87R17077 JXC-F
By: Holland, Darby, Smithee, Bell of Kaufman, H.B. No. 3544
Spiller
Substitute the following for H.B. No. 3544:
By: Paddie C.S.H.B. No. 3544
A BILL TO BE ENTITLED
AN ACT
relating to the use of securitization by electric cooperatives to
address certain weather-related extraordinary costs and expenses.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 41, Utilities Code, is amended by adding
Subchapter D to read as follows:
SUBCHAPTER D. SECURITIZATION
Sec. 41.151. PURPOSE. The purpose of this subchapter is to
enable electric cooperatives to use securitization financing to
recover extraordinary costs and expenses incurred due to the
abnormal weather events that occurred in this state in the period
beginning 12:00 a.m., February 12, 2021, and ending at 11:59 p.m.,
February 20, 2021. This type of debt will reduce the cost of
financing the extraordinary costs and expenses relative to the
costs that would be incurred using conventional electric
cooperative financing methods. The proceeds of the securitized
bonds shall be used solely for the purposes of financing or
refinancing the extraordinary costs and expenses, including costs
relating to consummation and administration of the securitized
financing. The board of each electric cooperative involved in the
financing shall ensure that securitization provides tangible and
quantifiable benefits to its members, greater than would have been
achieved absent the issuance of securitized bonds. Each board that
chooses to securitize under this subchapter shall ensure that the
structuring and pricing of the securitized bonds are consistent
with market conditions and the terms of the financing order. This
subchapter may be used by a group of electric cooperatives to issue
securitized bonds in a combined securitization transaction.
Sec. 41.152. DEFINITIONS. In this subchapter:
(1) "Assignee" means any individual, corporation, or
other legally recognized entity, including a special purpose
entity, to which an interest in securitized property is
transferred, other than as security.
(2) "Board" means the governing body of an electric
cooperative.
(3) "Combined securitization transaction" means the
issuance of securitized bonds under this subchapter in a
transaction involving at least two electric cooperatives acting
together.
(4) "Extraordinary costs and expenses" means:
(A) costs and expenses incurred by an electric
cooperative for electric power and energy purchased during the
period of emergency in excess of what would have been paid for the
same amount of electric power and energy at the average rate
incurred by the electric cooperative for electric power and energy
purchased during the month of January 2021;
(B) costs and expenses incurred by an electric
cooperative to generate and transmit electric power and energy
during the period of emergency, including fuel costs, operation and
maintenance expenses, overtime costs, and all other costs and
expenses that would not have been incurred but for the abnormal
weather events; and
(C) any charges imposed on the electric
cooperative or on a power supplier to the electric cooperative that
were passed on to the electric cooperative by the applicable
regional transmission organization or independent system operator,
resulting from defaults by other market participants of the
regional transmission organization or independent system operator
for costs relating to the period of emergency.
(5) "Financing order" means an order of a board
approving the issuance of securitized bonds, which may be through
participation in a combined securitization transaction, and the
creation of securitized charges for the recovery of qualified
costs.
(6) "Financing party" means a holder of securitized
bonds, including trustees, collateral agents, and other persons
acting for the benefit of the holder.
(7) "Qualified costs" means up to 100 percent of an
electric cooperative's:
(A) extraordinary costs and expenses;
(B) costs of issuing, supporting, repaying,
servicing, and refinancing the securitized bonds, whether incurred
or paid upon issuance of the securitized bonds or over the life of
the securitized bonds or the refunded securitized bonds, whether
incurred directly or allocated in a combined securitization
transaction; and
(C) any costs of retiring and refunding the
electric cooperative's existing debt securities initially issued
to finance the extraordinary costs and expenses including interest
accrued on debt securities over their term, whether incurred
directly or allocated in a combined securitization transaction.
(8) "Period of emergency" means the period beginning
12:00 a.m., February 12, 2021, and ending 11:59 p.m., February 20,
2021.
(9) "Securitized bonds" means bonds, debentures,
notes, certificates of participation or of beneficial interest, or
other evidences of indebtedness or ownership that are issued by an
electric cooperative, its successors, or an assignee of the
electric cooperative or group of electric cooperatives under a
financing order or financing orders, that have a term not longer
than 30 years, and that are secured by or payable, primarily, from
securitized property and the proceeds thereof and, in a combined
securitization transaction, securitized property contributed by
other electric cooperatives. If certificates of participation,
beneficial interest, or ownership are issued, references in this
subchapter to principal, interest, or premium shall refer to
comparable amounts under those certificates.
(10) "Securitized charges" means nonbypassable
amounts to be charged for the use or availability of electric
services, approved by the board under a financing order to recover
qualified costs, that shall be collected by an electric
cooperative, its successors, an assignee, or other collection
agents as provided for in the financing order.
(11) "Securitized property" means the property right
created under this subchapter, including the right, title, and
interest of the electric cooperative or its assignee:
(A) in and to the securitized charges established
under a financing order, including all rights to obtain adjustments
in accordance with Section 41.157 and the financing order;
(B) to be paid the amount that is determined in a
financing order to be the amount that the electric cooperative or
its transferee is lawfully entitled to receive under this
subchapter and the proceeds thereof; and
(C) in and to all revenue, collections, claims,
payments, money, or process of or arising from the securitized
charges that are the subject of a financing order.
Sec. 41.153. FINANCING ORDERS; TERMS. (a) The board shall
adopt a financing order to recover the electric cooperative's
qualified costs consistent with the standards in Section 41.151.
(b) The financing order shall detail the amount of qualified
costs to be recovered and the period over which the nonbypassable
securitized charges shall be recovered, which period may not exceed
30 years.
(c) Securitized charges shall be collected and allocated
among customers in the manner provided by the financing order.
(d) A financing order becomes effective in accordance with
its terms, and the financing order, together with the securitized
charges authorized in the order, after it takes effect, is
irrevocable and not subject to denial, recission, reduction,
impairment, adjustment, or other alteration by further action of
the board or by action of any regulatory or other governmental body
of this state, except as permitted by Section 41.157. A financing
order issued under this subchapter has the same force and effect of
a financing order issued under Chapter 39.
(e) A financing order may be reviewed by appeal by a member
of the electric cooperative to a district court in the county where
the electric cooperative is domiciled, filed not later than the
15th day after the date the financing order is adopted by the board.
The judgment of the district court may be reviewed only by direct
appeal to the Supreme Court of Texas filed not later than the 15th
day after the date of the 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
financing order adopted by the board, other information considered
by the board in adopting the resolutions, and briefs to the court
and shall be limited to whether the financing order conforms to the
constitution and laws of this state and the United States and is
within the authority of the board under this subchapter.
(f) The board or, in a combined securitization transaction,
the boards of all participating electric cooperatives, may adopt a
financing order or financing orders providing for retiring and
refunding securitized bonds on making a finding that the future
securitized charges required to service the new securitized bonds,
including transaction costs, will be less than the future
securitized charges required to service the securitized bonds being
refunded. After the indefeasible repayment in full of all
outstanding securitized bonds and associated financing costs, the
board shall adjust the related securitized charges accordingly.
Sec. 41.154. PROPERTY RIGHTS. (a) The rights and interests
of an electric cooperative or its subsidiary, affiliate, successor,
financing party, or assignee under a financing order, including the
right to impose, collect, receive, and enforce the payment of
securitized charges authorized in the financing order, shall be
only contract rights until the property is first transferred or
pledged to an assignee or financing party, as applicable, in
connection with the issuance of securitized bonds, at which time
the property becomes securitized property.
(b) Securitized property that is specified in the financing
order constitutes a present vested property right for all purposes,
including for purposes of Sections 16 and 17, Article I, Texas
Constitution, Section 10, Article I, United States Constitution,
and the Fifth Amendment to the United States Constitution, and the
laws of this state and the United States, even if the imposition and
collection of securitized charges depend on further acts of the
electric cooperative or others that may not have yet occurred.
(c) Securitized property shall exist regardless of whether
securitized charges have been billed, have accrued, or have been
collected and notwithstanding the fact that the value or amount of
the property is dependent on the future provision of service to
customers by the electric cooperative or its successors or assigns.
(d) On the issuance of the securitized bonds and the
financing order, and when the requirements of Section 41.159 are
met, the securitized charges, including their nonbypassability,
are irrevocable, final, nondiscretionary, and effective without
further action by the electric cooperative or any other person or
governmental authority. The financing order shall remain in effect
and the property shall continue to exist for the same period as the
pledge of the state described in Section 41.160.
(e) All revenue, collections, claims, payments, money, or
proceeds of or arising from or relating to securitized charges
shall constitute proceeds of the securitized property arising from
the financing order.
Sec. 41.155. NO SETOFF. The interest of an assignee or
pledgee in securitized property and in the revenues and collections
arising from that property are not subject to setoff, counterclaim,
surcharge, recoupment, or defense by the electric cooperative or
any other person or in connection with the bankruptcy of the
electric cooperative or any other entity. A financing order shall
remain in effect and unabated notwithstanding the bankruptcy of the
electric cooperative, its successors, or assignees.
Sec. 41.156. NO BYPASS. (a) A financing order shall include
terms ensuring that the imposition and collection of securitized
charges authorized in the order shall be nonbypassable and apply to
all customers connected to the electric cooperative's system assets
and taking service, regardless of whether the system assets
continue to be owned by the electric cooperative.
(b) The electric cooperative, its servicer, any entity
providing electric transmission or distribution services, and any
retail electric provider providing services to a retail customer in
the electric cooperative's certificated service area as it existed
on the date of enactment of this subchapter are entitled to collect
and must remit, consistent with this subchapter and any financing
order adopted under this subchapter, the securitized charges from
the retail customers and from retail customers that switch to new
on-site generation. Such retail customers are required to pay the
securitized charges.
Sec. 41.157. TRUE-UP. (a) A financing order shall be
reviewed and adjusted promptly if after its adoption there are
additional charges, reductions, or refunds of extraordinary costs
and expenses, to:
(1) ensure that there is not an over-collection or an
under-collection of extraordinary costs and expenses; and
(2) ensure that collections on the securitized
property will be sufficient to timely make all periodic and final
payments of principal, interest, fees, and other amounts and to
timely fund all reserve accounts, if any, related to the
securitized bonds.
(b) A financing order shall also include a mechanism
requiring that securitized charges be reviewed by the board and
adjusted at least annually, not later than the 45th day after the
anniversary date of the issuance of the securitized bonds, to:
(1) correct over-collections or under-collections of
the preceding 12 months; and
(2) ensure the expected recovery of amounts sufficient
to timely provide all payments of debt service and other required
amounts and charges in connection with the securitized bonds.
(c) The electric cooperatives that are members of a
generation and transmission cooperative may include in their
financing orders the ability to allocate any true-up amounts over
the retail customers of all electric cooperatives that are members
of the same generation and transmission cooperative.
(d) In a combined securitization transaction, each
generation and transmission cooperative may calculate all
adjustments and determinations relevant to each true-up by each
electric cooperative member of the generation and transmission
cooperative participating in the securitization transaction, with
the adjustments being allocated across the electric cooperatives in
the manner agreed to by all of the participating electric
cooperatives under their financing orders.
(e) A governmental authority may not disapprove of or alter
any adjustments made or proposed to be made under this subchapter
other than to correct computation or other manifest errors.
Sec. 41.158. TRUE SALE. An agreement by an electric
cooperative or assignee to transfer securitized property that
expressly states that the transfer is a sale or other absolute
transfer signifies that the transaction is a true sale and is not a
secured transaction and that title, legal and equitable, has passed
to the entity to which the securitized property is transferred. The
transaction shall be treated as an absolute sale regardless of
whether the purchaser has any recourse against the seller, or any
other term of the parties' agreement, including the seller's
retention of an equity interest in the securitized property, the
fact that the electric cooperative acts as the collector of
securitized charges relating to the securitized property, or the
treatment of the transfer as a financing for tax, financial
reporting, or other purposes.
Sec. 41.159. SECURITY INTERESTS; ASSIGNMENT; COMMINGLING;
DEFAULT. (a) Securitized property does not constitute an account
or general intangible under Section 9.106, Business & Commerce
Code. The transfer, sale, or assignment, or the creation,
granting, perfection, and enforcement of liens and security
interests in securitized property are governed by this section and
not by the Business & Commerce Code. Securitized property shall
constitute property for all purposes, including for contracts
securing securitized bonds, regardless of whether the securitized
property revenues and proceeds have accrued.
(b) A valid and enforceable transfer, sale, or assignment,
or lien and security interest, as applicable, in securitized
property may be created only by a financing order and the execution
and delivery of a transfer, sale, or assignment, or security
agreement, as applicable, with a financing party in connection with
the issuance of securitized bonds. The transfer, sale, assignment,
or lien and security interest, as applicable, shall attach
automatically from the time that value is received for the
securitized bonds and, on perfection through the filing of notice
with the secretary of state in accordance with the rules prescribed
under Subsection (d), shall be a continuously perfected transfer,
sale, and assignment, or lien and security interest, as applicable,
in the securitized property and all proceeds of the property,
whether accrued or not, shall have priority in the order of filing
and take precedence over any subsequent judicial or other lien
creditor. If notice is filed before the 10th day after the date
value is received for the securitized bonds, the transfer, sale, or
assignment, or security interest, as applicable, shall be perfected
retroactive to the date value was received. Otherwise, the
transfer, sale, or assignment, or security interest, as applicable,
shall be perfected as of the date of filing.
(c) Transfer, sale, or assignment of an interest in
securitized property to an assignee shall be perfected against all
third parties, including subsequent judicial or other lien
creditors, when the financing order becomes effective, transfer
documents have been delivered to the assignee, and a notice of that
transfer has been filed in accordance with the rules prescribed
under Subsection (d). However, if notice of the transfer has not
been filed in accordance with this subsection before the 10th day
after the delivery of transfer documentation, the transfer of the
interest is not perfected against third parties until the notice is
filed.
(d) The secretary of state shall implement this section by
establishing and maintaining a separate system of records for the
filing of notices under this section and prescribing the rules for
those filings based on Chapter 9, Business & Commerce Code, adapted
to this subchapter and using the terms defined in this subchapter.
(e) The priority of a lien and security interest perfected
under this section is not impaired by any later modification of the
financing order under Section 41.157 or by the commingling of funds
arising from securitized charges with other funds, and any other
security interest that may apply to those funds shall be terminated
when they are transferred to a segregated account for the assignee
or a financing party. If securitized property has been transferred
to an assignee, any proceeds of that property shall be held in trust
for the assignee.
(f) Securitized bonds shall be secured by a statutory lien
on the securitized property in favor of the owners or beneficial
owners of securitized bonds. The lien shall automatically arise on
issuance of the securitized bonds without the need for any action or
authorization by the electric cooperative or the board. The lien
shall be valid and binding from the time the securitized bonds are
executed and delivered. The securitized property shall be
immediately subject to the lien, and the lien shall immediately
attach to the securitized property and be effective, binding, and
enforceable against the electric cooperative, its creditors, their
successors, assignees, and all others asserting rights therein,
regardless of whether those persons have notice of the lien and
without the need for any physical delivery, recordation, filing, or
further act. The lien is created by this subchapter and not by any
security agreement, but may be enforced by any financing party or
their representatives as if they were secured parties under Chapter
9, Business & Commerce Code. On application by or on behalf of the
financing parties, a district court in the county where the
electric cooperative is domiciled may order that amounts arising
from securitized charges be transferred to a separate account for
the financing parties' benefit.
(g) The statutory lien is a continuously perfected security
interest and has priority over any other lien, created by operation
of law or otherwise, that may subsequently attach to that
securitized property or proceeds thereof unless the owners or
beneficial owners of securitized bonds as specified in the trust
agreement or indenture have agreed in writing otherwise. The
statutory lien is a lien on the securitized charges and all
securitized charge revenues or other proceeds that are deposited in
any deposit account or other account of the servicer or other person
in which securitized charge revenues or other proceeds have been
commingled with other funds.
(h) The statutory lien is not adversely affected or impaired
by, among other things, the commingling of securitized charge
revenues or other proceeds from securitized charges with other
amounts regardless of the person holding those amounts.
(i) The electric cooperative, any successor or assignee of
the electric cooperative, or any other person with any operational
control of any portion of the electric cooperative's system assets,
whether as owner, lessee, franchisee, or otherwise, and any
successor servicer of collections of the securitized charges shall
be bound by the requirements of this subchapter and shall perform
and satisfy all obligations imposed under this subchapter in the
same manner and to the same extent as did its predecessor, including
the obligation to bill, adjust, and enforce the payment of
securitized charges.
(j) If a default or termination occurs under the securitized
bonds, the financing parties or their representatives may foreclose
on or otherwise enforce their lien and security interest in any
securitized property as if they were secured parties under Chapter
9, Business & Commerce Code, and on application by the electric
cooperative or by or on behalf of the financing parties, a district
court in the county where the electric cooperative is domiciled may
order that amounts arising from securitized charges be transferred
to a separate account for the financing parties' benefit, to which
their lien and security interest shall apply. On application by or
on behalf of the financing parties, a district court in the county
where the electric cooperative is domiciled shall order the
sequestration and payment to them of revenues arising from the
securitized charges.
Sec. 41.160. PLEDGE OF STATE. Securitized bonds are not a
debt or obligation of the state and are not a charge on its full
faith and credit or taxing power. The state pledges, however, for
the benefit and protection of assignees, financing parties, and the
electric cooperative, that it will not take or permit, or permit any
agency or other governmental authority or political subdivision of
the state to take or permit, any action that would impair the value
of securitized property, or, except as permitted by Section 41.157,
reduce, alter, or impair the securitized charges to be imposed,
collected, and remitted to financing parties, until the principal,
interest and premium, and any other charges incurred and contracts
to be performed in connection with the related securitized bonds
have been paid and performed in full. Any party issuing securitized
bonds is authorized to include this pledge in any documentation
relating to those bonds.
Sec. 41.161. TAX EXEMPTION. Transactions involving the
transfer and ownership of securitized property and the receipt of
securitized charges are exempt from state and local income, sales,
franchise, gross receipts, and other taxes or similar charges.
Sec. 41.162. NOT PUBLIC UTILITY. An assignee or financing
party may not be considered to be a public utility, electric
cooperative, or person providing electric service solely by virtue
of the transactions described in this subchapter.
Sec. 41.163. SEVERABILITY. Effective on the date the first
securitized bonds 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 any other provision
of this title that is relevant to the issuance, administration,
payment, retirement, or refunding of securitized bonds or to any
actions of the electric cooperative, its successors, an assignee, a
collection agent, or a financing party, which shall remain in full
force and effect.
SECTION 2. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2021.