Sec. 16-245e. Stranded costs of electric companies. Definitions. Calculation by department, procedures, adjustments. Mitigation. Defeasance or purchase of rate reduction bonds.
Sec. 16-245e. Stranded costs of electric companies. Definitions. Calculation
by department, procedures, adjustments. Mitigation. Defeasance or purchase of
rate reduction bonds. (a) As used in this section and sections 16-245f to 16-245k,
inclusive:
(1) "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, in accordance with this
section and sections 16-245f to 16-245k, inclusive, the proceeds of which are used,
directly or indirectly, to provide, recover, finance, or refinance stranded costs or to
sustain funding of conservation and load management and renewable energy investment
programs by substituting for disbursements to the General Fund from the Energy Conservation and Load Management Fund established by section 16-245m and from the Renewable Energy Investment Fund established by section 16-245n, and which, directly
or indirectly, are secured by, evidence ownership interests in, or are payable from, transition property;
(2) "Competitive transition assessment" means those non-bypassable rates and
other charges, that are authorized by the department (A) in a financing order to sustain
funding of conservation and load management and renewable energy investment programs by substituting disbursements to the General Fund from proceeds of rate reduction
bonds for such disbursements from the Energy Conservation and Load Management
Fund established by section 16-245m and from the Renewable Energy Investment Fund
established by section 16-245n, or to recover those stranded costs that are eligible to be
funded with the proceeds of rate reduction bonds pursuant to section 16-245f and the
costs of providing, recovering, financing, or refinancing such substitution of disbursements to the General Fund or such stranded costs through a plan approved by the department in the financing order, including the costs of issuing, servicing, and retiring rate
reduction bonds, (B) to recover those stranded costs determined under this section but
not eligible to be funded with the proceeds of rate reduction bonds pursuant to section
16-245f, or (C) to recover costs determined under subdivision (1) of subsection (e) of
section 16-244g. If requested by the electric company or electric distribution company,
the department shall include in the competitive transition assessment non-bypassable
rates and other charges to recover federal and state taxes whose recovery period is
modified by the transactions contemplated in this section and sections 16-245f to 16-245k, inclusive;
(3) "Customer" means any individual, business, firm, corporation, association, tax-exempt organization, joint stock association, trust, partnership, limited liability company, the United States or its agencies, this state, any political subdivision thereof or
state agency that purchases electric generation or distribution services as a retail end
user in the state from any electric supplier, electric company or electric distribution
company;
(4) "Finance authority" means the state, acting through the office of the State Treasurer;
(5) "Net proceeds" means "net proceeds" as defined in section 16-244f;
(6) "Stranded costs" means that portion of generation assets, generation-related
regulatory assets or long-term contract costs determined by the department in accordance with the provisions of subsections (e), (f), (g) and (h) of this section;
(7) "Generation assets" means the total construction and other capital asset costs
of generation facilities approved for inclusion in rates before July 1, 1997, but does not
include any costs relating to the decommissioning of any such facility or any costs which
the department found during a proceeding initiated before July 1, 1998, were incurred
because of imprudent management;
(8) "Generation-related regulatory assets" means generation-related costs authorized or mandated before July 1, 1998, by the Department of Public Utility Control,
approved for inclusion in the rates, and include, but are not limited to, costs incurred
for deferred taxes, conservation programs, environmental protection programs, public
policy costs and research and development costs, net of any applicable credits payable
to customers, but does not include any costs which the department found during a proceeding initiated before July 1, 1998, were incurred because of imprudent management;
(9) "Long-term contract costs" mean the above-market portion of the costs of contractual obligations approved for inclusion in the rates that were entered into before
January 1, 2000, arising from independent power producer contracts required by law
or purchased power contracts approved by the Federal Energy Regulatory Commission;
(10) "Department" means the Department of Public Utility Control;
(11) "Financing entity" means the finance authority or any special purpose trust or
other entity that is authorized by the finance authority to issue rate reduction bonds or
acquire transition property pursuant to such terms and conditions as the finance authority
may specify, or both;
(12) "Financing order" means an order of the department adopted in accordance
with this section and sections 16-245f to 16-245k, inclusive;
(13) "Transition property" means the property right created pursuant to this section
and sections 16-245f to 16-245k, inclusive, in respect of disbursements to the General
Fund to sustain funding of conservation and load management and renewable energy
investment programs or those stranded costs that are eligible to be funded with the
proceeds of rate reduction bonds pursuant to section 16-245f, including, without limitation, the right, title, and interest of an electric company or electric distribution company
or its transferee or the financing entity (A) in and to the rates and charges established
pursuant to a financing order, as adjusted from time to time in accordance with subdivision (2) of subsection (b) of section 16-245i and the financing order, (B) to be paid the
amount that is determined in a financing order to be the amount that the electric company
or electric distribution company or its transferee or the financing entity is lawfully entitled to receive pursuant to the provisions of this section and sections 16-245f to 16-245k, inclusive, and the proceeds thereof, and in and to all revenues, collections, claims,
payments, money, or proceeds of or arising from the rates and charges or constituting
the competitive transition assessment that is the subject of a financing order including
those non-bypassable rates and other charges referred to in subdivision (2) of this subsection, and (C) in and to all rights to obtain adjustments to the rates and charges pursuant
to the terms of subdivision (2) of subsection (b) of section 16-245i and the financing
order. "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 electric company
or electric distribution company, the electric company or electric distribution company
performing certain services;
(14) "State rate reduction bonds" means the rate reduction bonds issued on June
23, 2004, by the state to sustain funding of conservation and load management and
renewable energy investment programs by substituting for disbursements to the General
Fund from the Energy Conservation and Load Management Fund, established by section
16-245m, and from the Renewable Energy Investment Fund, established by section 16-245n. The state rate reduction bonds for the purposes of section 4-30a shall be deemed
to be outstanding indebtedness of the state;
(15) "Operating expenses" means, with respect to state rate reduction bonds, (A)
all expenses, costs and liabilities of the state or the trustee incurred in connection with
the administration or payment of the state rate reduction bonds or in discharge of its
obligations and duties under the state rate reduction bonds or bond documents, expenses
and other costs and expenses arising in connection with the state rate reduction bonds
or pursuant to the financing order providing for the issuance of such bonds including
any arbitrage rebate and penalties payable under the code in connection with such bonds,
and (B) all fees and expenses payable or disbursable to the servicers or others under the
bond documents;
(16) "Bond documents" means, with respect to state rate reduction bonds, the following documents: The servicing agreements, the tax compliance agreement and certificate, and the continuing disclosure agreement entered into in connection with the state
rate reduction bonds and the indenture;
(17) "Indenture" means, with respect to state rate reduction bonds, the RRB Indenture, dated as of June 23, 2004, by and between the state and the trustee, as amended
from time to time; and
(18) "Trustee" means, with respect to state rate reduction bonds, the trustee appointed under the indenture.
(b) The department shall, in accordance with the provisions of this section, identify
and calculate, upon application by an electric company, those stranded costs that may
be collected through the competitive transition assessment which shall be calculated and
collected in accordance with the provisions of section 16-245g. No electric distribution
company shall be eligible to claim stranded costs unless a public auction has been held
to divest itself of all nonnuclear generation assets in accordance with subsection (b) of
section 16-244f or the electric company has sold its nonnuclear generation assets in
accordance with section 16-43.
(c) (1) Notwithstanding subdivision (1) of subsection (e) of section 16-244g, any
electric company seeking to claim stranded costs shall, in accordance with this subsection, mitigate such costs to the fullest extent possible. Prior to the approval by the department of any stranded costs, the electric company shall show to the satisfaction of the
department that the electric company has taken all reasonable steps to mitigate to the
maximum extent possible the total amount of stranded costs that it seeks to claim and
to minimize the cost to be recovered from customers. Mitigation shall include: (A)
Except to the extent provided in collective bargaining agreements or agreements to
purchase generation assets entered into prior to July 1, 1998, the obtaining of written
commitments from purchasers of generation facilities divested pursuant to sections 16-244f and 16-244g, that the purchasers will offer employment to persons who were employed in nonmanagerial positions by a divested generation facility at any time during
the three-month period prior to the divestiture, at levels of wages and overall compensation not lower than the employees' lowest level during the six-month period prior to the
date the contract to divest the asset was entered into; (B) good faith efforts to negotiate
the buyout, buydown or renegotiation of independent power producer contracts and
purchased power contracts approved by the Federal Energy Regulatory Commission
provided the fixed present value of any contract to which a political subdivision of the
state is a party shall be calculated using the political subdivision's tax-exempt borrowing
rate as the discount rate; and (C) the reasonable costs of the consultants appointed to
conduct the auctions of generation assets pursuant to sections 16-244f and 16-244g.
Mitigation may include, but is not limited to, reallocation of depreciation reserves to
existing generation assets to the extent consistent with generally accepted accounting
principles; reduction of book assets by application of net proceeds of any sale of existing
assets; maximization of market revenues from existing generation assets; efforts to maximize current and future operating efficiency, including appropriate and timely maintenance, trouble shooting, aggressive identification and correction of potential problem
areas; voluntary write-offs of above-market generation assets; the decision to retire
uneconomical generation assets and efforts to divest generating sites at market prices
reflective of best use of sites. Mitigation shall not include any expenditures to restart a
nuclear generation asset that was not operating for reasons other than scheduled maintenance or refueling at the time such expenditure was made. Any mitigation efforts and
associated costs shall be subject to approval by the department.
(2) The department shall allow the cost of such mitigation efforts to be included in
the calculation of stranded costs to the extent that such mitigation costs are reasonable
relative to the amount of the reduction in stranded costs resulting from the mitigation.
(d) An electric company shall submit to the department an application for recovery
of that portion of generation-related regulatory assets, long-term contract costs, generation assets and mitigation costs which are determined by the department in accordance
with subsections (c), (e), (f) and (g) of this section and subdivision (1) of subsection (e)
of section 16-244g. The application shall include a description of mitigation efforts and
a request for recovery through the competitive transition assessment and may include
a request for a financing order. The department shall hold a hearing for each electric
company and issue a finding of the calculation of stranded costs in a time frame that
allows for collection of the competitive transition assessment to begin on January 1,
2000. Any hearing shall be conducted as a contested case in accordance with chapter 54.
(e) The department shall calculate the stranded costs for generation-related regulatory assets to be their book value as of January 1, 2000. In calculating the value of
generation-related regulatory assets that are being provided in a lump sum as the result
of a funding with the proceeds of rate reduction bonds, the department shall adjust the
value of each such asset to reflect the time value of such lump sum, if any.
(f) (1) The department shall calculate the stranded costs for long-term contract
costs that have been reduced to a fixed present value through the buyout, buydown, or
renegotiation of independent power producer contracts and purchased power contracts
approved by the Federal Energy Regulatory Commission as such present value. In making such calculation, the department shall net purchased power contracts approved by
the Federal Energy Regulatory Commission that are below market value against any
such contracts that are above-market value.
(2) The department shall calculate the stranded costs for any portion of a long-term
contract cost that has not been reduced to a fixed present value by comparing the contract
price to the market price at least annually. In making such calculation, the department
shall net purchased power contracts approved by the Federal Energy Regulatory Commission that are below market value against any such contracts that are above-market
value. The costs described in this subdivision shall be included in the competitive transition assessment pursuant to section 16-245g but shall not be included in any funding
with the proceeds of rate reduction bonds.
(g) The department shall calculate the stranded cost for each generation asset described in subdivision (7) of subsection (b) of section 16-244f to be the difference between its book value and the market value of a prudently and efficiently managed nonnuclear generating facility of comparable size, age and technical characteristics in a
competitive market. In determining the market value of any such asset, the department
may consider (A) the dollars per kilowatt received from the sale of similar generation
facilities, if any, (B) income capitalization based on the operating history and capacity
of the facility, the market rates for power, and any existing long-term contracts for the
sale of power or capacity, (C) independent market appraisals, or (D) other relevant
factors. The department shall calculate the stranded costs for generation assets described
in subdivision (7) of subsection (b) of section 16-244f at least every three years. The costs
described in this subsection shall be included in the competitive transition assessment
pursuant to section 16-245g but shall not be included in any funding with the proceeds
of rate reduction bonds.
(h) (1) On or before January 1, 2004, an electric company may submit to the department an application for recovery of that portion of nuclear generation assets which is
determined by the department in accordance with this subsection, which application
shall include a request for recovery through the competitive transition assessment. The
department shall hold a hearing for each electric company and issue a finding of the
calculation of such nuclear generation assets in accordance with the provisions of this
subsection. Any hearing shall be conducted as a contested case proceeding in accordance
with chapter 54. The costs described in this subsection shall be included in the competitive transition assessment pursuant to section 16-245g but shall not be included in any
funding with proceeds of rate reduction bonds.
(2) The department shall calculate the stranded costs for each nuclear generation
asset that was divested at a price less than book value as described in subdivision (5)
of subsection (c) of section 16-244g as the difference between the book value of this
asset and the final bid price of the asset. The department's calculation of stranded costs
pursuant to this subdivision shall be final and shall not be subject to further adjustment
by the department.
(3) The department shall calculate the stranded costs for each nondivested nuclear
generation asset described in subdivision (1) of subsection (d) of section 16-244g to be
the difference between its book value and the market value of a prudently and efficiently
managed nuclear generating facility of comparable size, age and technical characteristics in a competitive market. In determining the market value of any such asset, the
department may consider (A) the dollars per kilowatt received from the sale of similar
generation facilities, if any, (B) income capitalization based on the operating history
and capacity of the facility, the market rates for power, and any existing long-term
contracts for the sale of power or capacity, (C) the provision for decommissioning and
related costs to be paid from the systems benefits charge provided in section 16-245l,
(D) independent market appraisals, or (E) other relevant factors. At least every four
years after the date when the department issues an initial finding of the calculation of
the stranded costs for such nondivested nuclear generation assets as provided in this
subdivision until the earlier of (i) the expiration of the collection of the competitive
transition assessment, or (ii) the date when such an asset is divested, the department
shall hold a hearing and issue a finding to adjust the stranded cost calculation of each
such asset and to adjust the competitive transition assessment accordingly to true up the
stranded cost recovery for the difference between the market value projected in such
initial finding and the actual market value of a prudently and efficiently managed nuclear
generating facility of comparable size, age and technical characteristics during the time
period between the initial finding and the adjustment date, provided the second and
subsequent adjustments shall reflect the difference during the time period since the most
recent true-up. The department shall calculate the value of each such asset in accordance
with the methodology provided in this subdivision. Any hearing shall be conducted as
a contested case in accordance with chapter 54.
(4) After the department has calculated the total value of stranded costs for all nuclear generation assets, the department shall (A) reduce such amount by the net proceeds
that are above book value realized by an electric company from the sale of nonnuclear
generation assets pursuant to subdivision (6) of subsection (b) of section 16-244f, (B)
reduce such valuation to reflect the total net proceeds that are above book value realized
by an electric distribution company from the sale of any nuclear generation assets pursuant to subsection (c) of section 16-244g, and (C) reduce such amount by the net proceeds
that are above book value received by an electric company for the sale or lease of any
real property after July 1, 1998.
(i) If any net proceeds described in subdivision (4) of subsection (h) of this section
remain after the reduction in the calculation of nuclear generation assets pursuant to
said subdivision (4) or are realized after said reduction is calculated, the additional
amount of such net proceeds shall be netted against long-term contract costs described
in subdivision (2) of subsection (f) of this section, and the competitive transition assessment shall be adjusted accordingly.
(j) (1) No electric company shall be eligible to claim any stranded costs for a nuclear
generation asset or for any generation-related regulatory asset related to such generation
asset, if the generation asset is not operating as a result of an order issued by the United
States Nuclear Regulatory Commission that applies specifically to such asset. Any such
asset that is not eligible to be claimed as a stranded cost shall be eligible after it is
permitted to and has resumed operation and is selling power.
(2) Any asset with a Nuclear Regulatory Commission capacity rating of 641 megawatts that does not resume operation after such order is no longer in effect shall not be
eligible to be claimed as a stranded cost. An electric company or electric distribution
company may apply to the department for retirement of such unit for economic reasons
pursuant to section 16-19. The department shall include any recovery ordered in such
proceeding in the competitive transition assessment but shall not include any costs relating to the decommissioning of any such facility or any costs which the department found
during a proceeding initiated before July 1, 1998, were incurred because of imprudent
management. Notwithstanding the provisions of this subdivision, nothing herein shall
modify or supersede any statute or regulation in effect on July 1, 1998, pertaining to
applications for retirement of nuclear generating facilities.
(k) If an electric company elected to transfer any of its nuclear generation assets
and related operations and functions to a separate corporate affiliate or to a division that
is functionally separate from the electric distribution company pursuant to section 16-244g and subsequently sold any such assets in an arm's length transaction to an unrelated
entity prior to January 1, 2012, the net proceeds realized from such sale that exceed
book value for such assets shall be netted against the total amount of stranded costs,
and the competitive transition assessment shall be adjusted accordingly and, if appropriate, other reimbursement shall be ordered by the department.
(l) Funds appropriated to the Treasurer in section 21 of public act 07-1 of the June
special session* shall be used by the Treasurer for the purpose of (1) defeasing some
or all of the state rate reduction bonds maturing after December 30, 2007, by irrevocably
depositing with the bond trustee in trust such appropriation to be used for the scheduled
payments of principal and interest on the said state rate reduction bonds and paying
operating expenses, (2) purchasing state rate reduction bonds maturing after December
30, 2007, in the open market on such terms and conditions as the Treasurer determines
to be in the best interest of the state for purposes of satisfying such bonds, or (3) defeasing
or satisfying some or all of the state rate reduction bonds maturing after December 30,
2007, by a combination of the methods described in subdivisions (1) and (2) of this
subsection. Such appropriation is for the purpose of paying debt service on bonds or
other evidences of indebtedness and related costs and expenses provided for in the
indenture. After the defeasance or satisfaction of all outstanding state rate reduction
bonds, the trustee shall deliver to the Treasurer or apply in accordance with the instructions of the Treasurer all moneys held by it not necessary to defease or satisfy such
bonds or allocated to pay operating expenses. Such funds shall be first applied to satisfy
any unpaid operating expenses. After payment of the operating expenses, seventy-five
per cent of any remaining amounts shall be paid to the Energy Conservation and Load
Management Fund, established pursuant to section 16-245m, and twenty-five per cent
of such remaining amount shall be paid to the Renewable Energy Investment Fund,
established pursuant to section 16-245n. The Treasurer and the finance authority have
the authority to take any necessary and appropriate actions to implement the defeasance
or satisfaction of the state rate reduction bonds and the payment of all operating expenses
so that the amount of state rate reduction charges which before defeasance secured
the state rate reduction bonds can be applied to the Energy Conservation and Load
Management Fund and the Renewable Energy Investment Fund.
(P.A. 98-28, S. 8, 117; June 30 Sp. Sess. P.A. 03-6, S. 44, 45; Sept. 8 Sp. Sess. P.A. 03-1, S. 2; P.A. 07-242, S. 79; June
Sp. Sess. P.A. 07-1, S. 134; June Sp. Sess. P.A. 07-5, S. 56.)
*Note: Section 21 of public act 07-1 of the June special session is special in nature and therefore has not been codified
but remains in full force and effect according to its terms.
History: P.A. 98-28 effective July 1, 1998; June 30 Sp. Sess. P.A. 03-6 amended Subsec. (a)(1), (2) and (13) re the
definitions of "rate reduction bonds", "competitive transition assessment" and "transition property" for consistency with
a plan to avoid disbursements from the Energy Conservation and Load Management and Renewable Energy Investment
funds to the General Fund in the implementation of the budget for the biennium ending June 30, 2005, effective August
20, 2003; Sept. 8 Sp. Sess. P.A. 03-1 amended Subsec. (a)(13) re the definition of "transition property" to add references
to the financing entity, effective September 10, 2003; P.A. 07-242 added Subsec.(a)(14) to (18) to define "state rate
reduction bonds", "operating expenses", "bond documents", "indenture", and "trustee", respectively, effective June 4,
2007; June Sp. Sess. P.A. 07-1 added Subsec. (l) re defeasance or purchase of state rate reduction bonds, effective June
26, 2007; June Sp. Sess. P.A. 07-5 reiterated addition of Subsec. (a)(14) to (18) defining "state rate reduction bonds",
"operating expenses", "bond documents", "indenture", and "trustee", respectively, effective October 6, 2007.
Subsec. (h):
Phrase "any real property" in Subdiv. (4)(C) refers to all real properties, not just to utility properties. 266 C. 108.