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AB-932 Renewable energy resources: Renewable Transition Financing Act.(2011-2012)

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AB932:v98#DOCUMENT

Amended  IN  Assembly  March 31, 2011

CALIFORNIA LEGISLATURE— 2011–2012 REGULAR SESSION

Assembly Bill
No. 932


Introduced  by  Assembly Member Blumenfield

February 18, 2011


An act to amend Section 3384 add Article 12 (commencing with Section 920) to Chapter 4 of Part 1 of Division 1 of the Public Utilities Code, relating to energy.


LEGISLATIVE COUNSEL'S DIGEST


AB 932, as amended, Blumenfield. Consumer Power and Conservation Financing Authority: renewable energy resources. Renewable energy resources: Renewable Transition Financing Act.
Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations, and authorizes the commission to fix just and reasonable rates and charges. The existing restructuring of the electrical services industry provides for the issuance of rate reduction bonds by the California Infrastructure and Economic Development Bank for the recovery of transition costs, as defined, by electrical corporations.
This bill would enact the Renewable Transition Financing Act. The act would authorize a financing entity, as defined, to issue green rate reduction bonds, as defined, for the recovery of transition costs, as defined, by an electrical corporation.

Existing law creates the California Consumer Power and Conservation Financing Authority with the responsibility to implement certain purposes, including to provide loans to consumers and businesses for the purpose of an electric or natural gas energy conservation program or any program for the use of renewable energy resources, as approved by the State Energy Resources Conservation and Development Commission (Energy Commission), the Public Utilities Commission (PUC), or a participating local publicly owned electric utility. Existing law prohibits the authority from financing or approving any new program, enterprise, or project on or after January 1, 2007.

This bill would make an exception to the above-described prohibition for a program for the use of renewable energy resources as approved by the Energy Commission, PUC, or local publicly owned electric utility.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Article 12 (commencing with Section 920) is added to Chapter 4 of Part 1 of Division 1 of the Public Utilities Code, to read:
Article  12. Renewable Transition Financing Act

920.
 (a) This article shall be known, and may be cited, as the Renewable Transition Financing Act.
(b) For purposes of this article, the following terms have the following meanings:
(1) “Financing entity” means any special purpose trust, as defined in Section 63010 of the Government Code, authorized to issue green rate reduction bonds or acquire transition property, or any other entity created and authorized by the Treasurer, as agent of sale, to issue green rate reduction bonds or acquire transition property, or both.
(2) “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 green 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.
(3) “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 (A) transition costs, and (B) 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 green 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.
(4) “Green 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.
(5) “Transition costs” means the costs for investments in transitioning to a lower carbon economy in the State of California including, but not limited to: (1) clean energy technologies; (2) advanced or enabling energy infrastructure technologies; (3) energy efficiency projects and technologies in residential, commercial, and industrial applications; (4) advanced manufacturing technologies for any of the technologies or applications described in this section, and (5) renewable energy generation and transmission projects all as designated and administered by electrical corporations or the State pursuant to a financing order of the commission. Transition costs may be estimated at the time an electrical corporation applies for a financing order; provided, however, net proceeds from any related issuance of green rate reduction bonds shall be held in escrow pending completion of such investments attributable to transition costs. All costs shall be approved by the commission pursuant to a financing order. 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. Each financing order shall specify transition costs that include an amount of debt or equity capital of the electrical corporation to be refinanced or retired, or an amount of debt or equity capital that would have otherwise had been issued to finance renewable energy generation and transmission projects such that the expected cost of capital savings attributable to financing, refinancing or retiring such transition costs with green rate reduction bonds shall exceed the cost of issuing, servicing and retiring the green rate reduction bonds used (1) to effect such financing, refinancing or retirement and/or (2) to fund any investments by electric corporations or the State in transitioning to a lower carbon economy in the State of California as designated in such Financing Order.
(6) (A) “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:
(i) In and to the tariff established pursuant to a financing order, as adjusted from time to time in accordance with subdivision (c) of Section 921 and the financing order.
(ii) 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 paragraph (3).
(iii) In and to all rights to obtain adjustments to the tariff pursuant to the terms of subdivision (c) of Section 921 and the financing order.
(B) “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.
(C) 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 subparagraphs (A) and (B).

921.
 (a) An electrical corporation shall, at the direction of the commission, or may, upon its own election, 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 customers should benefit from reduced rates through the issuance of green 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 green rate reduction bonds in connection with some or all of the fixed transition amounts would reduce rates that customers would have paid if the financing order were not adopted. These customers shall continue to pay fixed transition amounts until the bonds are paid in full by the financing entity.
(b) The commission may issue financing orders in accordance with this article to facilitate the provision, recovery, financing, or refinancing of transition costs. Each financing order shall include a provision for the electrical corporation to equitably share in any expected cost of capital savings attributable to refinancing or retiring its debt or equity capital with green rate reduction bonds. 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 green 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 green 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 financing entity 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 green 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.
(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 green 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 green rate reduction bonds shall be remitted to the financing entity and may be used to benefit customers if this would not result in a recharacterization of the 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 regulatory purposes.
(2) Treating the green 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.

922.
 (a) Financing entities may issue green rate reduction bonds upon approval by the commission in the pertinent financing orders. Green 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) An electrical corporation may sell and assign all or portions of its interest in transition property to an affiliate. An electrical corporation or its affiliates may sell or assign their interests to one or more financing entities created hereunder that make that property the basis for issuance of green rate reduction bonds to the extent approved in the pertinent financing orders. An electrical corporation, its affiliates, or financing entities may pledge transition property as collateral, directly or indirectly, for green 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 923. In addition transition property may be sold or assigned by (1) the financing entity or a trustee for the holders of green 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 green 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 green rate reduction bonds upon the terms and conditions as may be approved by the commission in a financing order. Section 921 shall not be applicable to the transfer or pledge of transition property, the issuance of green rate reduction bonds, or related transactions approved in a financing order.

923.
 (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 4 (commencing with Section 9401) 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 green 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 subdivision (g) of Section 9302 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 green 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) (1) 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 green 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 green 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.
(2) 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 green rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.
(3) 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 green rate reduction bonds, and other costs arising in connection with the documents governing the green rate reduction bonds, shall be remitted to the debtor or to the pledgor or transferor.

924.
 (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 green 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 green 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 4 (commencing with Section 9401) 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.

925.
 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 green 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 green rate reduction bonds.

926.
 The authority of the commission to issue financing orders pursuant to Section 921 shall expire on __________. 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.

SECTION 1.Section 3384 of the Public Utilities Code is amended to read:
3384.

The authority may not finance or approve any new program, enterprise, or project on or after January 1, 2007, except a program for the use of renewable energy resources undertaken pursuant to subdivision (c) of Section 3365.