Massachusetts General Laws
Chapter 164 - Manufacture and Sale of Gas and Electricity
Section 1h - Financing Orders

Section 1H. (a) As used in this section the following words shall, unless the context otherwise requires, have the following meanings:—
''Agency'', the Massachusetts Industrial Finance Agency, established pursuant to section 31 of chapter 23A.
''Authority'', the Massachusetts Health and Educational Facilities authority, established pursuant to chapter 614 of the acts of 1968.
''Department'', the department of public utilities.
''Electric company'', an electric company as defined in section 1.
''Electric rate reduction bonds'', bonds, notes, certificates of participation or beneficial interest, or other evidences of indebtedness or ownership, issued pursuant to an executed indenture, financing document, or other agreement of the financing entity, secured by or payable from transition property, the proceeds of which are used to provide, recover, finance, or refinance transition costs or to acquire transition property and that are secured by or payable from transition property.
''Financing entity'', (i) the Massachusetts Industrial Finance Agency and the Massachusetts Health and Educational Facilities Authority acting jointly pursuant to a mutual agreement, (ii) any special purpose trust, or (iii) any financing entity which is authorized by the department pursuant to a financing order to issue electric rate reduction bonds or acquire transition property in accordance with the provisions of this section.
''Financing order'', an order of the department adopted in accordance with this section approving a plan, which shall include, without limitation, a procedure to review and approve periodic adjustments to transition charges to include recovery of principal and interest and the costs of issuing, servicing, and retiring electric rate reduction bonds contemplated by the financing order.
''Reimbursable transition costs amounts'', the total amount authorized by the department in a financing order to be collected through the transition charge, as defined pursuant to section 1, and allocated to an electric company in accordance with a financing order.
''Special purpose trust'', any trust, partnership, limited partnership, association, corporation, nonprofit corporation, limited liability company, or other entity established and authorized by the agency and the authority to acquire transition property or to issue rate reduction bonds, or both, subject to approvals by the agency and the authority and the powers of the agency and the authority as provided by the agency and the authority in their resolutions authorizing the entities to issue rate reduction bonds.
''Transition costs'', the costs determined pursuant to section 1G which remain after accounting for maximum possible mitigation, subject to determination by the department.
''Transition charge'', the charge to the customers which provides the mechanism for the recovery of an electric company's transition costs.
''Transition property'', the property right created pursuant to this section, including, without limitation, the right, title, and interest of an electric company or a financing entity to all revenues, collections, claims, payments, money, or proceeds of or arising from or constituting reimbursable transition costs amounts which are the subject of a financing order, including those non-bypassable rates and other charges that are authorized by the department in the financing order to recover transition costs and the costs of providing, recovering, financing, or refinancing the transition costs, including the costs of issuing, servicing, and retiring electric rate reduction bonds.
(b)(1) The department may issue financing orders in accordance with this section to facilitate the provision, recovery, financing, or refinancing of transition costs. A financing order shall specify that amounts collected from a customer shall be allocated first to current and past due transition charges and then other charges and that, upon the issuance of electric rate reduction bonds, transition charges collected shall be allocated first to transition property and second to transition charges, if any, that are not subject to a financing order.
(2) An electric company may, by January 1, 1999, and from time to time thereafter as established by the department, file with the department an application that provides that its transition costs may be recovered through reimbursable transition costs amounts, which would therefore constitute transition property under this section. An electric company may, upon the department's written determination of substantial and documentable relative rate reduction, utilize a financing entity other than the state-designated financing entity or special purpose trust. The department shall promulgate rules and regulations establishing the form and content of said applications and establishing the procedure to be utilized for the filing and approval of said applications. The department may view such applications in separate proceedings or in an order instituting investigation or order instituting rule making, or both. The electric company shall in its application specify that its customers would benefit from reduced electricity rates through the issuance of electric rate reduction bonds. The department shall determine reimbursable transition costs amounts recoverable in one or more financing orders if the department determines, as part of its findings in connection with the financing order, that the designation of the reimbursable transition costs amounts and the issuance of electric rate reduction bonds by the financing entity in connection with some or all of the reimbursable transition costs amounts would reduce rates that an electric company's customers would have paid if the financing order were not adopted, and that such rates will be reduced in aggregate amounts equal to savings realized by the electric company with respect to the financing order; provided, however, that said bonds may qualify for tax-exempt status to the full extent of state and federal law; provided further, that the department shall consult with the financing entity in making its determinations concerning electric rate reduction bonds; and provided, further, that the electric company has complied with the applicable transition cost mitigation measure, pursuant to subsection (d) of section 1G. The transition charge and its payment as provided in the financing order shall be binding on all current and future distribution companies and users of such distribution system until the bonds are paid in full by the financing entity. A financing order shall expire after two years if no rate reduction bonds have been issued pursuant thereto.
(3) Notwithstanding any other general or special law, rule, or regulation to the contrary, except as otherwise provided in this section with respect to transition property which has been made the basis for the issuance of electric rate reduction bonds, the financing orders and the reimbursable transition costs amounts shall be irrevocable, and the department 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, determine that the reimbursable transition costs amounts or transition charges are unjust or unreasonable, or in any way reduce or impair the value of transition property either directly or indirectly by taking reimbursable transition costs amounts into account when setting other rates for the electric company, nor shall the amount of revenues arising with respect thereto be subject to reduction, impairment, postponement, or termination. Except as otherwise provided in this paragraph, the commonwealth does hereby pledge and agree with the owners of transition property and holders of electric rate reduction bonds that the commonwealth shall not (i) alter the provisions of this chapter which make the transition charges imposed by the financing order irrevocable and binding or (ii) limit or alter the reimbursable transition costs amounts, transition property, financing orders, and all rights thereunder until the electric rate reduction bonds, together with the interest thereon, are fully met and discharged. The financing entity as agent for the commonwealth is hereby authorized to include this pledge and undertaking for the commonwealth in these electric rate reduction bonds.
(4)(i) Financing orders issued pursuant to the provisions of this section shall not constitute a debt or liability of the commonwealth or of any political subdivision thereof, other than the financing entity, and shall not constitute a pledge of the full faith and credit of the commonwealth or any of its political subdivisions, other than the financing entity, but shall be payable solely from the funds provided therefor pursuant to the provisions of this section. All the bonds shall contain on the face thereof the following statement: Neither the full faith and credit nor the taxing power of the commonwealth of Massachusetts is pledged to the payment of the principal of, or interest on, this bond.
(ii) The issuance of electric rate reduction bonds pursuant to the provisions of this section shall not obligate the commonwealth, or any political subdivision thereof, to levy or to pledge any form of taxation therefor or to make any appropriation for their payment.
(iii) The exercise of the powers granted by this section shall be in all respects for the benefit of the people of the commonwealth, for the increase of their commerce and prosperity, and for the improvement of their health and living conditions. As the exercise of such powers shall constitute the performance of essential governmental functions, the financing entity shall not be required to pay any taxes or assessments upon the property acquired or used by the financing entity pursuant to the provisions of this section or upon the income therefrom. The bonds or other instruments issued pursuant to the provisions of this section, their transfer and the income therefrom, including any profit made on the sale thereof, shall at all times be free from taxation within the commonwealth.
(iv) Any electric rate reduction bonds or other instruments issued by the financing entity shall be used to pay for mitigated transition costs related to subsection (b) of section 1G.
(v) Electric rate reduction bonds and other instruments so approved and issued by a financing entity pursuant to the provisions of this section are hereby made securities in which all public officers and public bodies of the commonwealth and its political subdivisions, all insurance companies, and savings banks, cooperative banks and trust companies in their banking departments and within the limits set by section 14 of chapter 167E, banking associations, investment companies, executors, trustees, and other fiduciaries, and all other persons whatsoever who are now or may hereafter be authorized to invest in bonds or other obligations of a similar nature, may properly and legally invest funds, including capital in their control or belonging to them, and such bonds are hereby made obligations which may properly and legally be made eligible for the investment of savings deposits and the income thereof in the manner provided by section 15B of chapter 167. Such bonds are hereby made securities which may properly and legally be deposited with and received by any state or municipal officer or any agency or political subdivision of the commonwealth for any purpose for which the deposit of bonds or other obligations of the commonwealth is now or may hereafter be authorized by law.
(vi) The repayment of terms of any electric rate reduction bonds issued for the purpose of paying for transition costs related to clause (iv) of paragraph 1 of subsection (b) of section 1G shall, subject to the department's approval, extend for not more than 15 years; provided, that in the event the department determines that a longer repayment period would inure to the benefit of residential ratepayers, the department shall approve any securitization plan that maximizes rate affordability to such ratepayers.
(5) The department shall establish procedures for the expeditious processing of applications for financing orders, including the approval or disapproval thereof within 120 days of the electric company filing; provided, however, that an electric company shall file a new application with the department within 45 days of any such disapproval, if so ordered by the department. A financing order shall also include a procedure whereby the department shall periodically review the rate of transition charges authorized therein on each anniversary of the date of such order and at such additional intervals as may be provided for in such order, and shall approve adjustments, if required, within 60 days of each such anniversary and of each such additional interval date, such rate of transition charges if and to the extent necessary to ensure the timely recovery of revenues sufficient to provide for the payment of all principal, interest, premium, if any, and other charges in respect of the electric rate reduction bonds approved by the department pursuant to such financing order.
(6) Reimbursable transition costs amounts shall constitute transition property when, and to the extent that, a financing order authorizing the reimbursable transition costs amounts have become effective in accordance with the provisions of this section. The transition property shall thereafter continuously exist as property for all purposes with all of the rights and privileges of this section for the period and to the extent provided in the financing order, but in any event until the electric rate reduction bonds are paid in full, including all principal, interest, premium, costs, and arrearages thereon. Prior to its sale or other transfer by the electric company pursuant to this section, transition property shall be a vested contract right of the electric company, notwithstanding any contrary treatment thereof for accounting, tax, or other purpose.
(7) Any unanticipated transition changes that are generated in excess of the amounts necessary to pay principal, premium, if any, interest, and expenses of the issuance of the electric rate reduction bonds shall be remitted to the financing entity to be held or distributed in accordance with the financing order and, provided that all reserve funds are fully funded, may be used to benefit 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 intended characteristics: (i) avoiding the recognition of debt on the electric company's balance sheet for financial accounting and regulatory purposes; (ii) treating the electric rate reduction bonds as debt of the electric company or its affiliates for federal income tax purposes; (iii) treating the transfer of the transition property by the electric company as a true sale for bankruptcy purposes; and (iv) avoiding any adverse impact of the financing on the electric company's credit rating.
(8) In no event shall any financing order (i) authorize or require the customers of an electric company other than the electric company applying for such financing order and its successors to pay any transition charges or other amounts with respect to the transactions authorized by such financing order; or (ii) authorize, permit, or require that any amounts arising from the transactions authorized by such financing order be used to subsidize or benefit an electric company or the customers thereof other than the electric company and the affiliates thereof applying for such financing order and its affiliates' customers. A financing order shall require that transition charges be paid over to the financing entity within one calendar month of collection.
(c)(1) The financing entity may issue electric rate reduction bonds approved by the department in the pertinent financing orders. Electric rate reduction bonds shall be nonrecourse to the credit of it or any assets of the electric company, other than the transition property as specified in the pertinent financing order.
(2) Electric companies may sell or assign all or portions of their interest in transition property to an affiliate. Electric companies or their affiliates may sell or assign their interests to one or more financing entities that make that property the basis for issuance of electric rate reduction bonds to the extent approved in the pertinent financing orders. Electric companies, their affiliates, or financing entities may pledge transition property as collateral for electric 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 subsection (d).
In addition, transition property may be sold or assigned by either (i) the financing entity or a trustee for the holders of electric rate reduction bonds in connection with the exercise of remedies upon a default, or (ii) any person acquiring the transition property after a sale or assignment pursuant to this subsection.
(3) To the extent that any interest in transition property is so sold or assigned, or is so pledged as collateral, the department shall require, pursuant to the policing and regulatory power of the commonwealth, the electric company and any successor or any other entity acting as an electric company within the service territory 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 reimbursable transition costs 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 such 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.
(4) Notwithstanding any general or special law, rule, or regulation to the contrary, any provision under this section or a financing order requiring the department take action with respect to the subject matter of a financing order shall be binding upon the department, as it may be constituted from time to time, and any successor agency exercising functions similar to the department and the department shall have no authority to rescind, alter, or amend that requirement in a financing order.
(d)(1) A security interest in transition property is valid and 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 subsection, and attaches when all of the following have taken place: (i) the department has issued the financing order authorizing the bondable reimbursable transition costs amounts included in the transition property; (ii) value has been given by the pledgees of the transition property; and (iii) the pledgor has signed a security agreement covering the transition property.
(2) A valid and enforceable security interest in transition property shall be perfected when it has attached and when a financing statement has been filed in accordance with article 9 of chapter 106 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 department by the electric company which is the pledgor or transferor of the transition property, and the department may require the electric company to make other filings with respect to the security interest in accordance with procedures it may establish; provided, however, that the filings shall not affect the perfection of the security interest.
(3) A perfected security interest in transition property shall be 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 electric rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.
(4) 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 subsection, the validity and relative priority of a security interest created pursuant to this subsection shall not be defeated or adversely affected by the commingling of revenues arising with respect to the transition property with other funds of the electric company that is the pledge or transferor of the transition property. Subject to the terms of the security agreement, the pledgees of the transition property shall have a perfected security interest in all cash and deposit accounts of the electric company 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 electric company within 12 months before either (i) any default under the security agreement, or (ii) the institution of insolvency proceedings by or against the electric company, less payments from the revenues to the pledgees during that 12–month period.
(5) 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 pursuant to article 9 of chapter 106 and such other rights and remedies as may be provided in the financing order, 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 department may require, in the financing order creating the transition property, that, in the event of default by the electric company 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 subsection (f), 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 electric rate reduction bonds, and other costs arising under the security agreement, shall be remitted to the debtor or to the pledgor or transferor.
(6) The state secretary shall establish and maintain a separate system of records to reflect the date and time of receipt of all filings made under this subsection (d) to perfect security interests in transition property and to effect the transfer to an assignee of any interest in a financing order.
(e) Unless otherwise ordered by the department with respect to any series of electric rate reduction bonds on or prior to the issuance of the series, there shall exist a statutory lien as provided in this subsection. 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 subsection automatically without any action on the part of the electric company, 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 electric 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 pursuant to article 9 of chapter 106, 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 whom shall own, or shall subsequently be determined to own, the transition property, including any electric company, 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 subsection (d). 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 shall be 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 department may require, in the financing order creating the transition property, that, in the event of default by the electric company in payment of revenues arising with respect to transition property, the department 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 electric rate reduction bonds, and other costs arising in connection with the documents governing the electric rate reduction bonds, shall be remitted to the debtor or to the pledgor or transferor.
(f)(1) A transfer of transition property by an electric company to an affiliate or to a financing entity, or by an affiliate of an electric company 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 purposes. Granting to holders of electric rate reduction bonds a preferred right to revenues of the electric company, or the provision by the company of other credit enhancement with respect to electric rate reduction bonds, shall not impair or negate the characterization of any transfer as a true sale, other than for federal and state income purposes.
(2) A transfer of transition property shall be deemed perfected as against third persons when both of the following have taken place: (i) the department has issued the financing order authorizing the fixed transition amounts included in the transition property; and (ii) an assignment of the transition property in writing has been executed and delivered to the transition property in writing has been executed and delivered to the transferee.
(3) As between bona fide assignees of the same right for value without notice, the assignee first filing a financing statement in accordance with article 9 of chapter 106 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 department. The department 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.
(g) Any successor to the electric company, 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 electric company pursuant to this section in the same manner and to the same extent as the electric company, including, but not limited to, collecting and paying to the holders of electric rate reduction bonds or their representatives or the financing entity, revenues arising with respect to the transition property sold to the financing entity or pledged to secure electric rate reduction bonds. This requirement that a successor electric company perform the obligations of its predecessor is made pursuant to the commonwealth's policing and regulatory authority.

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