By: Flynn H.B. No. 3457
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the methods of recovery of stranded environmental
  compliance costs by certain non-ERCOT electric utilities.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Chapter 36, Utilities Code, is amended by adding
  Subchapter J to read as follows:
  SUBCHAPTER J. RECOVERY OF STRANDED ENVIRONMENTAL COMPLIANCE COSTS
         Sec. 36.501.  APPLICABILITY. This subchapter applies only
  to an electric utility described by Section 39.501.
         Sec. 36.502.  SECURITIZATION FOR RECOVERY OF STRANDED
  ENVIRONMENTAL COMPLIANCE COSTS; PURPOSE. (a) The purpose of this
  subchapter is to enable an electric utility to use securitization
  financing to recover stranded environmental compliance costs,
  because that type of debt will lower the carrying costs associated
  with the recovery of these costs, relative to the costs that would
  be incurred using conventional financing methods. The proceeds of
  the transition bonds may be used only for the purposes of reducing
  the amount of stranded environmental compliance costs, as
  determined by the commission in accordance with this subchapter,
  including the refinancing or retirement of utility debt or equity.
         (b)  It is the intent of the legislature that:
               (1)  securitization of stranded environmental
  compliance costs will be accomplished using the same procedures,
  standards, and protections for securitization authorized under
  Subchapter G, Chapter 39, as in effect on September 1, 2015, except
  as provided by this subchapter; and
               (2)  the commission will ensure that securitization of
  stranded environmental compliance costs provides greater tangible
  and quantifiable benefits to ratepayers than would have been
  achieved without the issuance of transition bonds.
         Sec. 36.503.  RECOVERY OF STRANDED ENVIRONMENTAL COMPLIANCE
  COSTS. (a) In this subchapter, "stranded environmental compliance
  costs" means costs described in this section that the commission
  determines have been incurred in connection with any portion of a
  generating unit or facility or any of its associated components or
  capital additions that are subsequently retired, idled, or
  otherwise not considered to be used and useful as a result of
  federal or state environmental laws or regulations. The term is
  limited to the following items:
               (1)  capital expenditures, including both plant in
  service and construction work in progress, incurred by the electric
  utility to achieve or maintain compliance with the Mercury and Air
  Toxics Standards Rule enacted under the authority of sections 111
  and 112 of the federal Clean Air Act (42 U.S.C. sections 7411 and
  7412) and set out in volume 40 of the Code of Federal Regulations,
  parts 60 and 63;
               (2)  the remaining unrecovered portion of the total
  capital investment, including both plant in service and
  construction work in progress, in a generating unit or facility
  that is retired, idled, or otherwise considered not used and
  useful; and
               (3)  for the portion of the stranded environmental
  compliance costs not included in rates, carrying costs at the
  utility's cost of debt reported in its most recent earnings
  monitoring report, from the time at which the generating unit or
  facility, or associated component or capital addition, is retired,
  idled, or otherwise not considered to be used and useful, until the
  effective date of rates providing for recovery of the stranded
  environmental compliance costs.
         (b)  An electric utility is entitled to recover its
  reasonable and necessary stranded environmental compliance costs
  incurred before or after September 1, 2015. The stranded
  environmental compliance costs are recoverable regardless of
  whether those costs relate to property that is no longer used and
  useful in providing service. The commission shall adopt rate
  setting adjustments as necessary to ensure that the recovery of
  stranded environmental compliance costs under the provisions of
  this section does not result in over-recovery of such costs to the
  extent they are reflected in base rates.
         (c)  No earlier than the date upon which a state or federal
  implementation plan is established that requires a generating unit
  or facility owned by the electric utility, or any of its associated
  components or capital additions, to be retired, idled, or otherwise
  considered not used and useful, the electric utility may file an
  application with the commission seeking a determination of the
  amount of stranded environmental compliance costs eligible for
  recovery and securitization consistent with the requirements and
  standards of this section. The commission shall issue an order
  determining the amount of stranded environmental compliance costs
  eligible for recovery and securitization not later than the 150th
  day after the date the electric utility files the application. If
  the commission has not made a determination before the 151st day
  after that date, the application is considered to be approved. A
  rate proceeding under Subchapter C or D is not required to determine
  the amount of recoverable stranded environmental compliance costs
  under this section, including for a rider mechanism authorized by
  Subsection 6(d).
         (d)  If recovery through securitization under Sections
  36.504-36.507 is not available, the electric utility is entitled to
  recover all or any portion of its stranded environmental compliance
  costs through inclusion in base rates or through a rate rider
  mechanism. If the final implementation of rates resulting from the
  issuance of an order in a rate proceeding under Subchapter C or D
  provides for the recovery of all remaining stranded environmental
  compliance costs, a rider mechanism adopted under this subsection
  shall expire. Whether recovered through base rates or a rate rider
  mechanism, the utility is entitled to recover carrying costs on the
  stranded environmental compliance costs, at the utility's cost of
  debt reported in its most recent earnings monitoring report, over a
  recovery period of not more than 15 years.
         Sec. 36.504.  STANDARDS AND PROCEDURES GOVERNING
  SECURITIZATION OF STRANDED ENVIRONMENTAL COMPLIANCE COSTS. (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 stranded environmental compliance costs,
  or to otherwise provide for the recovery of stranded environmental
  compliance costs. An electric utility may recover stranded
  environmental compliance costs through securitization only if the
  electric utility's Texas retail jurisdictional amount of stranded
  environmental compliance costs to be recovered through
  securitization is at least $75 million.
         (b)  Subject to the standards, procedures, and tests
  contained in this subchapter and Subchapter G, Chapter 39, the
  commission shall adopt a financing order on the application of the
  electric utility to recover its stranded environmental compliance
  costs. On the commission's issuance of a financing order allowing
  for recovery and securitization of stranded compliance costs, the
  provisions of this subchapter and Subchapter G, Chapter 39,
  continue to govern the financing order and the rights and interests
  established in the order, and this subchapter and Subchapter G,
  Chapter 39, continue to govern any transition bonds issued pursuant
  to the financing order. To the extent any conflict exists between
  the provisions of this subchapter and Subchapter G, Chapter 39, in
  cases involving the securitization of stranded environmental
  compliance costs, the provisions of this subchapter control.
         (c)  For purposes of this subchapter, "financing order" as
  defined by Section 39.302 and as used in Subchapter G, Chapter 39,
  includes a financing order authorizing the securitization of
  stranded environmental compliance costs.
         (d)  For purposes of this subchapter, "qualified costs" as
  defined by Section 39.302 and as used in Subchapter G, Chapter 39,
  includes 100 percent of the electric utility's stranded
  environmental compliance costs, 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. For purposes of this subchapter, the term includes:
               (1)  costs to the commission of acquiring professional
  services for the purpose of evaluating proposed transactions under
  this subchapter; and
               (2)  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.
         (e)  For purposes of this subchapter, "transition bonds" as
  defined by Section 39.302 and as used in Subchapter G, Chapter 39,
  includes transition bonds issued in association with the recovery
  of stranded environmental compliance costs. Transition bonds
  issued to securitize stranded environmental compliance costs may be
  called "environmental compliance bonds" or may be called by any
  other name acceptable to the issuer and the underwriters of the
  transition bonds.
         (f)  For purposes of this subchapter, "transition charges"
  as defined by Section 39.302 and as used in Subchapter G, Chapter
  39, includes nonbypassable amounts to be charged for the use of
  electric services, approved by the commission under a financing
  order to recover stranded environmental compliance costs, that
  shall be collected by an electric utility, its successors, an
  assignee, or other collection agents as provided by the financing
  order. Transition charges approved by the commission under a
  financing order to recover stranded environmental compliance costs
  may be called "environmental compliance charges" or may be called
  by any other name acceptable to the issuer and the underwriters of
  the transition bonds.
         (g)  Notwithstanding Section 39.303(c), stranded
  environmental compliance costs shall be functionalized and
  allocated to customers in the same manner as the costs of the
  stranded or similar facilities are functionalized and allocated in
  the electric utility's most recently approved base rates.
         (h)  The amount of any accumulated deferred federal income
  taxes offset, used to determine the securitization total, may not
  be considered in future rate proceedings. Any tax obligation of the
  electric utility arising from its receipt of securitization bond
  proceeds, or from the collection and remittance of transition
  charges, shall be recovered by the electric utility through the
  commission's implementation of this subchapter.
         (i)  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 recover stranded environmental
  compliance costs consistent with the provisions of this subchapter.
         (j)  If in the course of a proceeding to adopt a financing
  order the commission determines that the recovery of all or any
  portion of an electric utility's stranded environmental compliance
  costs, using securitization, is not beneficial to ratepayers of the
  electric utility under one or more of the tests applied to determine
  those benefits, the commission shall nonetheless use the proceeding
  to issue an order permitting the electric utility to recover the
  remainder of its stranded environmental compliance costs,
  consistent with the provisions of Section 36.503.
         Sec. 36.505.  NONBYPASSABLE CHARGES. The commission shall
  include terms in the financing order to ensure that the imposition
  and collection of transition charges associated with the recovery
  of stranded environmental compliance costs are nonbypassable by
  imposing restrictions on bypassability, as the commission
  considers appropriate, consistent with the purposes of
  securitization.
         Sec. 36.506.  FINANCING ORDER PROCEEDING. (a) An electric
  utility may file an application for a financing order before the
  expiration of the 150-day period provided by Section 36.503(c). The
  commission shall issue a financing order not later than the 90th day
  after the date the utility files its request for a financing order,
  except that the commission is not required to issue the financing
  order until it has determined the amount of stranded environmental
  compliance costs eligible for recovery and securitization.
         (b)  A rate proceeding under Subchapter C or D is not
  required for the issuance of a financing order.
         (c)  A commission order approving securitization financing
  under this subchapter is not subject to rehearing. A commission
  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
  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 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. 36.507.  SEVERABILITY. Effective on the date the first
  utility transition bonds associated with stranded environmental
  compliance costs 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 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 September 1, 2015.