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
 
 
  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.
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