citation: PUC § 840

text:
For the purposes of this article, the following terms shall have the following meanings:

(a) “Bank” means the California Infrastructure and Economic Development Bank.

(b) “Financing entity” means the bank, any special purpose trust, as defined in Section 63010 of the Government Code, that is authorized by the bank to issue rate reduction bonds or acquire transition property, or any other entity authorized by the bank to issue rate reduction bonds or acquire transition property, or both. The bank may authorize an entity other than a special purpose trust, as defined in Section 63010 of the Government Code, to issue rate reduction bonds only if all of the following conditions are met:

(1) The bank by resolution has determined that allowing another entity to issue rate reduction bonds would produce greater overall ratepayer savings, taking into account all relevant considerations including, but not limited to, the exclusion of interest on rate reduction bonds issued by the bank from investors’ gross income for California or federal income tax purposes, or both, earnings on funds collected and held by the electrical corporation prior to deposit in a fund or account for the benefit of holders of rate reduction bonds, and all costs of issuance and other transaction costs.

(2) The bank submits to the Joint Legislative Budget Committee a certified copy of the bank’s resolution, together with a report setting forth the basis for the bank’s determination that a financing entity other than the bank or a special purpose trust will produce greater ratepayer savings and at least 30 days have elapsed from the date of submission.

(c) “Financing order” shall mean an order of the commission adopted in accordance with this article, which shall include, without limitation, a procedure to require the expeditious approval by the commission of periodic adjustments to fixed transition amounts included therein to ensure recovery of all transition costs and the costs of capital associated with the proposed provision, recovery, financing, or refinancing thereof, including the costs of issuing, servicing, and retiring the rate reduction bonds contemplated by the financing order. These adjustments shall not impose fixed transition amounts upon classes of customers who were not subject to the fixed transition amounts in the pertinent financing order.

(d) “Fixed transition amounts” means those nonbypassable rates and other charges, including, but not limited to, distribution, connection, disconnection, and termination rates and charges, that are authorized by the commission in a financing order to recover (1) transition costs, and (2) the costs of providing, recovering, financing, or refinancing the transition costs through a plan approved by the commission in the financing order, including the costs of issuing, servicing, and retiring rate reduction bonds. If requested by the electrical corporation in its application for a financing order, fixed transition amounts shall include nonbypassable rates and other charges to recover federal and state taxes whose recovery period is modified by the transactions approved in the financing order.

(e) “Rate reduction bonds” means bonds, notes, certificates of participation or beneficial interest, or other evidences of indebtedness or ownership, issued pursuant to an executed indenture or other agreement of a financing entity, the proceeds of which are used, directly or indirectly, to provide, recover, finance, or refinance transition costs, and that are directly or indirectly secured by, or payable from, transition property.

(f) “Transition costs” means the costs, and categories of costs, of an electrical corporation for generation-related assets and obligations, consisting of generation facilities, generation-related regulatory assets, nuclear settlements, and power purchase contracts, including, but not limited to, voluntary restructuring, renegotiations, or terminations thereof approved by the commission, that were being collected in commission-approved rates on December 20, 1995, and that may become uneconomic as a result of a competitive generation market in that those costs may not be recoverable in market prices in a competitive market, and appropriate costs incurred after December 20, 1995, for capital additions to generating facilities existing as of December 20, 1995, that the commission determines are reasonable and should be recovered, provided that these costs are necessary to maintain the facilities through December 31, 2001. Transition costs shall also include the costs of refinancing or retiring of debt or equity capital of the electrical corporation, and associated federal and state tax liabilities.

(g) (1) “Transition property” means the property right created pursuant to this article including, without limitation, the right, title, and interest of an electrical corporation or its transferee:

(A) In and to the tariff established pursuant to a financing order, as adjusted from time to time in accordance with subdivision (c) of Section 841 and the financing order.

(B) To be paid the amount that is determined in a financing order to be the amount that the electrical corporation or its transferee is lawfully entitled to receive pursuant to the provision of this article and the proceeds thereof, and in and to all revenues, collections, claims, payments, money, or proceeds of or arising from the tariff or constituting fixed transition amounts that are the subject of a financing order including those nonbypassable rates and other charges referred to in subdivision (d).

(C) In and to all rights to obtain adjustments to the tariff pursuant to the terms of subdivision (c) of Section 841 and the financing order.

(2) “Transition property” shall constitute a current property right notwithstanding the fact that the value of the property right will depend on consumers using electricity or, in those instances where consumers are customers of a particular electrical corporation, the electrical corporation performing certain services.

(3) For purposes of Sections 63010 and 63025.1 of the Government Code, “transition property” also shall mean certificates representing primarily interests in the property rights described in paragraphs (1) and (2).

history: (History: Amended by Stats. 1997, Ch. 275, Sec. 27. Effective August 15, 1997.)

article: 5.5. Financing of Transition Costs

path: 1. REGULATION OF PUBLIC UTILITIES > 1. PUBLIC UTILITIES ACT > 4. Regulation of Public Utilities > 5.5. Financing of Transition Costs


kind: section

code: PUC

citation: PUC § 841

text:
(a) An electrical corporation shall, by June 1, 1997, and may from time to time thereafter apply to the commission for a determination that certain transition costs may be recovered through fixed transition amounts, which would therefore constitute transition property under this article. An electrical corporation may request this determination by the commission in separate proceedings or in an order instituting investigation or order instituting rulemaking, or both. The electrical corporation shall in its application specify that the residential and small commercial customers as defined in subdivision (h) of Section 331 would benefit from reduced rates through the issuance of rate reduction bonds. The commission shall designate fixed transition amounts as recoverable in one or more financing orders if the commission determines, as part of its findings in connection with the financing order, that the designation of the fixed transition amounts, and issuance of rate reduction bonds in connection with some or all of the fixed transition amounts would reduce rates that residential and small commercial customers would have paid if the financing order were not adopted. These customers shall continue to pay fixed transition amounts after December 31, 2001, until the bonds are paid in full by the financing entity. No electrical corporation shall be found to have acted imprudently or unreasonably for failing to amend a power purchase contract where the amendment would modify or waive an existing requirement that the seller be a qualifying facility pursuant to federal law.

(b) The commission may issue financing orders in accordance with this article to facilitate the provision, recovery, financing, or refinancing of transition costs. A financing order may be adopted only upon the application of an electrical corporation and shall become effective in accordance with its terms only after the electrical corporation files with the commission the electrical corporation’s written consent to all terms and conditions of the financing order. A financing order may specify how amounts collected from a customer shall be allocated between fixed transition amounts and other charges.

(c) Notwithstanding Section 455.5, Section 1708, or any other provision of law, except as otherwise provided in this subdivision with respect to transition property that has been made the basis for the issuance of rate reduction bonds, the financing orders and the fixed transition amounts shall be irrevocable and the commission shall not have authority either by rescinding, altering, or amending the financing order or otherwise, to revalue or revise for ratemaking purposes the transition costs, or the costs of providing, recovering, financing, or refinancing the transition costs, determine that the fixed transition amounts or rates are unjust or unreasonable, or in any way reduce or impair the value of transition property either directly or indirectly by taking fixed transition amounts into account when setting other rates for the electrical corporation; nor shall the amount of revenues arising with respect thereto be subject to reduction, impairment, postponement, or termination. Except as otherwise provided in this subdivision, the State of California does hereby pledge and agree with the owners of transition property and holders of rate reduction bonds that the state shall neither limit nor alter the fixed transition amounts, transition property, financing orders, and all rights thereunder until the obligations, together with the interest thereon, are fully met and discharged, provided nothing contained in this section shall preclude the limitation or alteration if and when adequate provision shall be made by law for the protection of the owners and holders. The bank as agent for the state is authorized to include this pledge and undertaking for the state in these obligations. Notwithstanding any other provision of this section, the commission shall approve the adjustments to the fixed transition amounts as may be necessary to ensure timely recovery of all transition costs that are the subject of the pertinent financing order, and the costs of capital associated with the provision, recovery, financing, or refinancing thereof, including the costs of issuing, servicing, and retiring the rate reduction bonds contemplated by the financing order. The adjustments shall not impose fixed transition amounts upon classes of customers who were not subject to the fixed transition amounts in the pertinent financing order.

(d) (1) Financing orders issued under this article do not constitute a debt or liability of the state or of any political subdivision thereof, other than the financing entity, and do not constitute a pledge of the full faith and credit of the state or any of its political subdivisions, other than the financing entity, but are payable solely from the funds provided therefor under this article and shall be consistent with Sections 1 and 18 of Article XVI of the California Constitution. This subdivision shall in no way preclude bond guarantees or enhancements pursuant to this article. All the bonds shall contain on the face thereof a statement to the following effect:

“Neither the full faith and credit nor the taxing power of the State of California is pledged to the payment of the principal of, or interest on, this bond.”

(2) The issuance of bonds under this article shall not directly, indirectly, or contingently obligate the state or any political subdivision thereof to levy or to pledge any form of taxation therefor or to make any appropriation for their payment. Nothing in this section shall prevent, or be construed to prevent, the financing entity from pledging the full faith and credit of the infrastructure bank fund to the payment of bonds or issuance of bonds authorized pursuant to this article.

(e) The commission shall establish procedures for the expeditious processing of applications for financing orders, including the approval or disapproval thereof within 120 days of the electrical corporation’s making application therefor. The commission shall provide in any financing order for a procedure for the expeditious approval by the commission of periodic adjustments to the fixed transition amounts that are the subject of the pertinent financing order, as required by subdivision (c). The procedure shall require the commission to determine whether the adjustments are required on each anniversary of the issuance of the financing order, and at the additional intervals as may be provided for in the financing order, and for the adjustments, if required, to be approved within 90 days of each anniversary of the issuance of the financing order, or of each additional interval provided for in the financing order.

(f) Fixed transition amounts shall constitute transition property when, and to the extent that, a financing order authorizing the fixed transition amounts has become effective in accordance with this article, and the transition property shall thereafter continuously exist as property for all purposes with all of the rights and privileges of this article for the period and to the extent provided in the financing order, but in any event until the rate reduction bonds are paid in full, including all principal, interest, premium, costs, and arrearages thereon.

(g) Any surplus fixed transition amounts in excess of the amounts necessary to pay principal, premium, if any, interest and expenses of the issuance of the rate reduction bonds shall be remitted to the financing entity and may be used to benefit residential and small commercial customers if this would not result in a recharacterization of the tax, accounting, and other intended characteristics of the financing, including, but not limited to, the following:

(1) Avoiding the recognition of debt on the electrical corporation’s balance sheet for financial accounting and regulatory purposes.

(2) Treating the rate reduction bonds as debt of the electrical corporation or its affiliates for federal income tax purposes.

(3) Treating the transfer of the transition property by the electrical corporation as a true sale for bankruptcy purposes.

(4) Avoiding any adverse impact of the financing on the electrical corporation’s credit rating.

history: (History: Amended by Stats. 1997, Ch. 275, Sec. 28. Effective August 15, 1997.)

division: 1. REGULATION OF PUBLIC UTILITIES

part: 1. PUBLIC UTILITIES ACT

chapter: 4. Regulation of Public Utilities

article: 5.5. Financing of Transition Costs


citation: PUC § 842

text:
(a) Financing entities may issue rate reduction bonds upon approval by the commission in the pertinent financing orders. Rate reduction bonds shall be nonrecourse to the credit or any assets of the electrical corporation, other than the transition property as specified in the pertinent financing order.

(b) Electrical corporations may sell and assign all or portions of their interest in transition property to an affiliate. Electrical corporations or their affiliates may sell or assign their interests to one or more financing entities that make that property the basis for issuance of rate reduction bonds to the extent approved in the pertinent financing orders. Electrical corporations, their affiliates, or financing entities may pledge transition property as collateral, directly or indirectly, for rate reduction bonds to the extent approved in the pertinent financing orders providing for a security interest in the transition property, in the manner as set forth in Section 843. In addition transition property may be sold or assigned by (1) the financing entity or a trustee for the holders of rate reduction bonds in connection with the exercise of remedies upon a default, or (2) any person acquiring the transition property after a sale or assignment pursuant to this subdivision.

(c) To the extent that any interest in transition property is so sold or assigned, or is so pledged as collateral, the commission shall authorize the electrical corporation to contract with the financing entity that it will continue to operate its system to provide service to its customers, will collect amounts in respect of the fixed transition amounts for the benefit and account of the financing entity, and will account for and remit these amounts to or for the account of the financing entity. Contracting with the financing entity in accordance with that authorization shall not impair or negate the characterization of the sale, assignment, or pledge as an absolute transfer, a true sale, or security interest, as applicable.

(d) Notwithstanding Section 1708 or any other provision of law, any requirement under this article or a financing order that the commission take action with respect to the subject matter of a financing order shall be binding upon the commission, as it may be constituted from time to time, and any successor agency exercising functions similar to the commission and the commission shall have no authority to rescind, alter, or amend that requirement in a financing order. The approval by the commission in a financing order of the issuance by an electrical corporation or a financing entity of rate reduction bonds shall include the approvals, if any, as may be required by Article 5 (commencing with Section 816) and Section 701.5. Nothing in Section 701.5 shall be construed to prohibit the issuance of rate reduction bonds upon the terms and conditions as may be approved by the commission in a financing order. Section 851 shall not be applicable to the transfer or pledge of transition property, the issuance of rate reduction bonds, or related transactions approved in a financing order.

history: (History: Amended by Stats. 1997, Ch. 275, Sec. 29. Effective August 15, 1997.)

article: 5.5. Financing of Transition Costs


citation: PUC § 843

text:
(a) A security interest in transition property is valid, is enforceable against the pledgor and third parties, subject to the rights of any third parties holding security interests in the transition property perfected in the manner described in this section, and attaches when all of the following have taken place:

(1) The commission has issued the financing order authorizing the fixed transition amounts included in the transition property.

(2) Value has been given by the pledgees of the transition property.

(3) The pledgor has signed a security agreement covering the transition property.

(b) A valid and enforceable security interest in transition property is perfected when it has attached and when a financing statement has been filed in accordance with Chapter 5 (commencing with Section 9501) of Division 9 of the Commercial Code naming the pledgor of the transition property as “debtor” and identifying the transition property. Any description of the transition property shall be sufficient if it refers to the financing order creating the transition property. A copy of the financing statement shall be filed with the commission by the electrical corporation that is the pledgor or transferor of the transition property, and the commission may require the electrical corporation to make other filings with respect to the security interest in accordance with procedures it may establish, provided that the filings shall not affect the perfection of the security interest.

(c) A perfected security interest in transition property is a continuously perfected security interest in all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting security interests shall rank according to priority in time of perfection. Transition property shall constitute property for all purposes, including for contracts securing rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.

(d) Subject to the terms of the security agreement covering the transition property and the rights of any third parties holding security interests in the transition property perfected in the manner described in this section, the validity and relative priority of a security interest created under this section is not defeated or adversely affected by the commingling of revenues arising with respect to the transition property with other funds of the electrical corporation that is the pledgor or transferor of the transition property, or by any security interest in a deposit account of that electrical corporation perfected under Division 9 (commencing with Section 9101) of the Commercial Code into which the revenues are deposited. Subject to the terms of the security agreement, upon compliance with the requirements of Section 9311 of the Commercial Code, the pledgees of the transition property shall have a perfected security interest in all cash and deposit accounts of the electrical corporation in which revenues arising with respect to the transition property have been commingled with other funds, but the perfected security interest shall be limited to an amount not greater than the amount of the revenues with respect to the transition property received by the electrical corporation within 12 months before (1) any default under the security agreement or (2) the institution of insolvency proceedings by or against the electrical corporation, less payments from the revenues to the pledgees during that 12-month period.

(e) If an event of default occurs under the security agreement covering the transition property, the pledgees of the transition property, subject to the terms of the security agreement, shall have all rights and remedies of a secured party upon default under Division 9 (commencing with Section 9101) of the Commercial Code, and shall be entitled to foreclose or otherwise enforce their security interest in the transition property, subject to the rights of any third parties holding prior security interests in the transition property perfected in the manner provided in this section. In addition, the commission may require, in the financing order creating the transition property, that, in the event of default by the electrical corporation in payment of revenues arising with respect to the transition property, the commission and any successor thereto, upon the application by the pledgees or transferees, including transferees under Section 844, of the transition property, and without limiting any other remedies available to the pledgees or transferees by reason of the default, shall order the sequestration and payment to the pledgees or transferees of revenues arising with respect to the transition property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, or transferor of the transition property. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, costs, and arrearages on the rate reduction bonds, and other costs arising under the security agreement, shall be remitted to the debtor or to the pledgor or transferor.

(f) Section 5451 of the Government Code shall not apply to any pledge of transition property by a financing entity. Sections 9204 and 9205 of the Commercial Code shall apply to a pledge of transition property by an electrical corporation, an affiliate of an electrical corporation, or a financing entity.

(g) This section sets forth the terms by which a consensual security interest can be created and perfected in the transition property. Unless otherwise ordered by the commission with respect to any series of rate reduction bonds on or prior to the issuance of the series, there shall exist a statutory lien as provided in this subdivision. Upon the effective date of the financing order, there shall exist a first priority lien on all transition property then existing or thereafter arising pursuant to the terms of the financing order. This lien shall arise by operation of this section automatically without any action on the part of the electrical corporation, any affiliate thereof, the financing entity, or any other person. This lien shall secure all obligations, then existing or subsequently arising, to the holders of the rate reduction bonds issued pursuant to the financing order, the trustee or representative for the holders, and any other entity specified in the financing order. The persons for whose benefit this lien is established shall, upon the occurrence of any defaults specified in the financing order, have all rights and remedies of a secured party upon default under Division 9 (commencing with Section 9101) of the Commercial Code, and shall be entitled to foreclose or otherwise enforce this statutory lien in the transition property. This lien shall attach to the transition property regardless of who shall own, or shall subsequently be determined to own, the transition property including any electrical corporation, any affiliate thereof, the financing entity, or any other person. This lien shall be valid, perfected, and enforceable against the owner of the transition property and all third parties upon the effectiveness of the financing order without any further public notice; provided, however, that any person may, but shall not be required to, file a financing statement in accordance with subdivision (b). Financing statements so filed may be “protective filings” and shall not be evidence of the ownership of the transition property.

A perfected statutory lien in transition property is a continuously perfected lien in all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting liens shall rank according to priority in time of perfection. Transition property shall constitute property for all purposes, including for contracts securing rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.

In addition, the commission may require, in the financing order creating the transition property, that, in the event of default by the electrical corporation in payment of revenues arising with respect to transition property, the commission and any successor thereto, upon the application by the beneficiaries of the statutory lien, and without limiting any other remedies available to the beneficiaries by reason of the default, shall order the sequestration and payment to the beneficiaries of revenues arising with respect to the transition property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, or transferor of the transition property. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, costs, and arrearages on the rate reduction bonds, and other costs arising in connection with the documents governing the rate reduction bonds, shall be remitted to the debtor or to the pledgor or transferor.

history: (History: Amended by Stats. 1999, Ch. 991, Sec. 55. Effective January 1, 2000. Operative July 1, 2001, by Sec. 75 of Ch. 991.)

article: 5.5. Financing of Transition Costs


citation: PUC § 844

text:
(a) A transfer of transition property by an electrical corporation to an affiliate or to a financing entity, or by an affiliate of an electrical corporation or a financing entity to another financing entity, which the parties have in the governing documentation expressly stated to be a sale or other absolute transfer, in a transaction approved in a financing order, shall be treated as an absolute transfer of all of the transferor’s right, title, and interest (as in a true sale), and not as a pledge or other financing, of the transition property, other than for federal and state income and franchise tax purposes. Granting to holders of rate reduction bonds a preferred right to revenues of the electrical corporation, or the provision by the company of other credit enhancement with respect to rate reduction bonds, shall not impair or negate the characterization of any transfer as a true sale, other than for federal and state income and franchise tax purposes.

(b) A transfer of transition property shall be deemed perfected as against third persons when both of the following have taken place:

(1) The commission has issued the financing order authorizing the fixed transition amounts included in the transition property.

(2) An assignment of the transition property in writing has been executed and delivered to the transferee.

(c) As between bona fide assignees of the same right for value without notice, the assignee first filing a financing statement in accordance with Chapter 5 (commencing with Section 9501) of Division 9 of the Commercial Code naming the assignor of the transition property as debtor and identifying the transition property has priority. Any description of the transition property shall be sufficient if it refers to the financing order creating the transition property. A copy of the financing statement shall be filed by the assignee with the commission, and the commission may require the assignor or the assignee to make other filings with respect to the transfer in accordance with procedures it may establish, but these filings shall not affect the perfection of the transfer.

history: (History: Amended by Stats. 1999, Ch. 991, Sec. 56. Effective January 1, 2000. Operative July 1, 2001, by Sec. 75 of Ch. 991.)

article: 5.5. Financing of Transition Costs


citation: PUC § 845

text: Any successor to the electrical corporation, whether pursuant to any bankruptcy, reorganization, or other insolvency proceeding, or pursuant to any merger, sale, or transfer, by operation of law, or otherwise, shall perform and satisfy all obligations of the electrical corporation pursuant to this article in the same manner and to the same extent as the electrical corporation, including, but not limited to, collecting and paying to the holders of rate reduction bonds or their representatives or the applicable financing entity revenues arising with respect to the transition property sold to the applicable financing entity or pledged to secure rate reduction bonds.

history: (History: Added by Stats. 1996, Ch. 854, Sec. 11. Effective September 24, 1996.)

article: 5.5. Financing of Transition Costs


citation: PUC § 846

text: The authority of the commission to issue financing orders pursuant to Section 841 shall expire on June 30, 2022. The expiration of the authority shall have no effect upon financing orders adopted by the commission pursuant to this article or any transition property arising therefrom, or upon the charges authorized to be levied thereunder, or the rights, interests, and obligations of the electrical corporation or a financing entity or holders of transition bonds pursuant to the financing order, or the authority of the commission to monitor, supervise, or take further action with respect to the order in accordance with the terms of this article and of the order.

history: (History: Amended by Stats. 2016, Ch. 842, Sec. 17. (SB 1222) Effective January 1, 2017.)

article: 5.5. Financing of Transition Costs


text:
(a) Notwithstanding subdivision (c) of Section 841, for any electrical corporation that ended its rate freeze period described in subdivision (a) of Section 368 prior to July 15, 1999, the commission may order a fair and reasonable credit to ratepayers of any excess rate reduction bond proceeds.

(b) “Excess rate reduction bond proceeds,” as used in this section, means proceeds from the sale of rate reduction bonds authorized by commission financing orders issued pursuant to this article that are subsequently determined by the commission to be in excess of the amounts necessary to provide the 10-percent rate reduction during the period when the rates were frozen pursuant to subdivision (a) of Section 368.

history: (History: Added by Stats. 1999, Ch. 683, Sec. 1. Effective January 1, 2000.)

article: 5.5. Financing of Transition Costs


citation: PUC § 847

text: Regulations adopted to implement this article shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).

article: 5.5. Financing of Transition Costs


citation: PUC § 848

text:
For the purposes of this article, the following terms shall have the following meanings:

(a) “Consumer” means any individual, governmental body, trust, business entity or nonprofit organization which consumes electricity that has been transmitted or distributed by means of electric transmission or distribution facilities, whether those electric transmission or distribution facilities are owned by the consumer, the recovery corporation, or any other party.

(b) “Financing entity” means the recovery corporation or any subsidiary or affiliate of the recovery corporation that is authorized by the commission to issue recovery bonds or acquire recovery property, or both.

(c) “Financing order” means an order of the commission adopted in accordance with this article, which shall include, without limitation, a procedure to require the expeditious approval by the commission of periodic adjustments to fixed recovery amounts and to any associated fixed recovery tax amounts included in that financing order to ensure recovery of all recovery costs and the costs associated with the proposed recovery, financing, or refinancing thereof, including the costs of servicing and retiring the recovery bonds contemplated by the financing order.

(d) “Fixed recovery amounts” means those nonbypassable rates and other charges, including, but not limited to, distribution, connection, disconnection, and termination rates and charges, that are authorized by the commission in a financing order to recover (1) recovery costs specified in the financing order, and (2) the costs of recovering, financing, or refinancing those recovery costs through a plan approved by the commission in the financing order, including the costs of servicing and retiring recovery bonds.

(e) “Fixed recovery tax amounts” means those nonbypassable rates and other charges, including, but not limited to, distribution, connection, disconnection, and termination rates and charges, that are needed to recover federal and State of California income and franchise taxes associated with fixed recovery amounts authorized by the commission in the financing order and that are not financed from proceeds of recovery bonds.

(f) “Recovery bonds” means bonds, notes, certificates of participation or beneficial interest, or other evidences of indebtedness or ownership, issued pursuant to an executed indenture or other agreement of a financing entity, the proceeds of which are used, directly or indirectly, to recover, finance, or refinance recovery costs, and that are directly or indirectly secured by, or payable from, recovery property.

(g) “Recovery corporation” means Pacific Gas and Electric Company, the electrical corporation described in the commission’s Decision No. 03-12-035.

(h) “Recovery costs” means (1) the unamortized balance of the regulatory asset arising and existing pursuant to the commission’s Decision No. 03-12-035, (2) federal and State of California income and franchise taxes associated with recovery of the unamortized balance of that regulatory asset, (3) costs of issuing recovery bonds, and (4) professional fees, consultant fees, redemption premiums, tender premiums and other costs incurred by the recovery corporation in using proceeds of recovery bonds to acquire outstanding securities of the recovery corporation.

(i) (1) “Recovery property” means the property right created pursuant to this article, including, without limitation, the right, title, and interest of the recovery corporation or its transferee:

(A) In and to the tariff established pursuant to a financing order, as adjusted from time to time in accordance with Section 848.1 and the financing order.

(B) To be paid the amount that is determined in a financing order to be the amount that the recovery corporation or its transferee is lawfully entitled to receive pursuant to the provisions of this article and the proceeds thereof, and in and to all revenues, collections, claims, payments, money, or proceeds of or arising from the tariff or constituting fixed recovery amounts that are the subject of a financing order including those nonbypassable rates and other charges referred to in subdivision (d).

(C) In and to all rights to obtain adjustments to the tariff relating to fixed recovery amounts pursuant to the terms of Section 848.1 and the financing order.

(2) “Recovery property” shall not include the right to be paid fixed recovery tax amounts.

(3) “Recovery property” shall constitute a current property right notwithstanding the fact that the value of the property right will depend on consumers using electricity or, in those instances where consumers are customers of the recovery corporation, the recovery corporation performing certain services.

(j) “Service territory” means the geographical area that the recovery corporation provided with electric distribution service as of December 19, 2003.

history: (History: Amended by Stats. 2008, Ch. 558, Sec. 27. Effective January 1, 2009.)

article: 5.6. Financing Utility Recovery

path: 1. REGULATION OF PUBLIC UTILITIES > 1. PUBLIC UTILITIES ACT > 4. Regulation of Public Utilities > 5.6. Financing Utility Recovery


text:
(a) No later than 120 days after the effective date of this article, and from time to time thereafter, the recovery corporation shall apply to the commission for a determination that some or all of the recovery corporation’s recovery costs may be recovered through fixed recovery amounts, which would be recovery property under this article, and that any portion of the recovery corporation’s federal and State of California income and franchise taxes associated with those fixed recovery amounts and not financed from proceeds of recovery bonds be recovered through fixed recovery tax amounts. The recovery corporation may request this determination by the commission in a separate proceeding or in an existing proceeding, or both. The recovery corporation shall in its application specify that consumers within its service territory would benefit from reduced rates on a present value basis through the issuance of recovery bonds. The commission shall designate fixed recovery amounts and any associated fixed recovery tax amounts as recoverable in one or more financing orders if the commission determines, as part of its findings in connection with the financing order, that the designation of the fixed recovery amounts and any associated fixed recovery tax amounts, and the issuance of recovery bonds in connection with fixed recovery amounts, would reduce the rates on a present value basis that consumers within the recovery corporation’s service territory would pay if the financing order were not adopted. Fixed recovery amounts and any associated fixed recovery tax amounts shall only be imposed on existing and future consumers in the service territory. Consumers within the service territory shall continue to pay fixed recovery amounts and any associated fixed tax recovery amounts until the recovery bonds are paid in full by the financing entity. Once the recovery bonds have been paid in full, the payment by consumers of fixed recovery amounts and fixed recovery tax amounts shall terminate.

(b) The commission shall establish an effective mechanism that ensures recovery of recovery costs through fixed recovery amounts and any associated fixed recovery tax amounts from existing and future consumers in the service territory, provided that the costs shall not be recoverable from any of the following:

(1) New load or incremental load of an existing consumer of the recovery corporation where the load is being met through a direct transaction and the transaction does not require the use of transmission or distribution facilities owned by the recovery corporation.

(2) Customer Generation departing load that is exempt from Department of Water Resources power charges pursuant to the commission’s Decision No. 03-04-030, as modified by Decision No. 03-04-041, and as clarified and affirmed by Decision No. 03-05-039, except that the load shall pay the costs as a component of and in proportion to any purchase of electricity delivered by the recovery corporation under standby or other service made following its departure.

(3) The Department of Water Resources, with respect to the pumping, generation, and transmission facilities and operations of the State Water Resources Development System, except to the extent that system facilities receive electric service from the recovery corporation on or after December 19, 2003, under a commission approved tariff.

(4) Retail electric load, continuously served by a local publicly owned electric utility from January 1, 2000, through the effective date of the act adding this section.

(5) Load that thereafter comes to take electric service from a city where all the following conditions are met:

(A) The new load is from locations that never received electric service from the recovery corporation.

(B) The city owns and operates the local publicly owned electric utility.

(C) The local publicly owned electric utility served more than 95 percent of the customers receiving electric service residing within the city limits prior to December 19, 2003.

(D) The city annexed the territory in which the load is located on or after December 19, 2003.

(E) Following annexation, the city provides all municipal services to the annexed territory that the city provides to other territory within the city limits, including electric service.

(F) The total load exempt from paying fixed recovery amounts and associated fixed recovery tax amounts pursuant to subparagraphs (A) through (D), inclusive, does not exceed 50 megawatts, as determined by the commission, and any load above the 50 megawatt exemption amount shall be responsible for paying recovery amounts and associated fixed recovery tax amounts, except as provided in subdivision (c).

(c) Except as provided in paragraphs (4) and (5) of subdivision (b), the commission shall determine the extent to which fixed recovery amounts and any associated fixed recovery tax amounts are recoverable from new municipal load, consistent with the commission’s determination in the limited rehearing granted in Decision 03-08-076. The determination of the commission shall be made on the earlier of the date it adopts a financing order or December 31, 2004.

(d) Except as provided in paragraphs (4) and (5) of subdivision (b) and in subdivision (c), the obligation to pay fixed recovery amounts and any associated fixed recovery tax amounts cannot be avoided by the formation of a local publicly owned electric utility on or after December 19, 2003, or by annexation of any portion of the service territory of the recovery corporation by an existing local publicly owned electric utility.

(e) Recovery bonds authorized by the commission’s financing orders may be issued in one or more series on or before December 31, 2006.

(f) The commission may issue financing orders in accordance with this article to facilitate the recovery, financing, or refinancing of recovery costs. A financing order may be adopted only upon the application of the recovery corporation and shall become effective in accordance with its terms only after the recovery corporation files with the commission the recovery corporation’s written consent to all terms and conditions of the financing order. A financing order may specify how amounts collected from a consumer shall be allocated between fixed recovery amounts, any associated fixed recovery tax amounts, and other charges.

(g) Notwithstanding Section 455.5 or 1708, or any other provision of law, except as otherwise provided in Section 848.7 or in this subdivision with respect to recovery property that has been made the basis for the issuance of recovery bonds and with respect to any associated fixed recovery tax amounts, the financing order, the fixed recovery amounts and any associated fixed recovery tax amounts shall be irrevocable, and the commission shall not have authority either by rescinding, altering, or amending the financing order or otherwise, to revalue or revise for ratemaking purposes, the recovery costs or the costs of recovering, financing, or refinancing the recovery costs, determine that the fixed recovery amounts, any associated fixed recovery tax amounts or rates are unjust or unreasonable, or in any way reduce or impair the value of recovery property or of the right to receive any associated fixed recovery tax amounts either directly or indirectly by taking fixed recovery amounts or any associated fixed recovery tax amounts into account when setting other rates for the recovery corporation or when setting charges for the Department of Water Resources; nor shall the amount of revenues arising with respect thereto be subject to reduction, impairment, postponement, or termination. Except as otherwise provided in this subdivision, the State of California does hereby pledge and agree with the recovery corporation, owners of recovery property, and holders of recovery bonds that the state shall neither limit nor alter the fixed recovery amounts, any associated fixed recovery tax amounts, recovery property, financing orders, or any rights thereunder until the recovery bonds, together with the interest thereon, are fully paid and discharged, and any associated fixed recovery tax amounts have been satisfied or, in the alternative, have been refinanced through an additional issue of recovery bonds; provided nothing contained in this section shall preclude the limitation or alteration if and when adequate provision shall be made by law for the protection of the recovery corporation, owners, and holders. The financing entity is authorized to include this pledge and undertaking for the state in these recovery bonds. Notwithstanding any other provision of this section, the commission shall approve adjustments to the fixed recovery amounts and any associated fixed recovery tax amounts as may be necessary to ensure timely recovery of all recovery costs that are the subject of the pertinent financing order, and the costs of capital associated with the recovery, financing, or refinancing thereof, including servicing and retiring the recovery bonds contemplated by the financing order. When setting other rates for the recovery corporation, nothing in this subdivision shall prevent the commission from taking into account either of the following:

(1) Any collection of fixed recovery amounts in excess of amounts actually required to pay recovery costs financed or refinanced by recovery bonds.

(2) Any collection of fixed recovery tax amounts in excess of amounts actually required to pay federal and State of California income and franchise taxes associated with fixed recovery amounts; provided that this would not result in a recharacterization of the tax, accounting, and other intended characteristics of the financing, including, but not limited to, either of the following:

(A) Treating the recovery bonds as debt of the recovery corporation or its affiliates for federal income tax purposes.

(B) Treating the transfer of the recovery property by the recovery corporation as a true sale for bankruptcy purposes.

(h) (1) Financing orders issued under this article do not constitute a debt or liability of the state or of any political subdivision thereof, and do not constitute a pledge of the full faith and credit of the state or any of its political subdivisions, but are payable solely from the funds provided therefor under this article and shall be consistent with Sections 1 and 18 of Article XVI of the California Constitution. This subdivision shall in no way preclude bond guarantees or enhancements pursuant to this article. All recovery bonds shall contain on the face thereof a statement to the following effect: “Neither the full faith and credit nor the taxing power of the State of California is pledged to the payment of the principal of, or interest on, this bond.”

(2) The issuance of recovery bonds under this article shall not directly, indirectly, or contingently obligate the state or any political subdivision thereof to levy or to pledge any form of taxation therefor or to make any appropriation for their payment.

(i) The commission shall establish procedures for the expeditious processing of applications for financing orders, including the approval or disapproval thereof within 120 days of the recovery corporation making application therefor. The commission shall provide in any financing order for a procedure for the expeditious approval by the commission of periodic adjustments to the fixed recovery amounts and any associated fixed recovery tax amounts that are the subject of the pertinent financing order, as required by subdivision (g). The procedure shall require the commission to determine whether the adjustments are required on each anniversary of the issuance of the financing order, and at the additional intervals as may be provided for in the financing order, and for the adjustments, if required, to be approved within 90 days of each anniversary of the issuance of the financing order, or of each additional interval provided for in the financing order.

(j) Fixed recovery amounts are recovery property when, and to the extent that, a financing order authorizing the fixed recovery amounts has become effective in accordance with this article, and the recovery property shall thereafter continuously exist as property for all purposes with all of the rights and privileges of this article for the period and to the extent provided in the financing order, but in any event until the recovery bonds are paid in full, including all principal, interest, premium, costs, and arrearages thereon.

(k) This article and any financing order made pursuant to this article do not amend, reduce, modify, or otherwise affect the right of the Department of Water Resources to recover its revenue requirements and to receive the charges that it is to recover and receive pursuant to Division 27 (commencing with Section 80000) of the Water Code, or pursuant to any agreement entered into by the commission and the Department of Water Resources pursuant to that division.

history: (History: Added by Stats. 2004, Ch. 46, Sec. 5. Effective June 7, 2004.)

article: 5.6. Financing Utility Recovery


text:
(a) The financing entity may issue recovery bonds upon approval by the commission in the pertinent financing orders. Recovery bonds shall be nonrecourse to the credit or any assets of the recovery corporation, other than the recovery property as specified in the pertinent financing order.

(b) The recovery corporation may sell and assign all or portions of its interest in recovery property to one or more financing entities that make that recovery property the basis for issuance of recovery bonds, to the extent approved in the financing order. The recovery corporation or financing entity may pledge recovery property as collateral, directly or indirectly, for recovery bonds to the extent approved in the pertinent financing orders providing for a security interest in the recovery property, in the manner set forth in Section 848.3. In addition, recovery property may be sold or assigned by (1) the financing entity or a trustee for the holders of recovery bonds in connection with the exercise of remedies upon a default, or (2) any person acquiring the recovery property after a sale or assignment pursuant to this subdivision.

(c) To the extent that any interest in recovery property is so sold or assigned, or is so pledged as collateral, the commission shall authorize the recovery corporation to contract with the financing entity that it will continue to operate its system to provide service to consumers within its service territory, will collect amounts in respect of the fixed recovery amounts for the benefit and account of the financing entity, and will account for and remit these amounts to or for the account of the financing entity. Contracting with the financing entity in accordance with that authorization shall not impair or negate the characterization of the sale, assignment, or pledge as an absolute transfer, a true sale, or security interest, as applicable.

(d) Notwithstanding Section 1708 or any other provision of law, any requirement under this article or a financing order that the commission take action with respect to the subject matter of a financing order shall be binding upon the commission, as it may be constituted from time to time, and any successor agency exercising functions similar to the commission, and the commission shall have no authority to rescind, alter, or amend that requirement in a financing order. The approval by the commission in a financing order of the issuance by the recovery corporation or a financing entity of recovery bonds shall include the approvals, if any, as may be required by Article 5 (commencing with Section 816) and Section 701.5. Nothing in Section 701.5 shall be construed to prohibit the issuance of recovery bonds upon the terms and conditions as may be approved by the commission in a financing order. Section 851 is not applicable to the transfer or pledge of recovery property, the issuance of recovery bonds, or related transactions approved in a financing order.

article: 5.6. Financing Utility Recovery


text:
(a) A security interest in recovery property is valid, is enforceable against the pledgor and third parties, subject to the rights of any third parties holding security interests in the recovery property perfected in the manner described in this section, and attaches when all of the following have taken place:

(1) The commission has issued the financing order authorizing the fixed recovery amounts included in the recovery property.

(2) Value has been given by the pledgees of the recovery property.

(3) The pledgor has signed a security agreement covering the recovery property.

(b) A valid and enforceable security interest in recovery property is perfected when it has attached and when a financing statement has been filed in accordance with Chapter 5 (commencing with Section 9501) of Division 9 of the Commercial Code naming the pledgor of the recovery property as “debtor” and identifying the recovery property. Any description of the recovery property shall be sufficient if it refers to the financing order creating the recovery property. A copy of the financing statement shall be filed with the commission by the recovery corporation that is the pledgor or transferor of the recovery property, and the commission may require the recovery corporation to make other filings with respect to the security interest in accordance with procedures it may establish, provided that the filings shall not affect the perfection of the security interest.

(c) A perfected security interest in recovery property is a continuously perfected security interest in all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting security interests shall rank according to priority in time of perfection. Recovery property shall constitute property for all purposes, including for contracts securing recovery bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.

(d) Subject to the terms of the security agreement covering the recovery property and the rights of any third parties holding security interests in the recovery property perfected in the manner described in this section, the validity and relative priority of a security interest created under this section is not defeated or adversely affected by the commingling of revenues arising with respect to the recovery property with other funds of the recovery corporation that is the pledgor or transferor of the recovery property, or by any security interest in a deposit account of that recovery corporation perfected under Division 9 (commencing with Section 9101) of the Commercial Code into which the revenues are deposited. Subject to the terms of the security agreement, upon compliance with the requirements of paragraph (1) of subdivision (b) of Section 9312 of the Commercial Code, the pledgees of the recovery property shall have a perfected security interest in all cash and deposit accounts of the recovery corporation in which revenues arising with respect to the recovery property have been commingled with other funds, but the perfected security interest shall be limited to an amount not greater than the amount of the revenues with respect to the recovery property received by the recovery corporation within 12 months before (1) any default under the security agreement or (2) the institution of insolvency proceedings by or against the recovery corporation, less payments from the revenues to the pledgees during that 12-month period.

(e) If an event of default occurs under the security agreement covering the recovery property, the pledgees of the recovery property, subject to the terms of the security agreement, shall have all rights and remedies of a secured party upon default under Division 9 (commencing with Section 9101) of the Commercial Code, and are entitled to foreclose or otherwise enforce their security interest in the recovery property, subject to the rights of any third parties holding prior security interests in the recovery property perfected in the manner provided in this section. In addition, the commission may require in the financing order creating the recovery property that, in the event of default by the recovery corporation in payment of revenues arising with respect to the recovery property, the commission and any successor thereto, upon the application by the pledgees or transferees, including transferees under Section 848.4, of the recovery property, and without limiting any other remedies available to the pledgees or transferees by reason of the default, shall order the sequestration and payment to the pledgees or transferees of revenues arising with respect to the recovery property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, costs, and arrearages on the recovery bonds, and other costs arising under the security agreement, shall be remitted to the debtor.

(f) Sections 9204 and 9205 of the Commercial Code apply to a pledge of recovery property by the recovery corporation, an affiliate of the recovery corporation, or a financing entity.

(g) This section sets forth the terms by which a consensual security interest can be created and perfected in the recovery property. Unless otherwise ordered by the commission with respect to any series of recovery bonds on or prior to the issuance of the series, there shall exist a statutory lien as provided in this subdivision. Upon the effective date of the financing order, there shall exist a first priority lien on all recovery property then existing or thereafter arising pursuant to the terms of the financing order. This lien shall arise by operation of this section automatically without any action on the part of the recovery corporation, any affiliate thereof, the financing entity, or any other person. This lien shall secure all obligations, then existing or subsequently arising, to the holders of the recovery bonds issued pursuant to the financing order, the trustee or representative for the holders, and any other entity specified in the financing order. The persons for whose benefit this lien is established shall, upon the occurrence of any defaults specified in the financing order, have all rights and remedies of a secured party upon default under Division 9 (commencing with Section 9101) of the Commercial Code, and are entitled to foreclose or otherwise enforce this statutory lien in the recovery property. This lien attaches to the recovery property regardless of who owns, or is subsequently determined to own, the recovery property, including the recovery corporation, any affiliate thereof, the financing entity, or any other person. This lien shall be valid, perfected, and enforceable against the owner of the recovery property and all third parties upon the effectiveness of the financing order without any further public notice; provided, however, that any person may, but is not required to, file a financing statement in accordance with subdivision (b). Financing statements so filed may be “protective filings” and are not evidence of the ownership of the recovery property.

A perfected statutory lien in recovery property is a continuously perfected lien in all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting liens shall rank according to priority in time of perfection. Recovery property shall constitute property for all purposes, including for contracts securing recovery bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.

In addition, the commission may require, in the financing order creating the recovery property, that, in the event of default by the recovery corporation in the payment of revenues arising with respect to recovery property, the commission and any successor thereto, upon the application by the beneficiaries of the statutory lien, and without limiting any other remedies available to the beneficiaries by reason of the default, shall order the sequestration and payment to the beneficiaries of revenues arising with respect to the recovery property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, costs, and arrearages on the recovery bonds, and other costs arising in connection with the documents governing the recovery bonds, shall be remitted to the debtor.

article: 5.6. Financing Utility Recovery


text:
(a) A transfer of recovery property by the recovery corporation to an affiliate or to a financing entity, or by an affiliate of the recovery corporation or a financing entity to another financing entity, which the parties in the governing documentation have expressly stated to be a sale or other absolute transfer, in a transaction approved in a financing order, shall be treated as an absolute transfer of all of the transferor’s right, title, and interest (as in a true sale), and not as a pledge or other financing, of the recovery property, other than for federal and state income and franchise tax purposes. The grant to holders of recovery bonds of a preferred right to revenues of the recovery corporation, or the provision by the company of other credit enhancement with respect to recovery bonds, shall not impair or negate the characterization of any transfer as a true sale, other than for federal and state income and franchise tax purposes.

(b) A transfer of recovery property shall be deemed perfected as against third persons when both of the following have taken place:

(1) The commission has issued the financing order authorizing the fixed recovery amounts included in the recovery property.

(2) An assignment of the recovery property in writing has been executed and delivered to the transferee.

(c) As between bona fide assignees of the same right for value without notice, the assignee first filing a financing statement in accordance with Chapter 5 (commencing with Section 9501) of Division 9 of the Commercial Code naming the assignor of the recovery property as debtor and identifying the recovery property has priority. Any description of the recovery property is sufficient if it refers to the financing order creating the recovery property. A copy of the financing statement shall be filed by the assignee with the commission, and the commission may require the assignor or the assignee to make other filings with respect to the transfer in accordance with procedures it may establish, but these filings shall not affect the perfection of the transfer.

article: 5.6. Financing Utility Recovery


text: Any successor to the recovery corporation, whether pursuant to any bankruptcy, reorganization, or other insolvency proceeding, or pursuant to any merger, sale, or transfer, by operation of law, or otherwise, shall perform and satisfy all obligations of the recovery corporation pursuant to this article in the same manner and to the same extent as the recovery corporation, including, but not limited to, collecting and paying to the holders of recovery bonds, or their representatives, or the applicable financing entity revenues arising with respect to the recovery property sold to the applicable financing entity or pledged to secure recovery bonds. Any successor to the recovery corporation is entitled to receive any fixed recovery tax amounts otherwise payable to the recovery corporation.

article: 5.6. Financing Utility Recovery


text: The authority of the commission to issue financing orders pursuant to Section 848.1 shall expire on December 31, 2006. The expiration of the authority shall have no effect upon financing orders adopted by the commission pursuant to this article or any recovery property arising therefrom, or upon the charges authorized to be levied thereunder, or the rights, interests, and obligations of the recovery corporation or a financing entity or holders of recovery bonds pursuant to the financing order, or the authority of the commission to monitor, supervise, or take further action with respect to the order in accordance with the terms of this article and of the order.

article: 5.6. Financing Utility Recovery


text: Notwithstanding subdivision (g) of Section 848.1, the commission shall credit ratepayers, in a manner to be determined by the commission, with the net after tax amount of any payments, offsets, or other credits the recovery corporation actually receives from generators of electricity or other energy suppliers that would have reduced the unamortized balance of the recovery corporation’s regulatory asset created under the commission’s Decision No. 03-12-035 but for the prior issuance of recovery bonds.

article: 5.6. Financing Utility Recovery


text: Notwithstanding any other law, regulations adopted to implement this article are not subject to the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).

article: 5.6. Financing Utility Recovery


citation: PUC § 849

text:
For purposes of this article, the following definitions shall apply:

(a) “Ancillary agreement” means a bond insurance policy, letter of credit, reserve account, surety bond, swap arrangement, hedging arrangement, liquidity or credit support arrangement, or other similar agreement or arrangement entered into in connection with the issuance of water rate relief bonds that is designed to promote the credit quality and marketability of the bonds or to mitigate the risk of an increase in interest rates.

(b) “Customer” means an individual, governmental body, trust, business entity, or nonprofit organization that is a customer of the qualifying water utility, has responsibility for a service address provided water service by the utility, or consumes water that has been transmitted or distributed by means of distribution facilities.

(c) “District” means the Monterey Peninsula Water Management District, or its successor or assignee.

(d) “Financing costs” means the costs to issue, service, repay, or refinance water rate relief bonds, whether incurred or paid upon issuance of the bonds or over the life of the bonds, and approved for recovery by the commission in a financing order. “Financing costs” may include any of the following:

(1) Principal, interest, and redemption premiums that are payable on water rate relief bonds.

(2) A payment required under an ancillary agreement and an amount required to fund or replenish a reserve account or other account established under an indenture, ancillary agreement, or other financing document relating to the water rate relief bonds.

(3) Costs of retiring or funding an existing debt and equity security of a qualifying water utility in connection with the issuance of water rate relief bonds to the extent the securities were issued for the purpose of financing water supply costs.

(4) Costs incurred by, on behalf of, or allocated to, a qualifying water utility to obtain modifications of, or amendments to, an indenture, financing agreement, security agreement, or similar agreement or instrument relating to an existing secured or unsecured obligation of a qualifying water utility or an affiliate of a qualifying water utility, or any costs incurred by or allocated to a qualifying water utility to obtain the consent, release, waiver, or approval from the holder of the obligation, that are necessary to be incurred to permit a qualifying water utility to issue or cause the issuance of water rate relief bonds.

(5) Taxes, franchise fees, or license fees imposed on water supply charges.

(6) Costs related to issuing and servicing water rate relief bonds or the application for a financing order, including, without limitation, servicing fees and expenses, trustee fees and expenses, legal fees and expenses, accounting fees, administrative fees, underwriting and placement fees, financial advisory fees, capitalized interest, rating agency fees, and any other related costs that are approved for recovery in the financing order, including costs incurred by a public financing entity.

(7) Other costs as specifically authorized by a financing order.

(e) “Financing entity” means either or both of the following:

(1) The qualifying water utility, or its subsidiary or affiliate, that is authorized by the commission to issue water rate relief bonds, or acquire water supply property, or both, pursuant to a financing order.

(2) A public financing entity authorized to issue water rate relief bonds pursuant to a financing order.

(f) “Financing order” means an order of the commission adopted in accordance with this article, which shall include a procedure for periodic true-up adjustments to water supply charges.

(g) “Qualifying water utility” means California American Water, or any successor public utility described in Section 2701 of the Public Utilities Code that is engaged in the delivery of water to customers on the Monterey Peninsula.

(h) “Public financing entity” means any of the following:

(1) The district.

(2) A joint exercise of powers authority in which the district is a member.

(3) A public agency that is authorized to issue water rate relief bonds, or acquire water supply property, or both.

(i) “Service territory” means the geographical area within or surrounding the Monterey Peninsula that the qualifying water utility provides water service to in accordance with its certificate of public convenience and necessity and within which water supply charges may be imposed and collected as further described in the financing order.

(j) “True-up adjustment” means a formula-based adjustment to the water supply charges as they appear on customer bills that are necessary to correct for any overcollection or undercollection of the water supply charges authorized by a financing order and to otherwise ensure the timely and complete payment and recovery of water supply costs and financing costs over the authorized repayment term.

(k) “Water rate relief bonds” means bonds, notes, certificates of participation or beneficial interest, or other evidences of indebtedness or ownership, issued pursuant to an executed indenture or other agreement of a financing entity, the proceeds of which are used, directly or indirectly, to provide, recover, finance, or refinance water supply costs and financing costs, and that are directly or indirectly secured by, or payable from, water supply property. Water rate relief bonds may be issued simultaneously by two financing entities, but water rate relief bonds shall not be issued after the seventh anniversary of a financing order issued in connection with commission proceeding A.12-04-019. Water rate relief bonds may be issued for a term not to exceed 30 years.

(l) “Water supply activity” means an activity or activities by or on behalf of a qualifying water utility in connection with the acquisition and construction of infrastructure directly related to a desalination facility and necessary equipment solely for that facility, including the pipes necessary for conveyance and tanks necessary for water storage, as authorized by the commission in proceeding A.12-04-019.

(m) “Water supply charges” means those nonbypassable charges that are authorized by the commission in a financing order to recover water supply costs and all financing costs specified in a financing order.

(n) “Water supply costs” means any reasonable and necessary costs, including capitalized interest costs relating to regulatory assets and capitalized costs associated with permitting, design, and engineering work, approved in a financing order, incurred or expected to be incurred by a qualifying water utility in undertaking water supply activities. Water supply costs include preliminary expenses and investments associated with water supply activities that are incurred before the issuance of a financing order and that are to be reimbursed from the proceeds of water rate relief bonds.

(o) (1) “Water supply property” means the property right created pursuant to this article, including, without limitation, the right, title, and interest of the qualifying water utility or its transferee in all of the following:

(A) In and to the water supply charges established pursuant to a financing order, including all rights to obtain adjustments to the water supply charges in accordance with Section 849.1 and the financing order.

(B) To be paid the amount that is determined in a financing order to be the amount that the qualifying water utility or its transferee is lawfully entitled to receive pursuant to the provisions of this article and the proceeds thereof, and in and to all revenues, collections, claims, payments, money, or proceeds of or arising from the water supply charges that are the subject of a financing order.

(2) “Water supply property” shall constitute a current property right notwithstanding the fact that the value of the property right will depend on customers using water or, in those instances where customers are customers of the qualifying water utility, the qualifying water utility performing certain services.

history: (History: Added by Stats. 2014, Ch. 482, Sec. 6. (SB 936) Effective January 1, 2015.)

path: 1. REGULATION OF PUBLIC UTILITIES > 1. PUBLIC UTILITIES ACT > 4. Regulation of Public Utilities > 5.7. Monterey Peninsula Water Supply Securitization Act


text:
(a) (1) The commission may issue financing orders in accordance with this article to facilitate the recovery, financing, or refinancing of water supply costs. A financing order may be adopted only upon the application of the qualifying water utility and shall become effective in accordance with its terms.

(2) Commencing January 1, 2015, the qualifying water utility may apply to the commission for a determination that no more than 50 percent of the qualifying water utility’s water supply costs may be recovered through water supply charges, which would be water supply property under this article. The commission shall not approve an increase in a financing order that exceeds a total amount of 5 percent of the water supply costs.

(3) A public financing entity that proposes to issue water rate relief bonds pursuant to Article 8 of Chapter 3 of Part 5 of the Monterey Peninsula Water Management District Law, as added by Chapter 527 of the Statutes of 1977, or Section 6537 of the Government Code, shall provide information as requested by the commission in connection with the application and proceeding.

(4) In its application the qualifying water utility shall specify how customers may benefit from reduced rates on a present value basis through the issuance of water rate relief bonds as compared to the use of traditional utility financing mechanisms. If a public financing entity proposes to issue water rate relief bonds, it shall provide evidence to the commission that the issuance of water rate relief bonds by the public financing entity, due to the availability of a federal or state income tax exemption, will provide savings to water customers on the Monterey Peninsula.

(5) The commission shall establish procedures for the expeditious processing of financing order applications, including the approval or disapproval of the qualifying water utility’s application, within 180 days of the application submission.

(b) The commission shall authorize the imposition and collection of water supply charges in one or more financing orders if the commission determines, as part of its findings in connection with the financing order, that each imposition and collection of the water supply charges, and the issuance of water rate relief bonds payable from those charges, would reduce the rates on a present value basis that customers within the qualifying water utility’s service territory would pay as compared to the use of traditional utility financing mechanisms, which shall be calculated using the qualifying water utility’s corporate debt and equity in the ratio approved by the commission at the time of the issuance of the financing order. The commission’s determination shall consider all customer payments including rates, surcharges, taxes, water supply charges, and any other payments made by customers for water supply activities.

(c) The commission shall establish in a financing order an effective mechanism that ensures recovery of water supply costs and financing costs through nonbypassable water supply charges. Water supply charges shall be imposed only on existing and future customers of the qualifying water utility’s service territory, and those customers shall be required to pay those charges until the water rate relief bonds and all financing costs are paid in full by the financing entity, at which time those charges shall be terminated. Water supply charges shall be irrevocable, notwithstanding any true-up adjustment pursuant to subdivision (g).

(d) A financing order may specify how amounts collected from a customer shall be allocated between water supply charges and other charges of the qualifying water utility, consistent with Section 779.2.

(e) (1) Notwithstanding Section 455.5 or 1708, or any other provision of law, and except as otherwise provided in subdivision (g), water supply property that has been made the basis for the issuance of water rate relief bonds, the financing order, and the water supply charges shall be irrevocable. The commission shall not, either by rescinding, altering, or amending the financing order or otherwise, revalue or revise for ratemaking purposes the water supply costs or the financing costs, determine that the water supply charges are unjust or unreasonable, or in any way reduce or impair the value of water supply property either directly or indirectly by taking water supply charges into account when setting other rates for the qualifying water utility. The amount of revenues arising shall not be subject to reduction, impairment, postponement, or termination.

(2) The State of California does hereby pledge and agree with the qualifying water utility, owners of water supply property, the financing entities, and owners of water rate relief bonds that the state shall neither limit nor alter, except as otherwise provided with respect to true-up adjustment of water supply charges pursuant to subdivision (g), the water supply charges, water supply property, financing orders, or any rights under a financing order until the water rate relief bonds, together with the interest on the bonds, and all related financing costs are fully paid and discharged, or, in the alternative, have been refinanced through an additional issue of water rate relief bonds, provided nothing contained in this section shall preclude the limitation or alteration if and when adequate provision shall be made by law for the protection of the qualifying water utility, financing entities, and owners. The financing entity is authorized to include this pledge and undertaking for the state in the water rate relief bonds.

(f) (1) Neither financing orders nor water rate relief bonds issued under this article shall constitute a debt or liability of the state or of any political subdivision of the state except a public financing entity, nor shall they constitute a pledge of the full faith and credit of the state or any of its political subdivisions, but are payable solely from the funds provided therefor under this article and shall be consistent with Sections 1 and 18 of Article XVI of the California Constitution. This subdivision shall not preclude bond guarantees or enhancements pursuant to this article or pursuant to Article 8 of Chapter 3 of Part 5 of the Monterey Peninsula Water Management District Law, as added by Chapter 527 of the Statutes of 1977, or Section 6537 of the Government Code. A water rate relief bond shall contain on the face of the bond a statement to the following effect: “Neither the full faith and credit nor the taxing power of the State of California is pledged to the payment of the principal of, or interest on, this bond.”

(2) The issuance of water rate relief bonds under this article shall not directly, indirectly, or contingently obligate the state or any political subdivision of the state to levy or to pledge any form of taxation therefor or to make any appropriation for their payment. Nothing in this paragraph shall prevent or be construed to prevent a public financing entity from pledging water supply property, or payments made on water rate relief bonds, together with any reserves or overcollateralization amounts approved in a financing order, to the payment of the water rate relief bonds.

(g) Any water supply charge authorized by a financing order shall appear on customer bills as a stand-alone, line-item surcharge. The commission shall, in any financing order, provide for a periodic true-up adjustment to water supply charges, which shall be made at least annually and may be made more frequently. The qualifying water utility shall file an advice letter with the commission to implement any true-up adjustment.

(h) Water supply charges are water supply property when, and to the extent that, a financing order authorizing the water supply charges has become effective in accordance with this article, and the water supply property shall thereafter continuously exist as property for all purposes with all of the rights and privileges of this article for the period and to the extent provided in the financing order, but in any event until the water rate relief bonds, including all principal, premium, if any, and interest with respect to the bonds and all other financing costs are paid in full. A financing order may provide that the creation of water supply property shall be simultaneous with the sale of the water supply property to a transferee or assignee as provided in the application and the pledge of the water supply property to secure water rate relief bonds.

(i) Any surplus water supply charges in excess of the necessary amounts to pay the principal premium, if any, and interest on the water rate relief bonds and all other financing costs shall be credited to customers through the adjustment mechanism described in subdivision (g) or used to prepay or defease water rate relief bonds, so long as this would not result in a recharacterization of the tax, accounting, and other intended characteristics of the financing, including, but not limited to, the following:

(1) Avoiding the recognition of debt on the qualifying water utility’s balance sheet for financial accounting and regulatory purposes.

(2) Treating the water rate relief bonds as debt of the qualifying water utility or its affiliates for federal income tax purposes.

(3) Treating the transfer of the water supply property by the qualifying water utility as a true sale for bankruptcy purposes.

(4) Avoiding any adverse impact of the financing on the qualifying water utility’s credit rating.

(j) The commission shall, pursuant to its authority in Section 739.8, implement a program to exclude low-income water ratepayers participating in commission-approved, low-income rate assistance programs from the payment of any water supply charge imposed pursuant to this section, if it determines that the exclusion from the charge will have no significant impact on the ability of the financing entity to finance the water supply activity. The commission may also allow the adjustment of the amount of the charge, as necessary, to cover any costs associated with implementation of the exclusion.

article: 5.7. Monterey Peninsula Water Supply Securitization Act


text:
(a) A qualifying water utility for which a financing order has been issued shall cause the proceeds of any water rate relief bonds issued pursuant to a financing order to be placed in a separate account. A qualifying water utility may use the proceeds of the issuance of water rate relief bonds for paying water supply costs and financing costs and for no other purpose.

(b) A financing order may require the qualifying utility to file with the commission a periodic report showing the receipt and disbursement of proceeds of water rate relief bonds. A financing order may authorize the staff of the commission to review and audit the books and records of the qualifying water utility relating to the receipt and disbursement of proceeds of water rate relief bonds. The provisions of this subdivision shall not be construed to limit the authority of the commission to investigate the practices of the qualifying utility or to audit the books and records of the qualifying water utility.

(c) A qualifying water utility for which a financing order has been issued shall annually provide to its customers a concise explanation of the water supply charges approved in a financing order, as modified by subsequent issuances of water rate relief bonds authorized under a financing order, if any, and by application of the true-up adjustment mechanism as provided in the financing order. These explanations shall be made after the annual true-up adjustment pursuant to subdivision (g) of Section 849.1 and prior to, or simultaneous with, the effective date of the adjustment, and may be made by bill inserts, Internet Web site information, or other appropriate means. If water rate relief bonds are issued by a public financing entity, the public financing entity, or its trustee or representative, shall provide the information to the qualifying water utility as reasonably requested in order to comply with its obligations under this section.

(d) The failure of a qualifying water utility to apply the proceeds of water rate relief bonds in a reasonable, prudent, and appropriate manner or otherwise comply with any provision of this section shall not invalidate, impair, or affect any financing order, water supply property, water supply charges, or water rate relief bonds.


text:
(a) Financing entities may issue water rate relief bonds upon approval by the commission in the financing order. Water rate relief bonds shall be nonrecourse to the credit or any assets of the qualifying water utility, other than the water supply property as specified in the financing order.

(b) A qualifying water utility may sell and assign all or portions of its interest in water supply property to an affiliate. A qualifying water utility or its affiliates may sell or assign their interests to one or more financing entities authorized under this article that make that property the basis for issuance of water rate relief bonds to the extent approved in the financing order. A qualifying water utility, its affiliates, or financing entities may pledge and assign water supply property as collateral, directly or indirectly, to the extent approved in the financing order providing for a security interest in the water supply property, in the manner set forth in Section 849.4. In addition, water supply property may be sold or assigned by either of the following:

(1) The financing entity or a trustee for the holders of water rate relief bonds or the holder of an ancillary agreement in connection with the exercise of remedies upon a default.

(2) A person acquiring the water supply property after a sale or assignment made pursuant to this article.

(c) To the extent that any interest in water supply property is sold, assigned, or pledged as collateral, the commission shall authorize the qualifying water utility to contract with the financing entity or entities that it will continue to operate its system to provide service to its customers, will collect water supply charges for the benefit and account of the financing entities and their pledgees, and will account for and remit these amounts to or for the account of the financing entities and their pledgees. Contracting with a financing entity in accordance with that authorization shall not impair or negate the characterization of the sale, assignment, or pledge as an absolute transfer, a true sale, or security interest, as applicable.

(d) Water supply property that is specified in a financing order shall constitute an existing, present property right, notwithstanding the fact that the imposition and collection of water supply charges depend on the qualifying water utility continuing to provide water service or continuing to perform its servicing functions relating to the collection of water supply charges or on the level of future water consumption. Water supply property shall exist whether or not the water supply charges have been billed, have accrued, or have been collected and notwithstanding the fact that the value for a security interest in the water supply property, or amount of the water supply property, is dependent on the future provision of service to customers by the qualifying water utility. All water supply property specified in a financing order shall continue to exist until the water supply bonds issued pursuant to a financing order and all other financing costs are paid in full.

(e) If a qualifying water utility defaults on any required payment of water supply charge revenues, a court, upon application by an interested party and without limiting any other remedies available to the applying party, shall order the sequestration and payment of the water supply charges, and the proceeds of the water supply charges, for the benefit of bondholders, any assignee and financing entities or their pledgees, and the counterparties to any ancillary agreement. The order shall remain in full force and effect notwithstanding bankruptcy, reorganization, or other insolvency proceedings with respect to the qualifying water utility or any affiliate of the qualifying water utility.

(f) Water supply property, water supply charges, and the interests of an assignee, bondholder or financing entity, or any pledgee in water supply property and water supply charges are not subject to setoff, counterclaim, surcharge, or defense by the qualifying utility or any other person or in connection with the bankruptcy, reorganization, or other insolvency proceeding of the qualifying water utility, any affiliate of the qualifying water utility, or any other entity.

(g) Notwithstanding Section 1708 or any other provision of law, any requirement under this article, or a financing order, that the commission take action with respect to the subject matter of a financing order, shall be binding upon the commission, as it may be constituted from time to time, and any successor agency exerting functions similar to the commission. The commission shall not have authority to rescind, alter, or amend that requirement in a financing order. The approval by the commission in a financing order of the issuance by the qualifying water utility or a financing entity of water rate relief bonds shall include the approvals, if any, required by Article 5 (commencing with Section 816) and Section 701.5. Section 701.5 shall not be construed to prohibit the issuance of water rate relief bonds upon the terms and conditions approved by the commission in a financing order. Section 851 is not applicable to the transfer or pledge of water supply property, the issuance of water rate relief bonds, or related transactions approved in a financing order.

(h) A financing entity issuing water rate relief bonds shall include in its preliminary notice and final report for the water rate relief bonds submitted to the California Debt and Investment Advisory Commission pursuant to Section 8855 of the Government Code, a statement that the water rate relief bonds are being issued pursuant to this section. A financing entity issuing water rate relief bonds shall include in its final report for the water rate relief bonds submitted to the California Debt and Investment Advisory Commission pursuant to Section 8855 of the Government Code, the savings realized by issuing the water rate relief bonds rather than using traditional utility financing mechanisms.