Bill Text: TX SB1757 | 2021-2022 | 87th Legislature | Introduced
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Relating to securitizing costs associated with electric markets; granting authority to issue bonds.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2021-04-15 - Committee report printed and distributed [SB1757 Detail]
Download: Texas-2021-SB1757-Introduced.html
Bill Title: Relating to securitizing costs associated with electric markets; granting authority to issue bonds.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2021-04-15 - Committee report printed and distributed [SB1757 Detail]
Download: Texas-2021-SB1757-Introduced.html
By: Hancock | S.B. No. 1757 | |
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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. |