this subchapter,
including the refinancing or retirement of utility debt or equity.
(b) It is the intent of the legislature that:
(1) securitization of stranded environmental
compliance costs will be accomplished using the same procedures,
standards, and protections for securitization authorized under
Subchapter G, Chapter 39, as in effect on September 1, 2015, except
as provided by this subchapter; and
(2) the commission will ensure that securitization of
stranded environmental compliance costs provides greater tangible
and quantifiable benefits to ratepayers than would have been
achieved without the issuance of transition bonds.
Sec. 36.503. RECOVERY OF STRANDED ENVIRONMENTAL COMPLIANCE
COSTS. (a) In this subchapter, "stranded environmental compliance
costs" means costs described in this section that the commission
determines have been incurred in connection with any portion of a
generating unit or facility or any of its associated components or
capital additions that are subsequently retired, idled, or
otherwise not considered to be used and useful as a result of
federal or state environmental laws or regulations. The term is
limited to the following items:
(1) capital expenditures, including both plant in
service and construction work in progress, incurred by the electric
utility to achieve or maintain compliance with the Mercury and Air
Toxics Standards Rule enacted under the authority of sections 111
and 112 of the federal Clean Air Act (42 U.S.C. sections 7411 and
7412) and set out in volume 40 of the Code of Federal Regulations,
parts 60 and 63;
(2) the remaining unrecovered portion of the total
capital investment, including both plant in service and
construction work in progress, in a generating unit or facility
that is retired, idled, or otherwise considered not used and
useful; and
(3) for the portion of the stranded environmental
compliance costs not included in rates, carrying costs at the
utility's cost of debt reported in its most recent earnings
monitoring report, from the time at which the generating unit or
facility, or associated component or capital addition, is retired,
idled, or otherwise not considered to be used and useful, until the
effective date of rates providing for recovery of the stranded
environmental compliance costs.
(b) An electric utility is entitled to recover its
reasonable and necessary stranded environmental compliance costs
incurred before or after September 1, 2015. The stranded
environmental compliance costs are recoverable regardless of
whether those costs relate to property that is no longer used and
useful in providing service. The commission shall adopt rate
setting adjustments as necessary to ensure that the recovery of
stranded environmental compliance costs under the provisions of
this section does not result in over-recovery of such costs to the
extent they are reflected in base rates.
(c) No earlier than the date upon which a state or federal
implementation plan is established that requires a generating unit
or facility owned by the electric utility, or any of its associated
components or capital additions, to be retired, idled, or otherwise
considered not used and useful, the electric utility may file an
application with the commission seeking a determination of the
amount of stranded environmental compliance costs eligible for
recovery and securitization consistent with the requirements and
standards of this section. The commission shall issue an order
determining the amount of stranded environmental compliance costs
eligible for recovery and securitization not later than the 150th
day after the date the electric utility files the application. If
the commission has not made a determination before the 151st day
after that date, the application is considered to be approved. A
rate proceeding under Subchapter C or D is not required to determine
the amount of recoverable stranded environmental compliance costs
under this section, including for a rider mechanism authorized by
Subsection 6(d).
(d) If recovery through securitization under Sections
36.504-36.507 is not available, the electric utility is entitled to
recover all or any portion of its stranded environmental compliance
costs through inclusion in base rates or through a rate rider
mechanism. If the final implementation of rates resulting from the
issuance of an order in a rate proceeding under Subchapter C or D
provides for the recovery of all remaining stranded environmental
compliance costs, a rider mechanism adopted under this subsection
shall expire. Whether recovered through base rates or a rate rider
mechanism, the utility is entitled to recover carrying costs on the
stranded environmental compliance costs, at the utility's cost of
debt reported in its most recent earnings monitoring report, over a
recovery period of not more than 15 years.
Sec. 36.504. STANDARDS AND PROCEDURES GOVERNING
SECURITIZATION OF STRANDED ENVIRONMENTAL COMPLIANCE COSTS. (a) The
procedures and standards of this subchapter and the provisions of
Subchapter G, Chapter 39, govern an electric utility's application
for, and the commission's issuance of, a financing order to provide
for the securitization of stranded environmental compliance costs,
or to otherwise provide for the recovery of stranded environmental
compliance costs. An electric utility may recover stranded
environmental compliance costs through securitization only if the
electric utility's Texas retail jurisdictional amount of stranded
environmental compliance costs to be recovered through
securitization is at least $75 million.
(b) Subject to the standards, procedures, and tests
contained in this subchapter and Subchapter G, Chapter 39, the
commission shall adopt a financing order on the application of the
electric utility to recover its stranded environmental compliance
costs. On the commission's issuance of a financing order allowing
for recovery and securitization of stranded compliance costs, the
provisions of this subchapter and Subchapter G, Chapter 39,
continue to govern the financing order and the rights and interests
established in the order, and this subchapter and Subchapter G,
Chapter 39, continue to govern any transition bonds issued pursuant
to the financing order. To the extent any conflict exists between
the provisions of this subchapter and Subchapter G, Chapter 39, in
cases involving the securitization of stranded environmental
compliance costs, the provisions of this subchapter control.
(c) For purposes of this subchapter, "financing order" as
defined by Section 39.302 and as used in Subchapter G, Chapter 39,
includes a financing order authorizing the securitization of
stranded environmental compliance costs.
(d) For purposes of this subchapter, "qualified costs" as
defined by Section 39.302 and as used in Subchapter G, Chapter 39,
includes 100 percent of the electric utility's stranded
environmental compliance costs, together with the costs of issuing,
supporting, and servicing transition bonds and any costs of
retiring and refunding existing debt and equity securities of an
electric utility in connection with the issuance of transition
bonds. For purposes of this subchapter, the term includes:
(1) costs to the commission of acquiring professional
services for the purpose of evaluating proposed transactions under
this subchapter; and
(2) costs associated with ancillary agreements such as
any bond insurance policy, letter of credit, reserve account,
surety bond, swap arrangement, hedging arrangement, liquidity or
credit support arrangement, or other financial arrangement entered
into in connection with the issuance or payment of transition
bonds.
(e) For purposes of this subchapter, "transition bonds" as
defined by Section 39.302 and as used in Subchapter G, Chapter 39,
includes transition bonds issued in association with the recovery
of stranded environmental compliance costs. Transition bonds
issued to securitize stranded environmental compliance costs may be
called "environmental compliance bonds" or may be called by any
other name acceptable to the issuer and the underwriters of the
transition bonds.
(f) For purposes of this subchapter, "transition charges"
as defined by Section 39.302 and as used in Subchapter G, Chapter
39, includes nonbypassable amounts to be charged for the use of
electric services, approved by the commission under a financing
order to recover stranded environmental compliance costs, that
shall be collected by an electric utility, its successors, an
assignee, or other collection agents as provided by the financing
order. Transition charges approved by the commission under a
financing order to recover stranded environmental compliance costs
may be called "environmental compliance charges" or may be called
by any other name acceptable to the issuer and the underwriters of
the transition bonds.
(g) Notwithstanding Section 39.303(c), stranded
environmental compliance costs shall be functionalized and
allocated to customers in the same manner as the costs of the
stranded or similar facilities are functionalized and allocated in
the electric utility's most recently approved base rates.
(h) The amount of any accumulated deferred federal income
taxes offset, used to determine the securitization total, may not
be considered in future rate proceedings. Any tax obligation of the
electric utility arising from its receipt of securitization bond
proceeds, or from the collection and remittance of transition
charges, shall be recovered by the electric utility through the
commission's implementation of this subchapter.
(i) Notwithstanding a rate freeze or limitations on an
electric utility's ability to change rates authorized or imposed by
any other provision of this title or by a regulatory authority, an
electric utility is entitled to recover stranded environmental
compliance costs consistent with the provisions of this subchapter.
(j) If in the course of a proceeding to adopt a financing
order the commission determines that the recovery of all or any
portion of an electric utility's stranded environmental compliance
costs, using securitization, is not beneficial to ratepayers of the
electric utility under one or more of the tests applied to determine
those benefits, the commission shall nonetheless use the proceeding
to issue an order permitting the electric utility to recover the
remainder of its stranded environmental compliance costs,
consistent with the provisions of Section 36.503.
Sec. 36.505. NONBYPASSABLE CHARGES. The commission shall
include terms in the financing order to ensure that the imposition
and collection of transition charges associated with the recovery
of stranded environmental compliance costs are nonbypassable by
imposing restrictions on bypassability, as the commission
considers appropriate, consistent with the purposes of
securitization.
Sec. 36.506. FINANCING ORDER PROCEEDING. (a) An electric
utility may file an application for a financing order before the
expiration of the 150-day period provided by Section 36.503(c). The
commission shall issue a financing order not later than the 90th day
after the date the utility files its request for a financing order,
except that the commission is not required to issue the financing
order until it has determined the amount of stranded environmental
compliance costs eligible for recovery and securitization.
(b) A rate proceeding under Subchapter C or D is not
required for the issuance of a financing order.
(c) A commission order approving securitization financing
under this subchapter is not subject to rehearing. A commission
order may be reviewed by appeal only to a Travis County district
court by a party to the proceeding filed within 15 days after the
order is signed by the commission. The judgment of the district
court may be reviewed only by direct appeal to the Supreme Court of
Texas filed within 15 days after entry of judgment. All appeals
shall be heard and determined by the district court and the Supreme
Court of Texas as expeditiously as possible with lawful precedence
over other matters. Review on appeal shall be based solely on the
record before the commission and briefs to the court and shall be
limited to whether the order conforms to the constitution and laws
of this state and the United States and is within the authority of
the commission under this chapter.
Sec. 36.507. SEVERABILITY. Effective on the date the first
utility transition bonds associated with stranded environmental
compliance costs are issued under this subchapter, if any provision
in this title or portion of this title is held to be invalid or is
invalidated, superseded, replaced, repealed, or expires for any
reason, that occurrence does not affect the validity or
continuation of this subchapter, or Subchapter G, Chapter 39, as it
applies to this subchapter, or any part of those provisions, or any
other provision of this title that is relevant to the issuance,
administration, payment, retirement, or refunding of transition
bonds or to any actions of the electric utility, its successors, an
assignee, a collection agent, or a financing party, and those
provisions shall remain in full force and effect.
SECTION 2. This Act takes effect September 1, 2015.