87R14218 TYPED     By: Holland H.B. No. 3544       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.  Subchapter D, Chapter 41, Utilities Code, is   amended by adding Sections 41.151-.163 to read as follows:          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 of February [(START DATE)] through [(END   DATE)], 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 each electric cooperative involved in such   financing shall ensure that securitization provides tangible and   quantifiable benefits to ratepayers, greater than would have been   achieved absent the issuance of securitized bonds. Each board   shall ensure that the structuring and pricing of the securitized   bonds result in the lowest 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)  "Board" means the board of directors or other   governing body of an electric cooperative.                (3)  "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 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   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.                (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 cooperative, 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 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.                (10)  "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 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   [(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 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   Travis County district court 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, 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. 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.   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 of Travis County 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 Travis County 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.          SECTION 2.  This Act takes effect September 1, 2021.