BILL NUMBER: S9339A
SPONSOR: COMRIE
 
TITLE OF BILL:
An act to enact the "New York utility corporation securitization act"
 
PURPOSE OR GENERAL IDEA OF BILL:
To create the legislative framework required to enable the use of "secu-
ritization" to recover storm costs and arrearage costs incurred by inve-
stor-owned utilities ("recovery costs"). Securitization is a mechanism
for financing recovery costs that enables rate payer savings in the form
of lower debt service costs and longer recovery periods relative to the
standard ratemaking approach.
 
SUMMARY OF PROVISIONS:
Section 1. Title of the Act.
Section 2. A new article 12 is added to the Public Service Law entitled
the "New York Utility Corporation Recovery Securitization Act" Article
12 provisions:
Section 302: Financing Orders
Amends section sixty-nine of the Public Service Law to add a new subdi-
vision b that would permit a utility corporation to petition the Public
Service Commission (Commission) for authorization to issue recovery
bonds by the utility corporation or its affiliate or another assignee.
Proscribes the affirmation attendant with and contents of the petition,
including a description of the (i) storm recovery activities and costs
both undertaken and not undertaken, level of the storm recovery reserves
and the amount for recovery through recovery bonds and/or (ii) the
amount of arrearages that are over 60 days past due recorded by a utili-
ty corporation, estimate of financing costs and recovery charges to
recover the costs, as well as the period for the recovery, and estimate
of customer benefit from utilization of recovery bonds. Authorizes the
Commission to grant in whole or in part the petition by issuance of a
financing order with terms and conditions that are consistent with the
Act.
In issuing a financing order, the Commission may consider the quantifi-
able benefits to customers and the structure, expected pricing and
financing costs, as market conditions warrant at the time of bond issu-
ance. The Commission may also provide flexibility to the utility corpo-
ration or assignees as to the terms and conditions of the bonds, includ-
ing repayment schedules, interest rates, and other financing costs. The
Commission is required to issue a final decision on the petition within
135 days of receipt of the petition.
Any financing order issued under this provision shall include the amount
of recovery costs, including consideration of storm reserves, plus any
other available funds or collection methods, associated financing costs
and the quantifiable benefits to customers. In addition to the authori-
zation to issue the recovery bonds, the order creates the right in and
to the recovery charges collected from the utility corporation's custom-
ers and the right to periodic adjustments of the recovery charges (these
rights being referred to as "recovery property"). The recovery property
is both the sole source of payment to pay the recovery bonds and financ-
ing costs and is the primary collateral to secure the recovery bonds.
The recovery property may be sold, assigned or transferred by the utili-
ty corporation to a subsidiary of the utility corporation, another
assignee, any of which shall be the issuer of the recovery bonds. Recov-
ery property may also be created or recognized as property of an assig-
nee.
This section also establishes the means for which the recovery charges
will be updated and trued-up periodically to ensure sufficient payment
of the principal and interest on the recovery bonds.It allows by opera-
tion of law the implementation of periodic adjustments to the recovery
charge 60-days from the filing of such change with the Commission to
ensure sufficient collections to pay principal, interest and other
financing costs on the recovery bonds. Apart from the periodic adjust-
ment of the recovery charges, and regardless of changes in ownership or
solvency of the utility corporation or successors, the financing order
remains in effect and is otherwise irrevocable and cannot be amended,
modified or terminated until the recovery bonds and any associated
financing costs are paid in full.
The financing order must specify how amounts collected from customers
will be allocated between the recovery charges and other utility charge
and direct the utility corporation to maintain service to its customers
and collect for and remit to the appropriate recovery charges for the
benefit of the assignee or financing party.
The Commission may include in the financing order limitations on poten-
tial assignees and requirements related the voluntary filing of a bank-
ruptcy petition on behalf of the assignee. This section authorizes the
Commission to require information related to the organization of assig-
nee and recognizes the creation of the recovery property upon certain
actions/events.
After issuance of the financing order, the utility corporation has
discretion to sell, transfer or assign the recovery property, and facil-
itate the issuance of the recovery bonds in a timeframe of the corpo-
ration's discretion. The Commission is also authorized to issue a subse-
quent financing order associated with the refinancing, retiring, or
refunding of recovery bonds and make associated changes to the recovery
charges, consistent with the provisions of the Act.
The recovery bonds issued pursuant to the financing order will not be
deemed by the Commission to be the debt of the utility corporation,
other than for federal income tax purposes, nor shall the recovery
charges be viewed as revenue or costs of the utility corporation and all
supporting acts in execution of the financing order shall be viewed as
just and reasonable. The recovery bonds cannot be used to finance any
other costs, will be issued at the discretion of the utility corpo-
ration, and cannot be used by the Commission to disallow access by the
corporation to other methods of storm or arrearage cost recovery.
Except for election matters, challenges to the Commission financing
order or issuance of recovery bonds shall be given priority for consid-
eration by the courts.
Section 303: Recovery property
Defines the nature of the property right created by a financing order
pursuant to the statute and the conditions under which such right may be
sold, assigned or transferred.
Requires that the utility corporation include recovery charges as a
separate line item on the customer bill.
Establishes that the recovery charges established pursuant to a financ-
ing order to service the recovery bonds are non-bypassable, meaning that
customers are not able to avoid paying recovery charges.
Section 304: True Sale
Governs the sale, assignment or other transfer of the recovery property
by a utility corporation and establishes the conditions for a true sale
to an assignee. The true sale is a critical component of a utility secu-
ritization because the segregation of the recovery property from the
rest of the utility corporation's property allows the transaction to be
"bankruptcy remote".
Establishes that the assignee shall be bankruptcy remote and that the
utility corporation will not have a claim on recovery property in the
event of a bankruptcy or reorganization of the utility corpora-
tion.Subsection (2) clarifies that notwithstanding several undertaken
back the utility corporation or any assignee, for purposes of state law,
the sale of the recovery property will be recognized as a sale by the
utility corporation to the assignee that ultimately will issue the
recovery bonds. This subsection is important for establishing the facts
to ensure the assignee is treated as bankruptcy remote which helps
ensure the transaction receives a higher credit rating which in turn
will lead to lower costs for rate payers.
Section 305: Security Interests
Establishes that the Act, and not the Uniform Commercial Code, governs
the granting of security interest in the recovery property. It is
customary that utility securitizations have their own procedures for
securing the liens created against the recovery property. The procedures
are mechanical in nature and expected by bondholders and rating agen-
cies.
Section 306: Choice of law; conflicts
Establishes that property rights and security interest created pursuant
to this statute shall be governed exclusively by New York State Law.
Section 307: Recovery bonds not public debt
Recovery bonds are not a debt or general obligation of the state or any
of its political subdivisions, agencies or instrumentalities. While the
utility gets authorization from the Commission in a financing order to
issue recovery bonds, recovery bonds are not issued by the state nor are
they state obligations and there are no state guarantees.
Section 308: State pledge
State pledges not to take any action that would limit, alter or impair
recovery property or, except as required by the periodic adjustment
process described in the financing order, reduce, alter or impair recov-
ery charges that are imposed, collected and remitted for the benefit of
the owners of recovery bonds, any assignee, and all financing parties,
until any principal, interest and redemption premium in respect of
recovery bonds, all other financing costs and all amounts to be paid to
an assignee or financing party under an ancillary agreement are paid or
performed in full.
The state pledge, and the periodic adjustment mechanism, are the two
most important features of a utility securitization.The rating agencies
and bondholders rely on the state pledge as protection against future
state action that could undermine the collection of recovery charges and
ultimately the recovery bonds. Because of the state pledge, rating agen-
cies no do not require expensive overcollateralization allowing for the
overall recovery charges billed to rate payers to be lower.
Section 309: Not a utility corporation
An assignee or financing party shall not be considered a utility corpo-
ration or person providing electric or gas service by virtue of engaging
in the transactions described in this section.
Section 310: Effect of invalidity
Subsequent invalidation of any provision of this statute does not affect
the validity of actions allowed by the Act.In addition to the state
pledge, bondholders rely on this section that their investment in recov-
ery bonds cannot be impaired by a future court action.
Section 311: Effect of Financing Order
The section clarifies that Section 70 of the PSL shall not apply to
recovery bonds, the sale of the recovery property or any other trans-
action contemplated by a financing order.
Section 3 of the bill provides the effective date.
 
JUSTIFICATION:
Destructive storms that were once every 100 years are becoming the norm
annually in New York State. Over the past several years, these damaging
storms have wreaked havoc on the state's infrastructure, primarily elec-
tric transmission and distribution systems. In 2024 alone, costs to
restore, and in many cases rebuild, the utility transmission and
distribution system has run into the hundreds of millions of dollars.
In addition, during the unprecedented COVID-l9 pandemic and resulting
state of emergency, New York imposed a moratorium on the disconnection
of electrical or gas services from residential customers. As a result,
New York electric and gas corporations have significant legacy arrearag-
es from such customers. Despite the end of the state of emergency, many
of these residential customers are still facing unmanageable debt as a
result of the pandemic and unlike years past, the FY 2025 budget did not
include direct arrears assistance under the Energy Affordability
Program.As of March 2024, more than 1.3 million utility customers have
arrears of 60 days or more equating to $1.6 billion in debt owed to
their utility provider.
Legislation is required to authorize the PSC to accept a financing peti-
tion for securitization from a utility. This petition is reviewed by PSC
to determine if securitization is in the public interest. If granted by
the PSC, the financing order is issued allowing the recovery of costs by
issuing bonds with lower financing costs. Securitization involves
transferring the right to collect costs (e.g., major storm cost defer-
rals and legacy arrears) to a newly created entity formed specifically
for the securitization. The newly formed entity sells bonds with lower
financing costs to a bond issuer to fund its purchase of the assets from
the utility. Securitization enables bonds to be issued by a third party
at very advantageous interest rates, thereby lowering the financing cost
associated with these assets and in turn lowering customer bills. Total
customer bills are adjusted downward to reflect the impacts of the tran-
saction, with a dedicated line item to pay off the bonds, with periodic
true-ups to ensure utility compliance with the bond repayments.
The use of securitization to recover storm expenses already incurred and
arrearages will permit electrical or gas corporations to recover these
amounts at a lower cost than, would otherwise be imposed on the electric
or gas corporations' customers. Securitization is a mechanism to resolve
legacy debt, at no expense to the general fund and at lower interest
rate and lower cost for customers.
 
LEGISLATIVE HISTORY:
This is a new bill.
 
FISCAL IMPLICATIONS: : :
None.
 
EFFECTIVE DATE:
This act shall take effect immediately.