By: Hancock S.B. No. 1580
A BILL TO BE ENTITLED
AN ACT
relating to electric cooperatives' use of securitization to address
extraordinary costs and expenses created by Winter Storm Uri.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
TITLE II, Chapter 41, Utility Code, is amended by adding new
Subchapter D to read as follows:
SUBCHAPTER D. 2021 WEATHER 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 because of the
abnormal weather events from 12:01 A.M. on February 12 through
11:59 P.M. on February 20, 2021. This type of debt will lower the
cost of financing such 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 such extraordinary costs and expenses, including costs
relating to consummation and administration of the securitized
financing itself. The board of directors of each electric
cooperative involved in such 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 of directors that chooses to
securitize pursuant to this Subchapter shall ensure that the
structuring and pricing of the securitized bonds result in
reasonable securitized bond charges consistent with market
conditions and the terms of the financing order. The amount
securitized may not exceed the present value of the revenue
requirement over the life of the proposed securitized bonds
associated with the extraordinary costs and expenses being
financed. The present value calculation shall use a discount rate
equal to the proposed interest rate on the securitized bonds.
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 transition property is transferred,
other than as security, including any assignee of that party.
(2) "Extraordinary costs and expenses" means (A)costs
and expenses incurred by the electric cooperative for power and
energy purchased during the 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 cooperative for power and energy
purchased during the month of January, 2021, (B)costs and expenses
incurred by the electric cooperative 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 cooperative or on a power supplier to the electric
cooperative and passed on to the electric cooperative by the
applicable regional transmission organization or independent
system operator, resulting from defaults by other market
participants in the regional transmission organization or
independent system operator for costs relating to the period of
emergency.
(3) "Financing order" means an order of the board of
directors approving the issuance of securitized bonds and the
creation of transition charges for the recovery of qualified costs.
(4) "Financing party" means a holder of securitized
bonds, including trustees, collateral agents, and other persons
acting for the benefit of the holder.
(5) "Qualified costs" means 100 percent of an electric
cooperative'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 cooperative's existing debt securities
initially issued to finance the extraordinary costs and expenses.
(6) "Period of emergency" means the period from and
including 12:00 A.M. February 12, 2021 to and including 11:59 P.M.
February 20, 2021.
(7) "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 under a
financing order, that have a term not longer than 30 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.
(8) "Transition charges" means nonbypassable amounts
to be charged for the use or availability of electric services,
approved by the board of directors of the electric cooperative
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.
(9) "Transition property" means the property right
created pursuant to this subchapter D, including without
limitation, the right, title, and interest of the electric
cooperative 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 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 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. 41.153. FINANCING ORDERS; TERMS. (a) The board of
directors shall adopt a financing order to recover the electric
cooperative'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 41.151.
(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
30 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 of
directors or by action of any regulatory or other governmental body
of the State of Texas, except as permitted by Section 41.157. 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
district court where the electric cooperative is domiciled by a
member of the electric cooperative 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 of directors,
other information considered by the board of directors 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 of directors under this subchapter.
(f) The board of directors 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 of directors shall adjust the related
transition 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
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 cooperative 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 cooperative or its successors or assigns. Upon the
issuance of the securitized bonds, the financing order, and
satisfaction of the requirements of provisions of Section 41.159,
the transition charges, including their nonbypassability, shall be
irrevocable, final, non-discretionary 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.
(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. 41.155. 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 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 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 cooperative's
system assets and taking service, whether or not the system assets
continue to be owned by the electric cooperative.
Sec. 41.157. 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. 41.158. TRUE SALE. An agreement by an electric
cooperative 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 cooperative 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. 41.159. 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 41.157 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) (1) 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 cooperative or the board of
directors. 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
cooperative, 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 the electric cooperative is domiciled may order
that amounts arising from transition charges be transferred to a
separate account for the financing parties' benefit.
(2) 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.
(4) 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.
(5) The electric cooperative, any successor or assign
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 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.
(g) 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
cooperative 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 the county where the
electric cooperative is domiciled shall order the sequestration and
payment to them of revenues arising from the transition 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 irrevocably 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 transition property, or, except as
permitted by Section 41.157, 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. 41.161. 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. 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.