AN ACT relating to investor-owned electric utilities and declaring an emergency.

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AN ACT relating to investor-owned electric utilities and declaring an emergency. 1
WHEREAS, the General Assembly desires to reduce costs for el ectric utility 2
customers while encouraging investment in electric generation facilities within the 3
borders of the Commonwealth; and 4
WHEREAS, the General Assembly wishes to allow for the securitization of certain 5
additional utility assets by electric utilit ies pursuing the development of dispatchable 6
generation located in the Commonwealth; 7
NOW, THEREFORE, 8
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 9
Section 1. KRS 278.670 is amended to read as follows: 10
In addition to the definitions in KRS 278.010, except KRS 278.010(3)(a), which shall 11
apply unless they conflict with or the context otherwise requires, as used in KRS 278.670 12
to 278.696 and 65.114: 13
(1) "Ancillary agreement" means a bond, insurance policy, letter of credit, reserve 14
account, surety bond, interest rate lock or swap arrangement, hedging arrangement, 15
liquidity or credit support arrangement, or other financial arrangement entered into 16
in connection with securitized bonds; 17
(2) "Assignee" means a legally recognized entity to which an electric utility assigns, 18
sells, or transfers, other than as security, all or a portion of its interest in or right to 19
securitized property. The term "assignee" incl udes a corporation, limited liability 20
company, general or limited partnership, public authority, trust, and financing entity 21
to which an assignee assigns, sells or transfers, other than as security, its interest in 22
or right to securitized property; 23
(3) "Bondholder" means a person who holds a securitized bond; 24
(4) "Code" means the Uniform Commercial Code, KRS Chapter 355; 25
(5) "Deferred costs" means costs that have occurred and are[but will be] accounted for 26
as part of a regulatory asset; 27
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(6) "Environmental control costs" means costs incurred or expected to be incurred 1
by a qualifying electric utility to comply with: 2
(a) 42 U.S.C. sec. 7401 et seq. and not recovered under KRS 278.183; or 3
(b) Any federal, state, or local environmental laws, administrative regul ations, 4
orders, or other requirements which apply to coal combustion wastes or by -5
products from extra-state generation facilities utilized for the production of 6
energy from coal, including expenses and capital costs for services, 7
equipment, and other assets; 8
(7) "Financing costs" means any one (1) or more of[include] the following: 9
(a) Interest and acquisition, defeasance, or redemption premiums payable on 10
securitized bonds; 11
(b) Any payment required under an ancillary agreement and any amount required 12
to fund or replenish a reserve account or other accounts established under the 13
terms of any indenture, ancillary agreement, or other financing document 14
pertaining to securitized bonds; 15
(c) Any other cost related to issuing, supporting, repaying, refunding, or servicing 16
securitized bonds, including the following fees and costs without limitation: 17
1. Servicing fees, accounting and auditing fees, trustee fees, consulting 18
fees, structuring adviser fees, financial advisor fees, administrative fees, 19
placement and unde rwriting fees, independent director and manager 20
fees, rating agency fees, stock exchange listing and compliance fees, 21
security registration fees, and filing fees; 22
2. Capitalized interest and information technology programming costs; and 23
3. Any other costs necessary to otherwise ensure the timely payment of 24
securitized bonds or other amounts or charges payable in connection 25
with the bonds, including costs related to obtaining the financing order; 26
(d) Any taxes and license fees or other fees imposed on the re venues generated 27
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from the collection of the securitized surcharge or otherwise resulting from 1
the collection of securitized surcharges, in any such case whether paid, 2
payable, or accrued; 3
(e) Any state or local taxes, franchise taxes, gross receipts, and o ther taxes or 4
similar charges, including commission assessment fees, whether paid, 5
payable, or accrued; and 6
(f) Any costs associated with performance of the commission's responsibilities 7
under KRS 278.670 to 278.696 and 65.114 in connection with: 8
1. Approving, approving subject to conditions, or rejecting an application 9
for a financing order; and 10
2. Retaining counsel, one (1) or more financial advisors, or other 11
consultants as deemed appropriate by the commission and paid pursuant 12
to KRS 278.670 to 278.696 and 65.114, for the issuance advice letter 13
process; 14
(8)[(7)] "Financing order" means an order issued by the commission that authorizes 15
the: 16
(a) Issuance of securitization bonds; 17
(b) Imposition, collection, and periodic adjustment of a securitized surcharge; 18
(c) Creation of securitized property; and 19
(d) Sale, assignment, or transfer of securitized property to an assignee; 20
(9)[(8)] "Financing party" means bondholders and trustees, collateral agents, any party 21
under an ancillary agreement, or any other person acting for the benefit of 22
bondholders; 23
(10)[(9)] "Financing statement" has the same meaning as in KRS 355.9-102; 24
(11)[(10)] "Formula-based true -up mechanism" means a reconciliation or true -up 25
process that is used to identify over collection or under collection of the securitized 26
surcharge; 27
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(12)[(11)] "Issuance advice letter" means a letter from the utility to the commission tha t 1
describes the final terms and conditions for the bond issuance, including but not 2
limited to the actual structure of the bond issue, pricing, and other bond features 3
such as coupon rates, redemption, and call provisions, and current market 4
conditions affecting the bond issuance; 5
(13)(12) "Nonbypassable" means the payment of a securitized utility charge may not 6
be avoided by any existing or future retail customer including special contract 7
customers; 8
(14)[(13)] "Pledgee" means a financing party to which an electric utility or its successors 9
or assignees mortgages, negotiates, pledges, or creates a security interest or lien on 10
all or any portion of its interest in or right to securitized property; 11
(15)[(14)] "Regulatory asset" means, under the standardized f inancial accounting 12
standards adopted by the commission, expenses that have been authorized by the 13
commission to be capitalized for consideration of recovery in future rates that 14
would otherwise be treated as an expense in a current accounting period; 15
(16)[(15)] "Retired generation costs" means: 16
(a) Pretax costs with respect to retired or abandoned facilities that are included as 17
deferred costs subject to an application for a financing order and include but 18
are not limited to: 19
1. The undepreciated investmen t in the retired or abandoned electric 20
generating facility and in any facilities ancillary thereto or used in 21
conjunction therewith; 22
2. Costs of decommissioning and restoring the site of the electric 23
generating facility; 24
3. Other applicable capital and operating costs; and 25
4. Accrued carrying charges and deferred costs; 26
(b) Reduced by , to the extent as they relate to the retired or abandoned 27
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facilities: 1
1. Insurance, scrap, and salvage proceeds; 2
2. Applicable unamortized regulatory liabilities for excess deferred income 3
taxes; and 4
3. The present value of return on all accumulated deferred income taxes 5
related to pretax costs with respect to the[a] retired or abandoned facility 6
and related facilities, including those due to bonus and accelerated tax 7
depreciation and abandonment losses; and 8
(c) Added to pretax costs the electric utility has previously incurred related to the 9
retirement or abandonment of an electric generating facility and related 10
facilities offering before June 29, 2023, including costs associated with: 11
1. The decommissioning and restoration of the site; and 12
2. Environmental compliance related to the operation and retirement of the 13
electric generating facility; 14
(17)[(16)] "Securitization" means a structured process where interests in debt 15
instruments [or other receivable income ] are packaged, underwritten, and sold as 16
asset-backed marketable securities such as bonds; 17
(18)[(17)] "Securitized bonds" means bonds, debentures, notes, certificates of 18
participation, certificates of beneficial interest, certificates of ownership, or other 19
evidences of indebtedness or ownership that have a maturity date as determined 20
reasonable by the commission, but not later than thirty (30) years from the issue 21
date, that are issued by an electric utility or assignee pu rsuant to a financing order, 22
the proceeds of which are used directly or indirectly to recover, finance, or 23
refinance capitalized cost assets and financing costs that are secured by or payable 24
from securitized utility property; 25
(19)[(18)] "Securitized costs" means any one (1) or more of:[include] 26
(a) Retired generation costs;[, as well as the] 27
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(b) Unamortized book value of deferred[extraordinary] storm costs or other 1
regulatory assets; or 2
(c) Undepreciated extra -state generation utility plant balances incl uding but 3
not limited to environmental control costs associated with an extra -state 4
generation utility plant, in each case whether before or after 5
securitization[deferred costs associated with prior incurrences, but does not 6
include ongoing utility investments or operating costs]; 7
(20)[(19)] "Securitized property" means: 8
(a) All rights and interests of a utility, its successor, or assignee under a financing 9
order, including the right to impose, bill, charge, collect, and receive 10
securitized surcharges authorized under the financing order and to obtain 11
periodic adjustments to those charges authorized under KRS 278.670 to 12
278.696 and 65.114 and as provided in the financing order; and 13
(b) All revenues, collections, claims, rights to payments, payments, moneys, or 14
proceeds arising from the rights and interests specified in the financing order, 15
regardless of whether those revenues, collections, claims, rights to payment, 16
payments, moneys, or proceeds are imposed, billed, received, collected, or 17
maintained together with or commingled with other revenues, collections, 18
rights to payment, payments, moneys, or proceeds; 19
(21)[(20]) "Securitized surcharge" means the amounts authorized by the commissi on to 20
repay, finance, or refinance securitized costs and financing costs . Upon 21
authorization, the securitized surcharges shall be [ that are] , except as otherwise 22
provided for in KRS 278.670 to 278.696 and 65.114: 23
(a) Nonbypassable and imposed on, and are a part of, all retail customer bills; 24
(b) Collectable[Collected,] in full in[and separate from] the utility's tariffed rates 25
by an electric utility or by its successors, assignees, or collection agents, and 26
separate from the utility's[,] special contract rates[,] or other mechanisms[ by 27
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an electric utility or by its successors, assignees, or collection agents]; and 1
(c) Payable[Paid] by all existing or future retail customers receiving electrical 2
services, including distribution services, [service] from the el ectric utility or 3
its successors or assignees[ under commission-approved rate schedules even if 4
a retail customer elects to purchase electricity from an alternative electricity 5
supplier following a fundamental change in regulation of public utilities in th e 6
Commonwealth];[ and] 7
(22) "Undepreciated extra -state generation utility plant balances" means any 8
unrecovered capitalized costs of, or any not yet fully depreciated investments in, 9
one (1) or more fossil fuel-fired electric generating plants that: 10
(a) Are owned by an electric utility on the effective date of this Act; 11
(b) Are located outside of the Commonwealth; 12
(c) Have a nameplate generation capacity in excess of eight hundred (800) 13
megawatts each; and 14
(d) Have included in the plant's related supply, tr ansmission, equipment, and 15
fixtures at a minimum to the: 16
1. Net book value of assets on the qualifying electric utility's balance 17
sheet related to the generating plant's related infrastructure and 18
environmental control costs associated with the extra -state generation 19
utility plant; and 20
2. Accrued carrying charges and deferred costs; and 21
(23)[(21)] "Utility" has the same meaning as in KRS 278.010(3)(a) but shall not include 22
any utility organized under KRS Chapter 279. 23
Section 2. KRS 278.672 is amended to read as follows: 24
(1) An electric utility may apply to the commission for a financing order to finance by 25
securitized bonds any securitized costs approved by the commission [extraordinary 26
or other deferred costs from previous events for regulatory assets existing and with 27
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a value calculated on June 30, 2023, as: 1
(a) Greater than two hundred million dollars ($200,000,000) for a single 2
regulatory asset; or 3
(b) Having a cumulative total value of greater than two hundred and seven ty-five 4
million ($275,000,000) for multiple regulatory assets]. 5
(2) An application for a financing order shall include: 6
(a) A description and dollar amount of the extra -state generation utility plant 7
balances, deferred storm costs, and other regulatory ass ets that the utility 8
requests to securitize[of the deferred costs the utility is seeking to securitize. 9
If more than fifty percent (50%) of the deferred costs are retired generation 10
costs, the application also shall describe: 11
1. The electric generating facility or facilities that have been retired; and 12
2. A copy of all previous commission orders related to the deferral of costs 13
applicable to the retirement or abandonment of the facility or facilities]; 14
(b) An estimate of the financing costs related to the securitized bonds[The dollar 15
amount of the deferred costs]; 16
(c) An estimate of the: 17
1. Securitized surcharges necessary to recover the securitized costs; 18
2. Financing costs; and 19
3. Time period needed for the recovery of securitized and financing 20
costs[A statement of whether the electric utility proposes to finance all 21
or a portion of deferred costs using securitized bonds. If the electric 22
utility proposes to finance a portion of the costs, the electric utility shall 23
identify the specific portion of the defer red costs in the application. By 24
electing not to finance all or any portion of deferred costs using 25
securitized bonds, an electric utility shall not be deemed to waive its 26
right to reflect those costs in its retail rates pursuant to a separate 27
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proceeding with the commission. However, at no point shall the electric 1
utility apply to securitize less than the amounts prescribed in subsection 2
(1) of this section]; 3
(d) A comparison between the: 4
1. Net present value of the costs to ratepayers that are estimated to result 5
from the issuance of securitized bonds; and 6
2. Cost that would result from an alternative means of providing for the 7
full recovery of and return on those securitized costs from custo mers, 8
using the utility's current or expected weighted average cost of 9
capital[An estimate of the financing costs related to the securitized 10
bonds]; 11
(e)[ An estimate of the securitized surcharges necessary to recover the securitized 12
costs and financing costs and the period for recovery of the costs; 13
(f) A comparison between the net present value of the costs to ratepayers that are 14
estimated to result from the issuance of securitized bonds and the cost that 15
would result from an alternative means of providing for the full recovery of 16
and return on those securitized costs from customers, using the utility's 17
current or expected weighted average cost of capital. The comparison should 18
demonstrate that the issuance of securitized bonds and the imposition of 19
securitized surcharges are expected to provide quantifiable net present value 20
benefits to customers; 21
(g)] A proposed future ratemaking process to reconcile any differences between 22
securitized costs financed by securitized bonds and the final securitized costs 23
incurred by the electric utility, successor, or assignee, provided that any 24
reconciliation shall not affect the amount of securitized bonds or the 25
associated securitized surcharges paid by customers; and 26
(f)[(h)] Testimony supporting the application. 27
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(3) The commission shall not accept [for filing ] an application for a financing order 1
tendered pursuant to this section for retired generation costs or undepreciated 2
extra-state generation utility plant balances unless the electric utility tendering 3
the application: 4
(a) Has also filed, on or after January 1, 2026, an a pplication to build or 5
acquire in-state dispatchable generation pursuant to KRS 278.020; and 6
(b) Has agreed not to seek an increase in base rates that would become effective 7
prior to the two (2) years period after the application for a financing order 8
is filed with the commission. 9
(4) As used in this subsection, "dispatchable" has the same meaning as provided in 10
KRS 164.2807(2)(b)[tendered pursuant to this section after December 31, 2024]. 11
Section 3. KRS 278.674 is amended to read as follows: 12
(1) Proceedings on an application submitted pursuant to KRS 278.672 or Section 1 or 2 13
of this Act shall begin with the filing of an application by an electric utility and 14
shall be disposed of in accordance with the requirements of th is section and the 15
rules and administrative regulations promulgated by the commission, except as 16
follows: 17
(a) The commission shall establish a procedural schedule that requires that not 18
later than one hundred eighty (180) days after the application is filed: 19
1. A decision approving the application, approving the application subject 20
to conditions, or denying the application is issued; and 21
2. A financing order is issued if the application is approved and the 22
conditions are met, if conditions are imposed;[ and] 23
(b) The commission shall approve the application for a financing order with or 24
without conditions if the commission finds: 25
1. The application is in the public interest; and 26
2. The resulting estimated securitized surcharge and other rates are fair, 27
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just, and reasonable; and 1
(c) The commission shall not require in any financing order for the 2
securitization of an electric utility's securitized costs that the: 3
1. Securitized bonds be marketed as a specific type of security; or 4
2. Assignee be formed as a speci fic type of entity, including as a series 5
trust. 6
(2) Judicial review of a financing order shall only be done in accordance with KRS 7
278.410. 8
(3) In performing the responsibilities under KRS 278.670 to 278.696 and 65.114, the 9
commission may retain counsel, one (1) or more financial advisors, or other 10
consultants as the commission deems appropriate. Outside counsel, advisors, or 11
other consultants engaged by the commission shall have no interest in the proposed 12
securitized bonds and shall not direct the placem ent or marketing of securitized 13
bonds. The costs associated with the commission's retaining of counsel,[ or] 14
advisors, or other consultants shall: 15
(a) Be paid by the applicant and be included as financing costs in the securitized 16
surcharge; 17
(b) Be assigned solely to the subject transaction;[ and] 18
(c) Not be an obligation of the Commonwealth; and 19
(d) Not exceed seven hundred fifty thousand dollars ($750,000), except that the 20
costs may be adjusted for inflation each year after 2026 using a recognized 21
price index selected by the commission. 22
(4) The commission may designate one (1) or more representatives from commission 23
staff who may be advised by one (1) or more financial advisors contracted with the 24
commission to provide: 25
(a) Input to and collaboration with the electric utility during the process 26
undertaken to place the securitized bonds to market; and 27
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(b) An opinion to the commission on the reasonableness of the pricing, terms, and 1
conditions of the securitized bonds on an expedited basis. 2
(5) The designated commission staff and any financial advisor providing advice to 3
commission staff shall: 4
(a) Have no authority to direct how the electric utility places the bonds to market 5
or whether the bonds are required to be marketed as asset-backed securities, 6
corporate bonds, or any other type of security;[ and] 7
(b) Have only the right of input and collaboration on but not decision -making 8
or approval authority over: 9
1. Securities law filings; 10
2. Structuring and marketing documents; or 11
3. Transactional documents for the securitized bonds; and 12
(c) Be permitted to attend meetings convened by the electric utility to address 13
placement of the bonds to market. 14
(6) If an electric utility's application for a financing order is denied or withdrawn, or for 15
any reason securitized bonds are not issued, any costs of retaining financial 16
advisors, consultants, and counsel on beha lf of the commission , subject to the 17
limitations set forth in subsection (5) of this section, shall be: 18
(a) Paid by the applicant; 19
(b) Recorded on the books of the utility using appropriate deferral accounting as a 20
regulatory asset; and 21
(c) Be eligible for full recovery, including carrying costs, subject to commission 22
approval. 23
(7) Prior to the issuance of each series of securitized bonds, the electric utility shall 24
provide an issuance advice letter to the commission following the determination of 25
the final terms of the series of securitized bonds no later than three (3) business 26
days after the pricing of the securitized bonds. 27
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(8) The issuance advice letter shall: 1
(a) Report the initial securitized surcharges and other information specific to the 2
securitized bonds as required by the commission; 3
(b) [Be included in the financing order which may contain additional provisions 4
relating to the issuance advice letter process as the commission deems 5
appropriate and not inconsistent with KRS 278.670 to 278.696 and 65.114; 6
(c) ]Indicate the final structure of the securitized bonds; and 7
(c)[(d)] Provide the best available estimate of total ongoing financing costs. 8
(9) A form or template issuance advice letter shall be included in the financing order, 9
which may contain additional provisions relating to the issuance advice letter 10
process as the commission deems appropriate and not inconsistent with KRS 11
278.670 to 278.696 and 65.114. 12
(10) Nothing in this section modifies the requirements of KRS 278.020(6) or relieves 13
an electric utility of the requirements to obtain the commission's approval prior to 14
selling or transferring assets, including extra -state generation facilities whose 15
undepreciated extra-state generation utility plant balances have been securitized 16
pursuant to this section and Sections 1 and 2 of this Act. 17
Section 4. KRS 278.678 is amended to read as follows: 18
(1) Upon the commission issuing a financing order and after the securitized bonds have 19
been issued, the electric utility shall file with the commission a: 20
(a) Tariff containing the mechanism for the assessment of a monthly surcharge to 21
existing rates for the collection of the securitized costs; and 22
(b) Formula-based true-up mechanism. 23
(2) The commission, in a financing order and subject to the issuance advice letter 24
process, shall specify the degree of flexibility to be afforded the electric utility in 25
establishing: 26
(a) The terms and conditions for the securitized bonds to accommodate chang es 27
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in market conditions, including repayment schedules, interest rates, financing 1
costs, collateral requirements, required debt service, and other reserves; and 2
(b) At its option, a series of issuances of securitized bonds and correlated 3
assignments, sales, pledges, or other transfers of securitized property. 4
(3) The electric utility shall file , at least semiannually, an [ a semiannual] update to its 5
monthly surcharge, based on estimates of consumption for each rate class and other 6
mathematical factors, to c ollect the appropriate amount of securitized costs. The 7
review by the commission of the [semiannual ]update pursuant to this section shall 8
be limited to: 9
(a) Determining whether there are any mathematical or clerical errors in the 10
application of the formul a-based true -up mechanism relating to the 11
appropriate amount of any over collection or under collection of a securitized 12
surcharge; and 13
(b) The amount of an adjustment required to address a mathematical or clerical 14
error determined pursuant to this section. 15
(4) The adjustments shall ensure solely for the recovery of: 16
(a) Revenues sufficient to provide for the payment of principal, interest, 17
acquisition, defeasance, financing costs, or redemption premium; and 18
(b) Other fees, costs, and charges with respect t o securitized bonds approved 19
under the financing order. 20
(5) Within ten (10) days after receiving an electric utility's filing of the billing 21
adjustment pursuant to this section, the commission shall either: 22
(a) Affix an official stamp on the filing indicat ing the commission's review is 23
complete; or 24
(b) Inform the electric utility of any mathematical or clerical errors in the electric 25
utility's calculation. 26
(6) If the commission informs the electric utility of mathematical or clerical errors in its 27
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calculation, the electric utility shall correct its error and refile its [semiannual 1
]surcharge update. 2
(7) The time frames in subsection (5) of this section shall also apply to a refiled 3
request. 4
(8) At the time of any transfer of securitized property to an assign ee or the issuance of 5
securitized bonds authorized thereby, whichever is earlier, a financing order shall 6
be irrevocable and, except for changes made pursuant to the formula -based true-up 7
mechanism authorized in this section, the commission shall not: 8
(a) Amend, modify, or terminate the financing order by any subsequent action; or 9
(b) Reduce, impair, postpone, terminate, or otherwise adjust securitized 10
surcharges approved in the financing order. 11
(9) After issuance of a financing order, the electric utility retains sole discretion 12
regarding whether to: 13
(a) Assign, sell, or otherwise transfer securitized property; or 14
(b) Cause securitized bonds to be issued, including the right to defer or postpone 15
the assignment, sale, transfer, or issuance of securitized bonds. 16
(10) Any changes made under this section to terms and conditions for the securitized 17
bonds shall be in conformance with the financing order. 18
Section 5. KRS 278.682 is amended to read as follows: 19
(1) If the commission has approved an electric utility's financing order and 20
securitization bonds are issued on the electric utility's behalf, the electric utility 21
shall[: 22
(a) ] explicitly state on the customer's bill the portion of securitized surcharges 23
applicable to the rate class as approved in the financing order issued to the electric 24
utility[; and 25
(b) Include the securitized surcharge on each customer's bill as a separate line item and 26
include both the base rate for the customer's electricity and the amo unt of the 27
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surcharge]. 1
(2) If the securitized property has been transferred to an assignee, the customer bill 2
shall include a statement that the assignee is the owner of the rights to securitized 3
surcharges, and the electric utility or other entity, if app licable, is acting as a 4
collection agent or servicer for the assignee. 5
(3) Each tariff of the electric utility with a commission -approved financing order shall 6
indicate the applicable securitized surcharge and the ownership of the surcharge. 7
Section 6. Whereas the cost of electric energy is rising and the health and safety 8
of the citizens of the Commonwealth depends on lower cost energy through increased 9
electric generation, an emergency is declared to exist, and this Act takes effect upon its 10
passage and approval by the Governor or upon its otherwise becoming a law. 11