81R4196 JJT-F

By: Williams, Whitmire S.B. No. 769

A BILL TO BE ENTITLED

AN ACT

relating to the recovery by an electric utility of certain expenses relating to weather-related events or natural disasters.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 36, Utilities Code, is amended by adding Subchapter I to read as follows:

SUBCHAPTER I. SECURITIZATION OR RECOVERY OF

SYSTEM RESTORATION COSTS AND SELF-INSURANCE RESERVES

Sec. 36.401. PURPOSE AND INTENT. (a) The purpose of this subchapter is to enable an electric utility to:

(1) obtain timely recovery of system restoration costs;

(2) create, fund, eliminate shortages in, or replenish self-insurance reserves at such levels as the commission may authorize; and

(3) use appropriate mechanisms to recover system restoration costs or self-insurance reserves, including through a securitization financing mechanism because that type of financing will lower the carrying costs associated with the recovery of the costs, relative to the costs that would be incurred using conventional financing methods.

(b) The legislature intends that:

(1) the securitization of system restoration costs and self-insurance reserves under this subchapter will be accomplished using the same procedures, standards, and protections for securitization authorized under Subchapter G, Chapter 39, except as provided by this subchapter; and

(2) the commission will ensure that the securitization of system restoration costs and self-insurance reserves under this subchapter provides greater tangible and quantifiable benefits to ratepayers than would be achievable without the issuance of transition bonds.

Sec. 36.402. DEFINITIONS AND APPLICABILITY OF TERMS. (a) In this subchapter:

(1) "Self-insurance reserves" means the self-insurance reserves authorized by Section 36.064 and, for purposes of this subchapter, the term includes the cost of creating, funding, eliminating a shortage in, or replenishing the self-insurance reserves. For purposes of this subchapter, the term applies to:

(A) shortages in self-insurance reserves in existence on the effective date of this subchapter; and

(B) shortages in self-insurance reserves that arise after the effective date of this subchapter.

(2) "System restoration costs" means reasonable and necessary costs, including costs expensed, charged to self-insurance reserves, capitalized, or otherwise financed, that are incurred by an electric utility due to any activities conducted by or on behalf of the electric utility in connection with the restoration of service and infrastructure associated with electric power outages affecting customers of the electric utility as the result of any tropical storm or hurricane, ice or snow storm, flood, or other weather-related event or natural disaster that occurred during or after the calendar year 2008. The term includes:

(A) all costs related to mobilization, staging, construction, reconstruction, replacement, or repair of electric generation, transmission, distribution, or general plant facilities, including all internal or external labor costs;

(B) reasonable estimates of the costs of an activity or activities conducted or expected to be conducted by or on behalf of the electric utility in connection with the restoration of service or infrastructure associated with electric power outages, except that such estimates are subject to true-up and reconciliation after the actual costs are known; and

(C) carrying costs, at the electric utility's last commission-authorized weighted average cost of capital, from the date on which the system restoration costs were incurred until the date that transition bonds are issued under this subchapter.

(b) For purposes of this subchapter, "financing order," as defined by Section 39.302 and as used in this subchapter and Subchapter G, Chapter 39, includes a financing order issued under this subchapter authorizing the securitization of system restoration costs or self-insurance reserves, or both.

(c) For purposes of this subchapter, "qualified costs," as defined by Section 39.302 and as used in this subchapter and Subchapter G, Chapter 39, includes:

(1) all of the electric utility's system restoration costs and self-insurance reserves, net of any insurance proceeds or governmental grants received by the utility at the time it files an application for a financing order together with the costs of issuing, supporting, and servicing transition bonds and any costs of retiring and refunding existing debt and equity securities of an electric utility in connection with the issuance of transition bonds under this subchapter;

(2) the costs to the commission of acquiring professional services for the purpose of evaluating proposed transactions under this subchapter; and

(3) costs associated with ancillary agreements such as any bond insurance policy, letter of credit, reserve account, surety bond, swap arrangement, hedging arrangement, liquidity or credit support arrangement, or other financial arrangement entered into in connection with the issuance or payment of transition bonds.

(d) For purposes of this subchapter, "transition bonds," as defined by Section 39.302 and as used in this subchapter and Subchapter G, Chapter 39, includes transition bonds issued in association with the recovery of system restoration costs or self-insurance reserves, or both. Transition bonds issued to securitize system restoration costs or self-insurance reserves may be referred to as "system restoration bonds" or by any other term acceptable to the issuer and underwriters of the transition bonds.

(e) For purposes of this subchapter, "transition charges," as defined by Section 39.302 and as used in this subchapter and Subchapter G, Chapter 39, includes nonbypassable amounts to be charged for the use or availability of electric services, approved by the commission under a financing order to recover system restoration costs, self-insurance reserves, or both, that shall be collected by an electric utility, its successors, an assignee, or other collection agents as provided for in the financing order. Transition charges approved by the commission under a financing order to recover system restoration costs, self-insurance reserves, or both, may be referred to as "system restoration charges" or by any other term acceptable to the issuer and underwriters of the transition bonds.

Sec. 36.403. SUBCHAPTER CONTROLS. To the extent of any conflict between this subchapter and Subchapter G, Chapter 39, in relation to the securitization of system restoration costs or self-insurance reserves, the provisions of this subchapter control.

Sec. 36.404. LIMITATION ON USE OF TRANSITION BOND PROCEEDS. The proceeds of the transition bonds issued under this subchapter may be used only for:

(1) reducing the amount of recoverable system restoration costs, as determined by the commission in accordance with this subchapter, including the refinancing or retirement of utility debt or equity; or

(2) creating, funding, eliminating shortages in, or replenishing self-insurance reserves.

Sec. 36.405. DETERMINATION OF SYSTEM RESTORATION COSTS AND SELF-INSURANCE RESERVES. (a) An electric utility is entitled to:

(1) recover system restoration costs and self-insurance reserves under a financing order issued under this subchapter; or

(2) seek, in its next base rate proceeding or through any other proceeding authorized by Subchapter C or D, the recovery of amounts not otherwise recovered under this subchapter, including system restoration costs not yet incurred at the time an application is filed under Subsection (b).

(b) An electric utility may file an application with the commission seeking a determination of:

(1) the amount necessary to create, fund, eliminate a shortage in, or replenish self-insurance reserves;

(2) the amount of system restoration costs eligible for recovery and securitization; or

(3) both amounts described by Subdivisions (1) and (2).

(c) The commission by rule may prescribe the form of an application under Subsection (b) and the information reasonably necessary to support the determinations that are the subject of an application. If an electric utility files an application under Subsection (b) before the commission has adopted rules for purposes of this subsection or before the rules have taken effect, the commission shall accept the application and the commission may not reject the application as incomplete.

(d) The commission shall issue an order that states the amount, determined by the commission, necessary to create, fund, eliminate a shortage in, or replenish self-insurance reserves, or the amount of system restoration costs eligible for recovery and securitization, or both, not later than the 150th day after the date an electric utility files an application under Subsection (b).

(d-1) The 150-day period provided by Subsection (d) begins on the date the electric utility files an application described by Subsection (b), even if the electric utility files the application before the effective date of this subchapter. This subsection expires April 1, 2010.

(e) An electric utility may file an application for a financing order before the end of the 150-day period provided by Subsection (d). The commission shall issue a financing order under this subchapter not later than the 90th day after the date the utility files the request for a financing order. Notwithstanding the 90-day period provided by this subsection, the commission is not required to issue the financing order until the commission has issued an order under Subsection (d) determining the amount necessary to create, replenish, or eliminate a shortage in self-insurance reserves, or the amount of system restoration costs eligible for recovery and securitization, or both, if applicable.

(f) A determination made by the commission before the effective date of this subchapter of an electric utility's eligible system restoration costs or self-insurance reserves may provide the basis for the utility's application for a financing order under this subchapter and Subchapter G, Chapter 39. A previous commission determination does not preclude the utility from requesting recovery of additional system restoration costs or self-insurance reserves eligible to be recovered under this subchapter, but not previously authorized by the commission.

(g) A rate proceeding under Subchapter C or D is not required to determine the amount of recoverable system restoration costs or self-insurance reserves as provided by this section or for the issuance of a financing order.

Sec. 36.406. STANDARDS AND PROCEDURES FOR FINANCING ORDER. (a) The procedures and standards of this subchapter and the provisions of Subchapter G, Chapter 39, govern an electric utility's application for, and the commission's issuance of, a financing order to provide for the securitization of system restoration costs, self-insurance reserves, or both, or to otherwise provide for the recovery of system restoration costs, self-insurance reserves, or both.

(b) Notwithstanding any other provisions of this subchapter or of Section 39.301 for determining tangible and quantifiable benefits to ratepayers, if the commission determines that it is in the public interest to use securitization financing for the recovery of system restoration costs or to create, fund, eliminate shortages in, or replenish self-insurance reserves, the commission may issue a financing order for that securitization financing.

(c) Subject to the standards, procedures, and tests provided by this subchapter and Subchapter G, Chapter 39, the commission shall adopt a financing order on the application of the utility to recover its system restoration costs or self-insurance reserves.

(d) If the commission determines, on its own motion or on a complaint by an affected person, that it is in the public interest to securitize under this subchapter the amounts needed for an electric utility to recover its system restoration costs or to create, fund, eliminate shortages in, or replenish a utility's self-insurance reserve, the commission shall require the utility to file an application for a financing order.

(e) On the commission's issuance of a financing order allowing for recovery and securitization of system restoration costs or self-insurance reserves, or both, this subchapter and Subchapter G, Chapter 39, continue to govern:

(1) the financing order and the rights and interests established by the order; and

(2) transition bonds issued pursuant to the financing order.

Sec. 36.407. NONBYPASSABLE CHARGES. The commission shall include in a financing order issued under this subchapter terms necessary to ensure that the imposition and collection of transition charges for the recovery of system restoration costs and self-insurance reserves are nonbypassable by:

(1) imposing restrictions on bypassability of the type provided for in Chapter 39; or

(2) alternative means as the commission considers to be appropriate and consistent with the purposes of securitization.

Sec. 36.408. TREATMENT OF ESTIMATED COSTS AFTER TRUE-UP AND RECONCILIATION. (a) The commission may provide a process for true-up and reconciliation of system restoration costs subject to an order under this subchapter.

(b) If the commission determines as a result of a true-up and reconciliation proceeding that the actual costs incurred are less than estimated costs included in a determination under this subchapter of system restoration costs, the commission shall take the difference between actual and estimated costs into account in:

(1) the utility's next base rate proceeding; or

(2) any subsequent proceeding, other than a true-up proceeding under Section 39.307, in which the commission considers system restoration costs.

Sec. 36.409. INSURANCE PROCEEDS OR GOVERNMENTAL GRANTS AFFECTING SYSTEM RESTORATION COSTS. (a) To the extent an electric utility receives insurance proceeds or governmental grants that compensate it for system restoration costs considered under this subchapter, the utility shall use the amounts of those proceeds to reduce the utility's system restoration costs recoverable from customers.

(b) If the timing of a utility's receipt of insurance proceeds or governmental grants prevents their inclusion as a reduction to the system restoration costs that are securitized under this subchapter, the commission shall take those insurance proceeds and governmental grants into account in:

(1) the utility's next base rate proceeding; or

(2) any subsequent proceeding, other than a true-up proceeding under Section 39.307, in which the commission considers system restoration costs.

(c) To the extent that the utility receives insurance proceeds or governmental grants that are used to reduce system restoration costs, the commission shall impute interest on those proceeds or grants at the same cost of capital included in the utility's system restoration costs and until the date that the proceeds or grants are used to reduce the amount of system restoration costs that are securitized or otherwise reflected in the rates of the utility.

Sec. 36.410. TAX OFFSETS AND TAX OBLIGATIONS. (a) The amount of any accumulated deferred federal income taxes offset used to determine the securitization total under this subchapter may not be considered in future rate proceedings.

(b) The commission shall provide for an electric utility to recover under this subchapter any tax obligation of the electric utility arising from the utility's receipt of securitization bond proceeds or from the collection and remittance of transition charges.

Sec. 36.411. FUNCTIONALIZATION AND ALLOCATION OF SYSTEM RESTORATION COSTS AND SELF-INSURANCE RESERVES. Notwithstanding Section 39.303(c), system restoration costs and self-insurance reserves shall be functionalized and allocated to customers in the same manner as the corresponding facilities and related expenses are functionalized and allocated in the utility's current base rates.

Sec. 36.412. SURCHARGE AS ALTERNATIVE TO SECURITIZATION. (a) If the commission determines that using securitization for creating, funding, eliminating a shortage in, or replenishing all or any portion of an electric utility's self-insurance reserves or for the recovery of all or any portion of an electric utility's system restoration costs is not beneficial to ratepayers of the electric utility, under one or more of the tests applied to determine those benefits, the commission shall allow the electric utility to create, fund, eliminate a shortage in, or replenish the remainder of its self-insurance reserves or recover the remainder of its system restoration costs through an appropriate customer surcharge mechanism, including carrying costs at the electric utility's last commission-authorized weighted average cost of capital, to the extent that the electric utility has not securitized those costs.

(b) A rate proceeding under this chapter is not required to determine and implement the surcharge mechanism allowed under Subsection (a).

(c) The commission shall provide for a rider adopted under Subsection (a) to be reduced on the final implementation of rates resulting from the filing of a rate proceeding under Subchapter C or D to the extent that the costs to the utility to create, fund, eliminate a shortage in, or replenish self-insurance reserves or recover system restoration costs are included in the electric utility's base rates.

Sec. 36.413. LIMITATIONS ON RATES DO NOT AFFECT APPLICABILITY OF SUBCHAPTER. Notwithstanding a rate freeze or limitations on an electric utility's ability to change rates authorized or imposed by any other provision of this title or by a regulatory authority, an electric utility is entitled to create, fund, eliminate a shortage in, or replenish self-insurance reserves, or recover system restoration costs, or both, consistent with the provisions of this subchapter.

Sec. 36.414. REVIEW OF COMMISSION ORDER. (a) A commission order under this subchapter is not subject to rehearing and may be reviewed only by appeal to a Travis County district court by a party to the proceeding filed within 15 days after the order is signed by the commission.

(b) 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.

(c) 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.

(d) 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 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.

Sec. 36.415. SEVERABILITY. Effective on the date the first utility transition bonds associated with system restoration costs or self-insurance reserves 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, Subchapter G, Chapter 39, as it applies to this subchapter, or any part of those provisions, or any other provision of this title that is relevant to the issuance, administration, payment, retirement, or refunding of transition bonds or to any actions of the electric utility, its successors, an assignee, a collection agent, or a financing party, and those provisions 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, 2009.