By: Hancock S.B. No. 1757
A BILL TO BE ENTITLED
AN ACT
relating to securitizing costs of electric services or electric
markets.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 31, Utilities Code, is amended by adding
Subchapter C to read as follows:
SUBCHAPTER C. SECURITIZATION CORPORATION
Sec. 31.101. PURPOSE AND DEFINITIONS.
(a) The purpose of this subchapter is to create a
securitization corporation dedicated to financing costs that are
eligible for securitization under Subtitle B of this code.
Entities that are permitted to securitize costs may, subject to any
other requirements applicable to such securitization authority,
request that the Texas Electric Securitization Corporation conduct
the financing on their behalf.
(b) The Texas Electric Securitization Corporation shall be
created pursuant to this subchapter as a special purpose public
corporation and instrumentality of the state for the essential
public purpose of providing a lower cost financing mechanism for
securitization authorized under this subchapter.
(c) Bonds issued consistent with this subchapter will be
solely the obligation of the issuer and the corporation (as
borrower, if applicable) and will not be a debt of or a pledge of the
faith and credit of the state.
(d) Bonds issued consistent with this subchapter shall be
nonrecourse to the credit or any assets of the state or the
commission.
(e) As used in this subchapter:
(1) "corporation" means the Texas Electric
Securitization Corporation.
(2) "issuer" means the corporation or any other Texas
corporation, public trust, public instrumentality, or other entity
that issues bonds approved by a financing order.
Sec. 31.102. CREATION OF THE CORPORATION. (a) The
corporation shall be incorporated as a nonprofit corporation and
instrumentality of the state, and shall perform the essential
governmental function of financing eligible costs in accordance
with this subchapter. The corporation shall perform only those
functions consistent with this subchapter, shall exercise its
powers through a governing board, and shall be subject to the
regulation of the commission. The corporation shall have a legal
existence as a public corporate body and instrumentality of the
state separate and distinct from the state.
(b) Assets of the corporation shall not be considered part
of any state fund. The state shall not budget for or provide any
general fund appropriations to the corporation, and the debts,
claims, obligations, and liabilities of the corporation shall not
be considered to be a debt of the state or a pledge of its credit.
The corporation shall be self-funded. Prior to the imposition of
charges to recover the securitized amounts, the corporation may
accept and expend for its operating expenses such funds as may be
received from any source, including financing agreements with the
state, a commercial bank, or another entity to finance the
corporation's obligations until the corporation receives
sufficient property to cover its operating expenses as financing
costs, and to repay any short-term borrowing under any such
financing agreement.
(c) The corporation shall have the powers, rights, and
privileges provided for a corporation organized under Chapter 22,
Business Organizations Code, subject to the express exceptions and
limitations set forth in this subchapter.
(d) An incorporator selected by the executive director of
the commission shall prepare the articles of incorporation of the
corporation under Chapter 22, Business Organizations Code, which
articles shall be consistent with the provisions of this
subchapter.
(e) State officers, departments, and agencies are
authorized to render services to the corporation within their
respective functions, as may be requested by the commission or the
corporation.
(f) The corporation and any issuer may retain such
professionals, financial advisors, and accountants as it may deem
necessary to fulfill its duties under this subchapter and may
determine their duties and compensation, subject to approval of the
commission.
(g) The governing body of the corporation shall be a board
of directors that shall consist of five members appointed by the
commission. All official action of the governing body shall
require the favorable vote of a majority of the board members
present and voting at any meeting of the board of directors.
Sec. 31.103. POWERS AND DUTIES OF THE CORPORATION. (a) The
corporation shall, in each instance subject to the prior
authorization of the commission, participate in the financial
transactions contemplated by this subchapter. The corporation
shall engage in no other business activities except those
activities provided for in this subchapter and those ancillary and
incidental thereto. Neither the corporation nor any issuer shall
apply any proceeds of bonds or charges to any purpose not specified
in a financing order, or to any purpose in excess of the amount
allowed for such purpose in the order, or to any purpose in
contravention of the order.
(b) The governing board of the corporation shall, pursuant
to the provisions of this subchapter, have the power to employ or
retain such persons as are necessary to perform the duties of the
corporation.
(c) The corporation may:
(1) Acquire, sell, pledge, and transfer property as
necessary to effect the purposes of this subchapter. In connection
therewith, the corporation may agree to such terms and conditions
as it deems necessary and proper, consistent with the terms of a
financing order, (i) to acquire property and to pledge such
property, and any other collateral, (a) to secure payment of bonds
issued by the corporation, together with payment of any other
qualified costs, or (b) to secure repayment of any borrowing from
any other issuer of bonds, or (ii) to sell the property to another
issuer, which may in turn pledge such property, together with any
other collateral, to the repayment of bonds issued by the issuer
together with any other qualified costs;
(2) Issue bonds on terms and conditions consistent
with a financing order;
(3) Borrow funds from an issuer of bonds to acquire
property, and pledge such property to the repayment of any
borrowing from an issuer, together with any related qualified
costs, all on terms and conditions consistent with a financing
order. The corporation may also borrow funds for initial operating
expenses;
(4) Sue or be sued in its corporate name. The
corporation has the authority to intervene as a party before the
commission or any court in this state in any matter involving the
corporation's powers and duties;
(5) Negotiate and become a party to such contracts as
necessary, convenient, or desirable to carry out the purposes of
this subchapter; and
(6) Engage in corporate actions or undertakings that
are permitted for nonprofit corporations in this state and that are
not prohibited by, or contrary to, the provisions of this
subchapter.
(d) The corporation shall maintain separate accounts and
records relating to an entity that is collecting charges for all
charges, revenues, assets, liabilities, and expenses relating to an
entity's related bond issuances.
(e) The governing board of the corporation shall be
prohibited from authorizing any rehabilitation, liquidation, or
dissolution of the corporation, and no such rehabilitation,
liquidation, or dissolution of the corporation shall take effect as
long as any bonds are outstanding unless adequate protection and
provision has been made for the payment of the bonds pursuant to the
documents authorizing the issuance of the bonds. In the event of any
rehabilitation, liquidation, or dissolution, the assets of the
corporation shall be applied first to pay all debts, liabilities,
and obligations of the corporation, including the establishment of
reasonable reserves for any contingent liabilities or obligations,
and all remaining funds of the corporation shall be applied and
distributed as provided by an order of the commission.
(f) Prior to the date that is two years and one day after
which the corporation no longer has any payment obligation with
respect to any bonds, including any obligation to any issuer of any
bonds outstanding, the corporation is prohibited from filing and
shall have no authority to file a voluntary petition under the
Federal Bankruptcy Code, as it may, from time to time, be in effect,
and neither any public official nor any organization, entity, or
other person shall authorize the corporation to be or to become a
debtor under the Federal Bankruptcy Code during such period. The
state covenants that it will not limit or alter the denial of
authority under this subsection or subsection (e), and the
provisions of such subsections are hereby made a part of the
contractual obligation that is subject to the state pledge set
forth in Section 39.310.
(g) The corporation shall prepare an operating budget
annually that shall be submitted for approval to the commission. If
requested by the commission, the corporation shall prepare and
submit an annual report containing, among other appropriate
matters, the annual operating and financial statements of the
corporation.
Sec. 31.104. COMMISSION REGULATION OF THE CORPORATION. The
commission shall regulate the corporation as provided for in this
subchapter. Notwithstanding such regulation, the corporation is
not a public utility.
Sec. 31.105. FINANCING ORDER. (a) This section applies to
the commission's issuance of a financing order under this
subchapter.
(b) Except as otherwise specifically provided in this
subchapter, provisions that apply to a financing order authorized
under Subtitle B apply to the commission's issuance of a financing
order under this subchapter for the same purpose.
(c) The corporation and any issuer shall be a party to the
commission's proceedings addressing the issuance of a financing
order along with the entity requesting securitization.
(d) A financing order issued under this subchapter shall, in
addition to any other applicable requirements under Subtitle B:
(1) Require the sale, assignment, or other transfer of
certain specified property created by the financing order to the
corporation, and following such sale, assignment, or transfer,
charges paid under any financing order shall be created, assessed,
and collected as the property of the corporation, subject to
subsequent sale, assignment, or transfer by the corporation as
authorized under this subchapter.
(2) Authorize either:
(A) the issuance of bonds by the corporation
secured by a pledge of such specified property, and the application
of the proceeds of such bonds (net of issuance costs) to the
acquisition of the property from the entity requesting
securitization; or
(B) the acquisition of specified property from
the entity requesting securitization by the corporation, financed
(i) by a loan by an issuer to the corporation of the proceeds of
bonds (net of issuance costs), or (ii) by the acquisition by an
issuer from the corporation of such property, and in each case, the
pledge of such property to the repayment of such loan or bonds, as
applicable;
(3) Authorize the entity requesting securitization to
serve as collection agent to collect the charges and transfer those
collected charges to the corporation, the issuer, or a financing
party, as appropriate.
(e) After issuance of the financing order, the corporation
shall arrange for the issuance of bonds as specified in the
financing order by it or another issuer selected by the corporation
and approved by the commission.
(f) Bonds issued pursuant to a financing order under this
section are secured only by the related property and any other funds
pledged under the bond documents, and no assets of the state or any
entity requesting securitization under this chapter shall be
subject to claims by such bondholders. Following assignment of the
property, the entity requesting securitization shall not have any
beneficial interest or claim of right in such charges or in any
property.
Sec. 31.106. SEVERABILITY. Effective on the date the first
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 any other provision of this title that is relevant to
the issuance, administration, payment, retirement, or refunding of
authorized securitization bonds or to any actions of an entity
requesting securitization under this subchapter, its successors,
an assignee, a collection agent, the corporation, an issuer, or a
financing party, and those provisions shall remain in full force
and effect.
SECTION 3. Chapter 39, Utilities Code, is amended by adding
Subchapter M to read as follows:
Sec. 39.601. PURPOSE. The purpose of this subchapter is to
enable the independent organization certified under section 39.151
to use securitization financing to fund substantial balances that
would otherwise be uplifted to the wholesale market as a result of
market participants defaulting on amounts owed after an extreme
pricing event. Securitization will allow wholesale market
participants who are owed money to be paid in a more timely manner,
while allowing the balance to be repaid over time at a low carrying
cost. The proceeds of the bonds shall be used solely for the
purposes of financing default balances that would otherwise be
uplifted to the wholesale market. The commission shall ensure that
securitization provides tangible and quantifiable benefits to
wholesale market participants, greater than would have been
achieved absent the issuance of bonds. The commission shall ensure
that the structuring and pricing of the bonds result in the lowest
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 bond
associated with default balances that are sought to be securitized.
The present value calculation shall use a discount rate equal to the
proposed interest rate on the bonds.
Sec. 39.602. DEFINITIONS. In this subchapter:
(1) "Assignee" means any individual, corporation, or
other legally recognized entity to which an interest in default
property is transferred, other than as security, including any
assignee of that party.
(2) "Financing order" means an order of the commission
approving the issuance of bonds and the creation of charges for the
recovery of qualified costs.
(3) "Financing party" means a holder of bonds,
including trustees, collateral agents, and other persons acting for
the benefit of the holder.
(4) "Qualified costs" means a default balance that
would otherwise be uplifted to other wholesale market participants,
together with the costs of issuing, supporting, and servicing bonds
and any costs of retiring and refunding existing debt in connection
with the issuance of the bonds.
(7) "Default charges" means nonbypassable amounts to
be charged on all wholesale market transactions administered by the
independent organization certified under section 39.151, approved
by the commission under a financing order to recover qualified
costs, that shall be collected by the independent organization, its
successors, an assignee, or other collection agents as provided for
in the financing order.
Sec. 39.603. FINANCING ORDERS; TERMS. (a) The commission
may adopt a financing order, on application of the independent
organization, to recover the costs of a substantial default balance
resulting from a significant pricing event on making a finding that
such financing is needed to preserve the integrity of the wholesale
market and the public interest, after considering the interests of
wholesale market participants who are owed balances and the
potential impacts of uplifting those balances to the wholesale
market without a financing vehicle.
(b) The financing order shall detail the amounts to be
recovered and the period over which the nonbypassable default
charges shall be recovered, which period may not exceed 15 years. If
an amount determined under this section is subject to judicial
review at the time of the securitization proceeding, the financing
order shall include an adjustment mechanism requiring the
independent organization to adjust its default charges in a manner
that would refund, over the remaining life of the bonds, any
overpayments resulting from securitization of amounts in excess of
the amount resulting from a final determination after completion of
all appellate reviews. The adjustment mechanism may not affect the
stream of revenue available to service the bonds. An adjustment may
not be made under this subsection until all appellate reviews,
including, if applicable, appellate reviews following a commission
decision on remand of its original orders, have been completed.
(c) Nonbypassable default charges shall be collected and
allocated among wholesale market participants on the same basis
that they would otherwise be uplifted pursuant to the protocols of
the independent organization.
(d) A financing order shall become effective in accordance
with its terms, and the financing order, together with the default
charges authorized in the order, shall thereafter be irrevocable
and not subject to reduction, impairment, or adjustment by further
action of the commission.
(e) The commission shall issue a financing order under
Subsections (a) and (g) not later than 90 days after the independent
organization files its request for the financing order.
(f) A financing order is not subject to rehearing by the
commission. A financing 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 financing 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 financing 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.
(g) At the request of the independent organization, the
commission may adopt a financing order providing for retiring and
refunding the bonds on making a finding that the future default
charges required to service the new bonds, including transaction
costs, will be less than the future default charges required to
service the bonds being refunded. On the retirement of the refunded
bonds, the commission shall adjust the related default charges
accordingly.
Sec. 39.604. PROPERTY RIGHTS. (a) The rights and interests
of the independent organization or its successor under a financing
order, including the right to impose, collect, and receive default
charges authorized in the order, shall be only contract rights
until they are first transferred to an assignee or pledged in
connection with the issuance of bonds, at which time they will
become "default property."
(b) Default property shall constitute a present property
right for purposes of contracts concerning the sale or pledge of
property, even though the imposition and collection of default
charges depends on further acts of the independent organization or
others that have not yet occurred. 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 36.310.
(c) All revenues and collections resulting from default
charges shall constitute proceeds only of the default property
arising from the financing order.
Sec. 39.605. NO SETOFF. The interest of an assignee or
pledgee in default property and in the revenues and collections
arising from that property are not subject to setoff, counterclaim,
surcharge, or defense by the independent organization or any other
person or in connection with the bankruptcy of any wholesale market
participant. A financing order shall remain in effect and unabated
notwithstanding the bankruptcy of the independent organization,
its successors, or assignees.
Sec. 39.606. NO BYPASS. A financing order shall include
terms ensuring that the imposition and collection of default
charges authorized in the order shall be nonbypassable.
Sec. 39.607. TRUE-UP. A financing order shall include a
mechanism requiring that default charges be reviewed and adjusted
at least annually, within 45 days of the anniversary date of the
issuance of the bonds, to correct any overcollections or
undercollections 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 bonds.
Sec. 39.609. SECURITY INTERESTS; ASSIGNMENT; COMMINGLING;
DEFAULT. (a) Default property does not constitute an account or
general intangible under Section 9.106, Business & Commerce Code.
The creation, granting, perfection, and enforcement of liens and
security interests in default property are governed by this section
and not by the Business & Commerce Code.
(b) A valid and enforceable lien and security interest in
default property may be created only by a financing order and the
execution and delivery of a security agreement with a financing
party in connection with the issuance of bonds. The lien and
security interest shall attach automatically from the time that
value is received for the 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 lien and security interest in the default 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 default bonds, the
security interest shall be perfected retroactive to the date value
was received, otherwise, the security interest shall be perfected
as of the date of filing.
(c) Transfer of an interest in default 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 31.607 or by the commingling of funds
arising from default 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 default property has been transferred to an
assignee, any proceeds of that property shall be held in trust for
the assignee.
(f) If a default or termination occurs under the bonds, the
financing parties or their representatives may foreclose on or
otherwise enforce their lien and security interest in any default
property as if they were secured parties under Chapter 9, Business &
Commerce Code, and the commission may order that amounts arising
from default 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
default charges.
Sec. 39.610. PLEDGE OF STATE. Default 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 financing parties and the independent
organization, that it will not take or permit any action that would
impair the value of default property, or reduce, alter, or impair
the default 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 bonds have been paid and performed in
full. Any party issuing under this chapter 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 default property and the receipt of
default 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 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
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 subchapteror any other provision of this title
that is relevant to the issuance, administration, payment,
retirement, or refunding of 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.