840. 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).
841. (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.
842. (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.
843. (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.
844. (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.
845. 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.
846. The authority of the commission to issue financing orders
pursuant to Section 841 shall expire on December 31, 2015. 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.
846.2. (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.
847. 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).
840. 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).
841. (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.
842. (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.
843. (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.
844. (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.
845. 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.
846. The authority of the commission to issue financing orders
pursuant to Section 841 shall expire on December 31, 2015. 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.
846.2. (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.
847. 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).
840. 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).
841. (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.
842. (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.
843. (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.
844. (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.
845. 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.
846. The authority of the commission to issue financing orders
pursuant to Section 841 shall expire on December 31, 2015. 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.
846.2. (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.
847. 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).
