By: Hancock  S.B. No. 1580
         (In the Senate - Filed March 11, 2021; March 24, 2021, read
  first time and referred to Committee on Business & Commerce;
  April 15, 2021, reported adversely, with favorable Committee
  Substitute by the following vote:  Yeas 9, Nays 0; April 15, 2021,
  sent to printer.)
Click here to see the committee vote
 
  COMMITTEE SUBSTITUTE FOR S.B. No. 1580 By:  Hancock
 
 
A BILL TO BE ENTITLED
 
AN ACT
 
  relating to the use of securitization by electric cooperatives to
  address certain weather-related extraordinary costs and expenses.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Chapter 41, Utilities Code, is amended by adding
  Subchapter D to read as follows:
  SUBCHAPTER D.  SECURITIZATION
         Sec. 41.151.  PURPOSE. The purpose of this subchapter is to
  enable electric cooperatives to use securitization financing to
  recover extraordinary costs and expenses incurred due to the
  abnormal weather events that occurred in this state in the period
  beginning 12:00 a.m., February 12, 2021, and ending at 11:59 p.m.,
  February 20, 2021.  This type of debt will reduce the cost of
  financing the extraordinary costs and expenses relative to the
  costs that would be incurred using conventional electric
  cooperative financing methods. The proceeds of the securitized
  bonds shall be used solely for the purposes of financing or
  refinancing the extraordinary costs and expenses, including costs
  relating to consummation and administration of the securitized
  financing. The board of each electric cooperative involved in the
  financing shall ensure that securitization provides tangible and
  quantifiable benefits to its members, greater than would have been
  achieved absent the issuance of securitized bonds. Each board that
  chooses to securitize under this subchapter shall ensure that the
  structuring and pricing of the securitized bonds are consistent
  with market conditions and the terms of the financing order. This
  subchapter may be used by a group of electric cooperatives to issue
  securitized bonds in a combined securitization transaction.
         Sec. 41.152.  DEFINITIONS. In this subchapter:
               (1)  "Assignee" means any individual, corporation, or
  other legally recognized entity, including a special purpose
  entity, to which an interest in securitized property is
  transferred, other than as security.
               (2)  "Board" means the governing body of an electric
  cooperative.
               (3)  "Combined securitization transaction" means the
  issuance of securitized bonds under this subchapter in a
  transaction involving at least two electric cooperatives acting
  together.
               (4)  "Extraordinary costs and expenses" means:
                     (A)  costs and expenses incurred by an electric
  cooperative for electric power and energy purchased during the
  period of emergency in excess of what would have been paid for the
  same amount of electric power and energy at the average rate
  incurred by the electric cooperative for electric power and energy
  purchased during the month of January 2021;
                     (B)  costs and expenses incurred by an electric
  cooperative to generate and transmit electric power and energy
  during the period of emergency, including fuel costs, operation and
  maintenance expenses, overtime costs, and all other costs and
  expenses that would not have been incurred but for the abnormal
  weather events; and
                     (C)  any charges imposed on the electric
  cooperative or on a power supplier to the electric cooperative that
  were passed on to the electric cooperative by the applicable
  regional transmission organization or independent system operator,
  resulting from defaults by other market participants of the
  regional transmission organization or independent system operator
  for costs relating to the period of emergency.
               (5)  "Financing order" means an order of a board
  approving the issuance of securitized bonds, which may be through
  participation in a combined securitization transaction, and the
  creation of securitized charges for the recovery of qualified
  costs.
               (6)  "Financing party" means a holder of securitized
  bonds, including trustees, collateral agents, and other persons
  acting for the benefit of the holder.
               (7)  "Qualified costs" means up to 100 percent of an
  electric cooperative's:
                     (A)  extraordinary costs and expenses;
                     (B)  costs of issuing, supporting, repaying,
  servicing, and refinancing the securitized bonds, whether incurred
  or paid upon issuance of the securitized bonds or over the life of
  the securitized bonds or the refunded securitized bonds, whether
  incurred directly or allocated in a combined securitization
  transaction; and
                     (C)  any costs of retiring and refunding the
  electric cooperative's existing debt securities initially issued
  to finance the extraordinary costs and expenses including interest
  accrued on debt securities over their term, whether incurred
  directly or allocated in a combined securitization transaction.
               (8)  "Period of emergency" means the period beginning
  12:00 a.m., February 12, 2021, and ending 11:59 p.m., February 20,
  2021.
               (9)  "Securitized bonds" means bonds, debentures,
  notes, certificates of participation or of beneficial interest, or
  other evidences of indebtedness or ownership that are issued by an
  electric cooperative, its successors, or an assignee of the
  electric cooperative or group of electric cooperatives under a
  financing order or financing orders, that have a term not longer
  than 30 years, and that are secured by or payable, primarily, from
  securitized property and the proceeds thereof and, in a combined
  securitization transaction, securitized property contributed by
  other electric cooperatives. If certificates of participation,
  beneficial interest, or ownership are issued, references in this
  subchapter to principal, interest, or premium shall refer to
  comparable amounts under those certificates.
               (10)  "Securitized charges" means nonbypassable
  amounts to be charged for the use or availability of electric
  services, approved by the board under a financing order to recover
  qualified costs, that shall be collected by an electric
  cooperative, its successors, an assignee, or other collection
  agents as provided for in the financing order.
               (11)  "Securitized property" means the property right
  created under this subchapter, including the right, title, and
  interest of the electric cooperative or its assignee:
                     (A)  in and to the securitized charges established
  under a financing order, including all rights to obtain adjustments
  in accordance with Section 41.157 and the financing order;
                     (B)  to be paid the amount that is determined in a
  financing order to be the amount that the electric cooperative or
  its transferee is lawfully entitled to receive under this
  subchapter and the proceeds thereof; and
                     (C)  in and to all revenue, collections, claims,
  payments, money, or process of or arising from the securitized
  charges that are the subject of a financing order.
         Sec. 41.153.  FINANCING ORDERS; TERMS. (a)  The board shall
  adopt a financing order to recover the electric cooperative's
  qualified costs consistent with the standards in Section 41.151.
         (b)  The financing order shall detail the amount of qualified
  costs to be recovered and the period over which the nonbypassable
  securitized charges shall be recovered, which period may not exceed
  30 years.
         (c)  Securitized charges shall be collected and allocated
  among customers in the manner provided by the financing order.
         (d)  A financing order becomes effective in accordance with
  its terms, and the financing order, together with the securitized
  charges authorized in the order, after it takes effect, is
  irrevocable and not subject to denial, recission, reduction,
  impairment, adjustment, or other alteration by further action of
  the board or by action of any regulatory or other governmental body
  of this state, except as permitted by Section 41.157.  A financing
  order issued under this subchapter has the same force and effect of
  a financing order issued under Chapter 39.
         (e)  A financing order may be reviewed by appeal by a member
  of the electric cooperative to a district court in the county where
  the electric cooperative is domiciled, filed not later than the
  15th day after the date the financing order is adopted by the board.
  The judgment of the district court may be reviewed only by direct
  appeal to the Supreme Court of Texas filed not later than the 15th
  day after the date of the entry of judgment. All appeals shall be
  heard and determined by the district court and the Supreme Court of
  Texas as expeditiously as possible with lawful precedence over
  other matters. Review on appeal shall be based solely on the
  financing order adopted by the board, other information considered
  by the board in adopting the resolutions, and briefs to the court
  and shall be limited to whether the financing order conforms to the
  constitution and laws of this state and the United States and is
  within the authority of the board under this subchapter.
         (f)  The board or, in a combined securitization transaction,
  the boards of all participating electric cooperatives, may adopt a
  financing order or financing orders providing for retiring and
  refunding securitized bonds on making a finding that the future
  securitized charges required to service the new securitized bonds,
  including transaction costs, will be less than the future
  securitized charges required to service the securitized bonds being
  refunded. After the indefeasible repayment in full of all
  outstanding securitized bonds and associated financing costs, the
  board shall adjust the related securitized charges accordingly.
         Sec. 41.154.  PROPERTY RIGHTS.  (a) The rights and interests
  of an electric cooperative or its subsidiary, affiliate, successor,
  financing party, or assignee under a financing order, including the
  right to impose, collect, receive, and enforce the payment of
  securitized charges authorized in the financing order, shall be
  only contract rights until the property is first transferred or
  pledged to an assignee or financing party, as applicable, in
  connection with the issuance of securitized bonds, at which time
  the property becomes securitized property.
         (b)  Securitized property that is specified in the financing
  order constitutes a present vested property right for all purposes,
  including for purposes of Sections 16 and 17, Article I, Texas
  Constitution, Section 10, Article I, United States Constitution,
  and the Fifth Amendment to the United States Constitution, and the
  laws of this state and the United States, even if the imposition and
  collection of securitized charges depend on further acts of the
  electric cooperative or others that may not have yet occurred.
         (c)  Securitized property shall exist regardless of whether
  securitized charges have been billed, have accrued, or have been
  collected and notwithstanding the fact that the value or amount of
  the property is dependent on the future provision of service to
  customers by the electric cooperative or its successors or assigns.
         (d)  On the issuance of the securitized bonds and the
  financing order, and when the requirements of Section 41.159 are
  met, the securitized charges, including their nonbypassability,
  are irrevocable, final, nondiscretionary, and effective without
  further action by the electric cooperative or any other person or
  governmental authority. The financing order shall remain in effect
  and the property shall continue to exist for the same period as the
  pledge of the state described in Section 41.160.
         (e)  All revenue, collections, claims, payments, money, or
  proceeds of or arising from or relating to securitized charges
  shall constitute proceeds of the securitized property arising from
  the financing order.
         Sec. 41.155.  NO SETOFF.  The interest of an assignee or
  pledgee in securitized property and in the revenues and collections
  arising from that property are not subject to setoff, counterclaim,
  surcharge, recoupment, or defense by the electric cooperative or
  any other person or in connection with the bankruptcy of the
  electric cooperative or any other entity. A financing order shall
  remain in effect and unabated notwithstanding the bankruptcy of the
  electric cooperative, its successors, or assignees.
         Sec. 41.156.  NO BYPASS. (a)  A financing order shall
  include terms ensuring that the imposition and collection of
  securitized charges authorized in the order shall be nonbypassable
  and apply to all customers connected to the electric cooperative's
  system assets and taking service, regardless of whether the system
  assets continue to be owned by the electric cooperative.
         (b)  The electric cooperative, its servicer, any entity
  providing electric transmission or distribution services, and any
  retail electric provider providing services to a retail customer in
  the electric cooperative's certificated service area as it existed
  on the date of enactment of this subchapter are entitled to collect
  and must remit, consistent with this subchapter and any financing
  order adopted under this subchapter, the securitized charges from
  the retail customers and from retail customers that switch to new
  on-site generation.  Such retail customers are required to pay the
  securitized charges.
         Sec. 41.157.  TRUE-UP. (a) A financing order shall be
  reviewed and adjusted promptly if after its adoption there are
  additional charges, reductions, or refunds of extraordinary costs
  and expenses, to:
               (1)  ensure that there is not an over-collection or an
  under-collection of extraordinary costs and expenses; and
               (2)  ensure that collections on the securitized
  property will be sufficient to timely make all periodic and final
  payments of principal, interest, fees, and other amounts and to
  timely fund all reserve accounts, if any, related to the
  securitized bonds.
         (b)  A financing order shall also include a mechanism
  requiring that securitized charges be reviewed by the board and
  adjusted at least annually, not later than the 45th day after the
  anniversary date of the issuance of the securitized bonds, to:
               (1)  correct over-collections or under-collections of
  the preceding 12 months; and
               (2)  ensure the expected recovery of amounts sufficient
  to timely provide all payments of debt service and other required
  amounts and charges in connection with the securitized bonds. 
         (c)  The electric cooperatives that are members of a
  generation and transmission cooperative may include in their
  financing orders the ability to allocate any true-up amounts over
  the retail customers of all electric cooperatives that are members
  of the same generation and transmission cooperative. 
         (d)  In a combined securitization transaction, each
  generation and transmission cooperative may calculate all
  adjustments and determinations relevant to each true-up by each
  electric cooperative member of the generation and transmission
  cooperative participating in the securitization transaction, with
  the adjustments being allocated across the electric cooperatives in
  the manner agreed to by all of the participating electric
  cooperatives under their financing orders.
         (e)  A governmental authority may not disapprove of or alter
  any adjustments made or proposed to be made under this subchapter
  other than to correct computation or other manifest errors.
         Sec. 41.158.  TRUE SALE.  An agreement by an electric
  cooperative or assignee to transfer securitized property that
  expressly states that the transfer is a sale or other absolute
  transfer signifies that the transaction is a true sale and is not a
  secured transaction and that title, legal and equitable, has passed
  to the entity to which the securitized property is transferred.  The
  transaction shall be treated as an absolute sale regardless of
  whether the purchaser has any recourse against the seller, or any
  other term of the parties' agreement, including the seller's
  retention of an equity interest in the securitized property, the
  fact that the electric cooperative acts as the collector of
  securitized charges relating to the securitized property, or the
  treatment of the transfer as a financing for tax, financial
  reporting, or other purposes.
         Sec. 41.159.  SECURITY INTERESTS; ASSIGNMENT; COMMINGLING;
  DEFAULT. (a) Securitized property does not constitute an account
  or general intangible under Section 9.106, Business & Commerce
  Code. The transfer, sale, or assignment, or the creation,
  granting, perfection, and enforcement of liens and security
  interests in securitized property are governed by this section and
  not by the Business & Commerce Code.  Securitized property shall
  constitute property for all purposes, including for contracts
  securing securitized bonds, regardless of whether the securitized
  property revenues and proceeds have accrued.
         (b)  A valid and enforceable transfer, sale, or assignment,
  or lien and security interest, as applicable, in securitized
  property may be created only by a financing order and the execution
  and delivery of a transfer, sale, or assignment, or security
  agreement, as applicable, with a financing party in connection with
  the issuance of securitized bonds.  The transfer, sale, assignment,
  or lien and security interest, as applicable, shall attach
  automatically from the time that value is received for the
  securitized bonds and, on perfection through the filing of notice
  with the secretary of state in accordance with the rules prescribed
  under Subsection (d), shall be a continuously perfected transfer,
  sale, and assignment, or lien and security interest, as applicable,
  in the securitized property and all proceeds of the property,
  whether accrued or not, shall have priority in the order of filing
  and take precedence over any subsequent judicial or other lien
  creditor.  If notice is filed before the 10th day after the date
  value is received for the securitized bonds, the transfer, sale, or
  assignment, or security interest, as applicable, shall be perfected
  retroactive to the date value was received. Otherwise, the
  transfer, sale, or assignment, or security interest, as applicable,
  shall be perfected as of the date of filing.
         (c)  Transfer, sale, or assignment of an interest in
  securitized property to an assignee shall be perfected against all
  third parties, including subsequent judicial or other lien
  creditors, when the financing order becomes effective, transfer
  documents have been delivered to the assignee, and a notice of that
  transfer has been filed in accordance with the rules prescribed
  under Subsection (d).  However, if notice of the transfer has not
  been filed in accordance with this subsection before the 10th day
  after the delivery of transfer documentation, the transfer of the
  interest is not perfected against third parties until the notice is
  filed.
         (d)  The secretary of state shall implement this section by
  establishing and maintaining a separate system of records for the
  filing of notices under this section and prescribing the rules for
  those filings based on Chapter 9, Business & Commerce Code, adapted
  to this subchapter and using the terms defined in this subchapter.
         (e)  The priority of a lien and security interest perfected
  under this section is not impaired by any later modification of the
  financing order under Section 41.157 or by the commingling of funds
  arising from securitized charges with other funds, and any other
  security interest that may apply to those funds shall be terminated
  when they are transferred to a segregated account for the assignee
  or a financing party. If securitized property has been transferred
  to an assignee, any proceeds of that property shall be held in trust
  for the assignee.
         (f)  Securitized bonds shall be secured by a statutory lien
  on the securitized property in favor of the owners or beneficial
  owners of securitized bonds. The lien shall automatically arise on
  issuance of the securitized bonds without the need for any action or
  authorization by the electric cooperative or the board. The lien
  shall be valid and binding from the time the securitized bonds are
  executed and delivered. The securitized property shall be
  immediately subject to the lien, and the lien shall immediately
  attach to the securitized property and be effective, binding, and
  enforceable against the electric cooperative, its creditors, their
  successors, assignees, and all others asserting rights therein,
  regardless of whether those persons have notice of the lien and
  without the need for any physical delivery, recordation, filing, or
  further act. The lien is created by this subchapter and not by any
  security agreement, but may be enforced by any financing party or
  their representatives as if they were secured parties under Chapter
  9, Business & Commerce Code.  On application by or on behalf of the
  financing parties, a district court in the county where the
  electric cooperative is domiciled may order that amounts arising
  from securitized charges be transferred to a separate account for
  the financing parties' benefit.
         (g)  The statutory lien is a continuously perfected security
  interest and has priority over any other lien, created by operation
  of law or otherwise, that may subsequently attach to that
  securitized property or proceeds thereof unless the owners or
  beneficial owners of securitized bonds as specified in the trust
  agreement or indenture have agreed in writing otherwise. The
  statutory lien is a lien on the securitized charges and all
  securitized charge revenues or other proceeds that are deposited in
  any deposit account or other account of the servicer or other person
  in which securitized charge revenues or other proceeds have been
  commingled with other funds.
         (h)  The statutory lien is not adversely affected or impaired
  by, among other things, the commingling of securitized charge
  revenues or other proceeds from securitized charges with other
  amounts regardless of the person holding those amounts.
         (i)  The electric cooperative, any successor or assignee of
  the electric cooperative, or any other person with any operational
  control of any portion of the electric cooperative's system assets,
  whether as owner, lessee, franchisee, or otherwise, and any
  successor servicer of collections of the securitized charges shall
  be bound by the requirements of this subchapter and shall perform
  and satisfy all obligations imposed under this subchapter in the
  same manner and to the same extent as did its predecessor, including
  the obligation to bill, adjust, and enforce the payment of
  securitized charges.
         (j)  If a default or termination occurs under the securitized
  bonds, the financing parties or their representatives may foreclose
  on or otherwise enforce their lien and security interest in any
  securitized property as if they were secured parties under Chapter
  9, Business & Commerce Code, and on application by the electric
  cooperative or by or on behalf of the financing parties, a district
  court in the county where the electric cooperative is domiciled may
  order that amounts arising from securitized charges be transferred
  to a separate account for the financing parties' benefit, to which
  their lien and security interest shall apply. On application by or
  on behalf of the financing parties, a district court in the county
  where the electric cooperative is domiciled shall order the
  sequestration and payment to them of revenues arising from the
  securitized charges.
         Sec. 41.160.  PLEDGE OF STATE. Securitized bonds are not a
  debt or obligation of the state and are not a charge on its full
  faith and credit or taxing power. The state pledges, however, for
  the benefit and protection of assignees, financing parties, and the
  electric cooperative, that it will not take or permit, or permit any
  agency or other governmental authority or political subdivision of
  the state to take or permit, any action that would impair the value
  of securitized property, or, except as permitted by Section 41.157,
  reduce, alter, or impair the securitized charges to be imposed,
  collected, and remitted to financing parties, until the principal,
  interest and premium, and any other charges incurred and contracts
  to be performed in connection with the related securitized bonds
  have been paid and performed in full. Any party issuing securitized
  bonds is authorized to include this pledge in any documentation
  relating to those bonds.
         Sec. 41.161.  TAX EXEMPTION.  Transactions involving the
  transfer and ownership of securitized property and the receipt of
  securitized charges are exempt from state and local income, sales,
  franchise, gross receipts, and other taxes or similar charges.
         Sec. 41.162.  NOT PUBLIC UTILITY.  An assignee or financing
  party may not be considered to be a public utility, electric
  cooperative, or person providing electric service solely by virtue
  of the transactions described in this subchapter.
         Sec. 41.163.  SEVERABILITY.  Effective on the date the first
  securitized bonds are issued under this subchapter, if any
  provision in this title or portion of this title is held to be
  invalid or is invalidated, superseded, replaced, repealed, or
  expires for any reason, that occurrence does not affect the
  validity or continuation of this subchapter or any other provision
  of this title that is relevant to the issuance, administration,
  payment, retirement, or refunding of securitized bonds or to any
  actions of the electric cooperative, its successors, an assignee, a
  collection agent, or a financing party, which shall remain in full
  force and effect.
         SECTION 2.  This Act takes effect immediately if it receives
  a vote of two-thirds of all the members elected to each house, as
  provided by Section 39, Article III, Texas Constitution.  If this
  Act does not receive the vote necessary for immediate effect, this
  Act takes effect September 1, 2021.
 
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