By: Paddie H.B. No. 4492
A BILL TO BE ENTITLED
AN ACT
relating to the restructuring of certain electric utility
providers.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 39, Utilities Code, is amended by adding
Subchapter M to read as follows:
SUBCHAPTER M. SECURITIZATION OF EXTRAORDINARY COSTS
Sec. 39.601. PURPOSE. The purpose of this subchapter is to
reduce the cost that customers would otherwise experience due to
the extraordinary costs that electric utilities incurred and may
incur to secure electric supply and provide service during natural
and man-made disasters, system failures, and other catastrophic
events and to restore electric utility systems after such events by
providing securitization financing enabling electric utilities to
recover these costs. This financing mechanism will provide rate
relief to customers by extending the timeframe over which the
extraordinary costs are recovered from customers and support the
financial strength and stability of electric utility companies. The
commission shall determine that securitization provides tangible
and quantifiable benefits to customers, greater than would have
been achieved absent the issuance of the bonds. The commission
shall determine that the structuring and pricing of the bonds
result in bond charges consistent with the terms of the applicable
financing order and market conditions at the time of the pricing of
the bonds. The proceeds of the bonds shall be used solely for the
purpose of reducing the amount of the regulatory asset determined
by the commission to be reasonable and other purposes provided
herein.
Sec. 39.602. 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 transition property is transferred,
other than as security, including any assignee of that party.
(2) "Board" means the board of directors or other
governing body of an electric utility.
(3) "Extraordinary costs and expenses" means:
(A) costs and expenses incurred by the electric
utility for power and energy purchased during a period of emergency
in excess of what would have been paid for the same amount of power
and energy at the average rate paid by the electric utility for
power and energy purchased during a month outside the period
emergency;
(B) costs and expenses incurred by the electric
utility to generate and transmit 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 extreme weather
conditions); and
(C) any charges imposed on the electric utility
or on a power supplier to the electric utility and passed on to the
electric utility by the applicable regional transmission
organization or independent system operator, resulting from
defaults by other market participants in the power pool for costs
relating to the period of emergency.
(4) "Financing order" means an order of the board
approving the issuance of securitized bonds and the creation of
transition charges for the recovery of qualified costs.
(5) "Financing party" means a holder of securitized
bonds, including trustees, collateral agents, and other persons
acting for the benefit of the holder.
(6) "Qualified costs" means 100 percent of an electric
utility's extraordinary costs and expenses together with the 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, and any costs of retiring and refunding
the electric u existing debt securities initially issued to finance
the extraordinary costs and expenses.
(7) "Period of emergency" means the period from and
including 00:00 February [(START DATE)], 2021 to and including
00:00 February [(END DATE)], 2021.
(8) "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 utility, its successors or an assignee under a financing
order, that have a term not longer than [(YEARS)] years, and that
are secured by or payable, primarily, from transition property and
the proceeds thereof. 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.
(9) "Transition charges" means nonbypassable amounts
to be charged for the use or availability of electric services,
approved by the board of the electric utility under a financing
order to recover qualified costs, that shall be collected by an
electric utility, its successors, an assignee, or other collection
agents as provided for in the financing order.
(10) "Transition property" means the property right
created pursuant to this subchapter D, including without
limitation, the right, title, and interest of the electric utility
or its assignee:
(A) In and to the transition charges established
pursuant to a financing order, including all rights to obtain
adjustments in accordance with Section 39.607 and the financing
order.
(B) To be paid the amount that is determined in a
financing order to be the amount that the electric utility or its
transferee is lawfully entitled to receive pursuant to the
provisions of this subchapter and the proceeds thereof, and in and
to all revenues, collections, claims, payments, moneys, or process
of or arising from the transition charges that are the subject of a
financing order.
Sec. 39.603. FINANCING ORDERS; TERMS. (a) The board shall
adopt a financing order to recover the electric utility's qualified
costs on making a finding that the total amount of revenues to be
collected under the financing order is less than the revenue
requirement that would be recovered over the remaining life of the
transition property using conventional financing methods and that
the financing order is consistent with the standards in Section
39.601.
(b) The financing order shall detail the amount of qualified
costs to be recovered and the period over which the nonbypassable
transition charges shall be recovered, which period may not exceed
[(YEARS)] years.
(c) Transition charges shall be collected and allocated
among customers in such manner as set forth in the financing order.
(d) A financing order shall become effective in accordance
with its terms, and the financing order, together with the
transition charges authorized in the order, shall thereafter be
irrevocable and not subject to rescission, reduction, impairment,
or adjustment or other alteration by further action of the board or
by action of any regulatory or other governmental body of the State
of Texas, except as permitted by Section 39.607. A financing order
issued pursuant to this subchapter shall have the same force and
effect of a financing order under Title 2, Chapter 39.
(e) A financing order may be reviewed by appeal only to a
Travis County district court by a member of the electric filed
within 15 days after 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 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 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 may adopt a financing order providing for
retiring and refunding securitized bonds on making a finding that
the future transition charges required to service the new
securitized bonds, including transaction costs, will be less than
the future transition 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 transition charges accordingly.
Sec. 39.604. PROPERTY RIGHTS. (a) The rights and interests
of an electric utility 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
transition charges authorized in the financing order, shall be only
contract rights until such 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 such property
will become "transition property."
(b) Transition property that is specified in the financing
order shall constitute a present vested property right for all
purposes, including, for the avoidance of doubt, for purposes of
the contracts and takings clauses of the constitutions and laws of
this state and the United States, even if the imposition and
collection of transition charges depends on further acts of the
electric utility or others that may not have yet occurred.
Transition property shall exist whether or not transition 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 utility or its successors or assigns. Upon the issuance of
the securitized bonds, the financing order, and satisfaction of the
requirements of provisions of Section 39.609, the transition
charges, including their nonbypassability, shall be irrevocable,
final, non-discretionary and effective without further action by
the electric utility 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 39.670.
(c) All revenues, collections, claims, payments, moneys, or
proceeds of or arising from or relating to transition charges shall
constitute proceeds of the transition property arising from the
financing order.
Sec. 39.605. NO SETOFF. The interest of an assignee or
pledgee in transition property and in the revenues and collections
arising from that property are not subject to setoff, counterclaim,
surcharge, recoupment or defense by the electric utility or any
other person or in connection with the bankruptcy of the electric
utility or any other entity. A financing order shall remain in
effect and unabated notwithstanding the bankruptcy of the electric
utility, its successors, or assignees.
Sec. 39.606. NO BYPASS. A financing order shall include
terms ensuring that the imposition and collection of transition
charges authorized in the order shall be nonbypassable and shall
apply to all customers connected to the electric utility's system
assets and taking service, whether or not the system assets
continue to be owned by the electric utility.
Sec. 39.607. TRUE-UP. A financing order shall be promptly
reviewed and adjusted, if after its adoption there are additional
charges or refunds of extraordinary costs and expenses so as to
ensure that there is neither an over collection or under collection
of extraordinary costs and expenses and that collections on the
transition 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. A financing order shall also include a mechanism
requiring that transition charges be reviewed by the board and
adjusted at least annually, within 45 days of the anniversary date
of the issuance of the securitized bonds, to correct any over
collections or under collections of the preceding 12 months and to
ensure the expected recovery of amounts sufficient to timely
provide all payments of debt service and other required amounts and
charges in connection with the securitized bonds. No governmental
authority shall have the discretion or authority to disapprove of,
or alter, any adjustments made or proposed to be made hereunder
other than to correct computation or other manifest errors.
Sec. 39.608. TRUE SALE. An agreement by an electric utility
or assignee to transfer transition 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 transition 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 transition property, the fact that the electric
utility acts as the collector of transition charges relating to the
transition property, or the treatment of the transfer as a
financing for tax, accounting, financial reporting, or other
purposes.
Sec. 39.609. SECURITY INTERESTS; ASSIGNMENT; COMMINGLING;
DEFAULT. (a) Transition 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
transition property are governed by this section and not by the
Business & Commerce Code. Transition property shall constitute
property for all purposes, including for contracts securing
securitized bonds, whether or not the transition property revenues
and proceeds have accrued.
(b) A valid and enforceable transfer, sale or assignment, or
lien and security interest, as applicable, in transition 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 transition 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 within 10 days after 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
transition 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); provided, however, that if notice of the
transfer has not been filed in accordance with this subsection
within 10 days 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 39.607 or by the commingling of funds
arising from transition 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 transition 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 transition property in favor of the owners or beneficial
owners of securitized bonds. The lien shall automatically arise
upon issuance of the securitized bonds without the need for any
action or authorization by the electric utility or the board. The
lien shall be valid and binding from the time the securitized bonds
are executed and delivered. The transition property shall be
immediately subject to the lien, and the lien shall immediately
attach to the transition property and be effective, binding, and
enforceable against the electric utility, its creditors, their
successors, assignees, and all others asserting rights therein,
irrespective 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, and upon application by or on behalf of
the financing parties, a district court of Travis County may order
that amounts arising from transition charges be transferred to a
separate account for the financing parties' benefit.
(g) This 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
transition property or proceeds thereof unless the owners or
beneficial owners of securitized bonds as specified in the trust
agreement or indenture has agreed in writing otherwise. This
statutory lien is a lien on the transition charges and all
transition charge revenues or other proceeds that are deposited in
any deposit account or other account of the servicer or other person
in which transition charge revenues or other proceeds have been
commingled with other funds.
(h) The statutory lien shall not adversely be affected or
impaired by, among other things, the commingling of transition
charge revenues or other proceeds from transition charges with
other amounts regardless of the person holding such amounts.
(i) The electric utility, any successor or assign of the
electric utility or any other person with any operational control
of any portion of the electric utility system assets, whether as
owner, lessee, franchisee or otherwise and any successor servicer
of collections of the transition charges shall be bound by the
requirements of this subchapter and shall perform and satisfy all
obligations imposed pursuant hereto in the same manner and to the
same extent as did its predecessor, including the obligation to
bill, adjust and enforce the payment of transition 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
transition property as if they were secured parties under Chapter
9, Business & Commerce Code, and upon application by the electric
utility or by or on behalf of the financing parties, a district
court of Travis County may order that amounts arising from
transition 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 of Travis County shall order
the sequestration and payment to them of revenues arising from the
transition charges.
Sec. 39.610. 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 irrevocably pledges,
however, for the benefit and protection of assignees, financing
parties and the electric utility, 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 transition property, or, except as permitted by
Section 39.607, reduce, alter, or impair the transition 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. 39.611. TAX EXEMPTION. Transactions involving the
transfer and ownership of transition property and the receipt of
transition charges are exempt from state and local income, sales,
franchise, gross receipts, and other taxes or similar charges.
Sec. 39.612. NOT PUBLIC UTILITY. An assignee or financing
party may not be considered to be a public utility, electric utility
or person providing electric service solely by virtue of the
transactions described in this subchapter.
Sec. 39.613. 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 utility, 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 September 1, 2021.