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