North Carolina Administrative Code
Title 04 - COMMERCE
Chapter 11 - UTILITIES COMMISSION
Chapter 8
Article 11 - RESOURCE PLANNING AND CERTIFICATION
Section 11 R08-74 - FINANCING FOR COSTS ASSOCIATED WITH THE EARLY RETIREMENT OF SUBCRITICAL COAL-FIRED

(a) Fifty percent (50%) of the remaining net book value of all of a public utility's subcritical coal-fired electric generating facilities retired early or to be retired early to achieve the authorized carbon reduction goals set forth in Section 1 of House Bill 951 that are appropriate for recovery from existing and future retail customers receiving transmission or distribution service from such public utility.

(b) The public utility's cost of capital from the date of the applicable coal plant retirement to the date the coal plant retirement bonds are issued calculated using the public utility's weighted average cost of capital as defined in its most recent base rate case proceeding before the Commission net of applicable income tax savings related to the interest component; provided, however, if the coal plant is included in base rates in the interval between the public utilities' petition for financing order and the corresponding issuance of coal plant retirement bonds, coal plant retirement costs shall not include the public utility's cost of capital until such time the plant has been removed from the base rate calculation of rates.

(c) Coal plant retirement costs shall be net of applicable insurance proceeds, tax benefits, and any other amounts intended to reimburse the public utility for coal plant retirement activities such as government grants, or aid of any kind and where determined appropriate by the Commission. Coal plant retirement costs include costs of repurchasing equity or retiring any existing indebtedness relating to the early retirement of a subcritical coal-fired electric generating facility.

(d) With respect to coal plant retirement costs that the public utility expects to incur, any difference between costs expected to be incurred and actual, reasonable and prudent costs incurred, or any other ratemaking adjustments appropriate to fairly and reasonably assign or allocate coal plant retirement cost recovery to customers over time, shall be addressed in a future general rate proceeding, as may be facilitated by other orders of the Commission issued at the time or prior to such proceeding; provided, however, that the Commission's adoption of a financing order and approval of the issuance of coal plant retirement bonds may not be revoked or otherwise modified.

(a) All rights and interests of a public utility or successor or assignee of the public utility under a financing order, including the right to impose, bill, charge, collect, and receive coal plant retirement charges authorized under the financing order and to obtain periodic adjustments to such charges as provided in the financing order.

(b) All revenues, collections, claims, rights to payments, payments, money, or proceeds arising from the rights and interests specified in the financing order, regardless of whether such revenues, collections, claims, rights to payment, payments, money, or proceeds are imposed, billed, received, collected, or maintained together with or commingled with other revenues, collections, rights to payment, payments, money, or proceeds.

(a) Interest and acquisition, defeasance, or redemption premiums payable on coal plant retirement bonds.

(b) Any payment required under an ancillary agreement and any amount required to fund or replenish a reserve account or other accounts established under the terms of any indenture, ancillary agreement, or other financing documents pertaining to coal plant retirement bonds.

(c) Any other cost related to issuing, supporting, repaying, refunding, and servicing coal plant retirement bonds, including servicing fees, accounting and auditing fees, trustee fees, legal fees, consulting fees, structuring adviser fees, administrative fees, placement and underwriting fees, independent director and manager fees, capitalized interest, rating agency fees, stock exchange listing and compliance fees, security registration fees, filing fees, information technology programming costs, and any other costs necessary to otherwise ensure the timely payment of coal plant retirement bonds or other amounts or charges payable in connection with the bonds, including costs related to obtaining the financing order.

(d) Any taxes and license fees or other fees imposed on the revenues generated from the collection of the coal plant retirement charge or otherwise resulting from the collection of coal plant retirement charges, in any such case whether paid, payable, or accrued.

(e) Any State and local taxes, franchise, gross receipts, and other taxes or similar charges, including regulatory assessment fees, whether paid, payable, or accrued.

(f) Any costs incurred by the Commission or Public Staff for any outside consultants or counsel retained in connection with the securitization of coal plant retirement costs.

(a) A description of the subcritical coal-fired electric generating facilities that the public utility has retired early or proposes to retire early for the purpose of achieving the authorized carbon reduction goals set forth in Section 1 of House Bill 951, or if the public utility is subject to a settlement agreement as contemplated by subsection (c)(2) of this Rule, a description of the settlement agreement.

(b) The coal plant retirement costs and estimate of the costs of any coal plant retirement activities that are being undertaken but are not completed.

(c) An estimate of the financing costs related to the coal plant retirement bonds.

(d) An estimate of the coal plant retirement charges necessary to recover the coal plant retirement costs and financing costs and the period for recovery of such costs.

(e) A comparison between the net present value of the costs to customers that are estimated to result from the issuance of coal plant retirement bonds and the costs that would result from the application of the traditional method of financing and recovering coal plant retirement costs from customers. The comparison should demonstrate that the issuance of coal plant retirement bonds and the imposition of coal plant retirement charges are expected to provide quantifiable benefits to customers.

(f) Direct testimony and exhibits supporting the petition.

(a) Proceedings on a petition submitted pursuant to this subdivision begin with the petition by a public utility, filed subject to the time frame specified in Rule R8-74(c)(2), if applicable, and shall be disposed of in accordance with the requirements of Chapter 62 and the rules of the Commission, except as follows:

(b) A financing order issued under this Rule by the Commission to a public utility shall include all of the following elements:

(c) A financing order issued to a public utility may provide that creation of the public utility's coal plant retirement property is conditioned upon, and simultaneous with, the sale or other transfer of the coal plant retirement property to an assignee and the pledge of the coal plant retirement property to secure coal plant retirement bonds.

(d) If the Commission issues a financing order, the public utility shall file with the Commission at least annually a petition or a letter applying the formula-based mechanism and, based on estimates of consumption for each rate class and other mathematical factors, requesting administrative approval to make the applicable adjustments. The review of the filing shall be limited to determining whether there are any mathematical or clerical errors in the application of the formula-based mechanism relating to the appropriate amount of any overcollection or undercollection of coal plant retirement charges and the amount of an adjustment. The adjustments shall ensure the recovery of revenues sufficient to provide for the payment of principal, interest, acquisition, defeasance, financing costs, or redemption premium and other fees, costs, and charges in respect of coal plant retirement bonds approved under the financing order. Within 30 days after receiving a public utility's request pursuant to this paragraph, the Commission shall either approve the request or inform the public utility of any mathematical or clerical errors in its calculation. If the Commission informs the utility of mathematical or clerical errors in its calculation, the utility may correct its error and refile its request. The time frames previously described in this paragraph shall apply to a refiled request.

(e) Subsequent to the transfer of coal plant retirement property to an assignee or the issuance of coal plant retirement bonds authorized thereby, whichever is earlier, a financing order is irrevocable and, except for changes made pursuant to the formula-based mechanism authorized in this Rule, the Commission may not amend, modify, or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust coal plant retirement charges approved in the financing order. After the issuance of a financing order, the public utility retains sole discretion regarding whether to assign, sell, or otherwise transfer coal plant retirement property or to cause coal plant retirement bonds to be issued, including the right to defer or postpone such assignment, sale, transfer, or issuance.

(f) A financing order issued under this Rule by the Commission to a public utility may include a bond advisory team.

(a) A financing order remains in effect and coal plant retirement property under the financing order continues to exist until coal plant retirement bonds issued pursuant to the financing order have been paid in full or defeased and, in each case, all Commission-approved financing costs of such coal plant retirement bonds have been recovered in full.

(b) A financing order issued to a public utility remains in effect and unabated notwithstanding the reorganization, bankruptcy or other insolvency proceedings, merger, or sale of the public utility or its successors or assignees.

(a) All coal plant retirement property that is specified in a financing order constitutes an existing, present intangible property right or interest therein, notwithstanding that the imposition and collection of coal plant retirement charges depends on the public utility, to which the financing order is issued, performing its servicing functions relating to the collection of coal plant retirement charges and on future electricity consumption. The property exists (i) regardless of whether or not the revenues or proceeds arising from the property have been billed, have accrued, or have been collected and (ii) notwithstanding the fact that the value or amount of the property is dependent on the future provision of service to customers by the public utility or its successors or assignees and the future consumption of electricity by customers.

(b) Coal plant retirement property specified in a financing order exists until coal plant retirement bonds issued pursuant to the financing order are paid in full and all financing costs and other costs of such coal plant retirement bonds have been recovered in full.

(c) All or any portion of coal plant retirement property specified in a financing order issued to a public utility may be transferred, sold, conveyed, or assigned to a successor or assignee that is wholly owned, directly or indirectly, by the public utility and created for the limited purpose of acquiring, owning, or administering coal plant retirement property or issuing coal plant retirement bonds under the financing order. All or any portion of coal plant retirement property may be pledged to secure coal plant retirement bonds issued pursuant to the financing order, amounts payable to financing parties and to counterparties under any ancillary agreements, and other financing costs. Any transfer, sale, conveyance, assignment, grant of a security interest in or pledge of coal plant retirement property by a public utility, or an affiliate of the public utility, to an assignee, to the extent previously authorized in a financing order, does not require the prior consent and approval of the Commission.

(d) If a public utility defaults on any required payment of charges arising from coal plant retirement property specified in a financing order, a court, upon application by an interested party, and without limiting any other remedies available to the applying party, shall order the sequestration and payment of the revenues arising from the coal plant retirement property to the financing parties or their assignees. Any such financing order remains in full force and effect notwithstanding any reorganization, bankruptcy, or other insolvency proceedings with respect to the public utility or its successors or assignees.

(e) The interest of a transferee, purchaser, acquirer, assignee, or pledgee in coal plant retirement property specified in a financing order issued to a public utility, and in the revenue and collections arising from that property, is not subject to setoff, counterclaim, surcharge, or defense by the public utility or any other person or in connection with the reorganization, bankruptcy, or other insolvency of the public utility or any other entity.

(f) Any successor to a public utility, whether pursuant to any reorganization, bankruptcy, or other insolvency proceeding or whether pursuant to any merger or acquisition, sale, or other business combination, or transfer by operation of law, as a result of public utility restructuring or otherwise, must perform and satisfy all obligations of, and have the same rights under a financing order as, the public utility under the financing order in the same manner and to the same extent as the public utility, including collecting and paying to the person entitled to receive the revenues, collections, payments, or proceeds of the coal plant retirement property. Nothing in this sub-subdivision is intended to limit or impair any authority of the Commission concerning the transfer or succession of interests of public utilities.

(g) Coal plant retirement bonds shall be nonrecourse to the credit or any assets of the public utility other than the coal plant retirement property as specified in the financing order and any rights under any ancillary agreement.

(a) The creation, perfection, and enforcement of any security interest in coal plant retirement property to secure the repayment of the principal and interest and other amounts payable in respect of coal plant retirement bonds; amounts payable under any ancillary agreement and other financing costs are governed by this Rule and not by the provisions of the Code.

(b) A security interest in coal plant retirement property is created, valid, and binding and perfected at the later of the time:

(c) A security interest shall attach without any physical delivery of collateral or other act, and, upon the filing of a financing statement with the office of the Secretary of State, the lien of the security interest shall be valid, binding, and perfected against all parties having claims of any kind in tort, contract, or otherwise against the person granting the security interest, regardless of whether the parties have notice of the lien. Also upon this filing, a transfer of an interest in the coal plant retirement property shall be perfected against all parties having claims of any kind, including any judicial lien or other lien creditors or any claims of the seller or creditors of the seller, and shall have priority over all competing claims other than any prior security interest, ownership interest, or assignment in the property previously perfected in accordance with this Rule.

(d) The Secretary of State shall maintain any financing statement filed to perfect any security interest under this Rule in the same manner that the Secretary maintains financing statements filed by transmitting utilities under the Code. The filing of a financing statement under this Rule shall be governed by the provisions regarding the filing of financing statements in the Code.

(e) The priority of a security interest in coal plant retirement property is not affected by the commingling of coal plant retirement charges with other amounts. Any pledgee or secured party shall have a perfected security interest in the amount of all coal plant retirement charges that are deposited in any cash or deposit account of the qualifying utility in which coal plant retirement charges have been commingled with other funds and any other security interest that may apply to those funds shall be terminated when they are transferred to a segregated account for the assignee or a financing party.

(f) No application of the formula-based adjustment mechanism as provided in this Rule will affect the validity, perfection, or priority of a security interest in or transfer of coal plant retirement property.

(g) If a default or termination occurs under the coal plant retirement bonds, the financing parties or their representatives may foreclose on or otherwise enforce their lien and security interest in any coal plant retirement property as if they were secured parties with a perfected and prior lien under the Code, and the Commission may order amounts arising from coal plant retirement charges be transferred to a separate account for the financing parties' benefit, to which their lien and security interest shall apply. On application by or on behalf of the financing parties, the Superior Court of Wake County shall order the sequestration and payment to them of revenues arising from the coal plant retirement charges.

(a) Any sale, assignment, or other transfer of coal plant retirement property shall be an absolute transfer and true sale of, and not a pledge of or secured transaction relating to, the seller's right, title, and interest in, to, and under the coal plant retirement property if the documents governing the transaction expressly state that the transaction is a sale or other absolute transfer other than for federal and State income tax purposes. For all purposes other than federal and State income tax purposes, the parties' characterization of a transaction as a sale of an interest in coal plant retirement property shall be conclusive that the transaction is a true sale and that ownership has passed to the party characterized as the purchaser, regardless of whether the purchaser has possession of any documents evidencing or pertaining to the interest. A transfer of an interest in coal plant retirement property may be created only when all of the following have occurred:

(b) The characterization of the sale, assignment, or other transfer as an absolute transfer and true sale and the corresponding characterization of the property interest of the purchaser, shall not be affected or impaired by the occurrence of any of the following factors:

(c) Any right that a public utility has in the coal plant retirement property before its pledge, sale, or transfer or any other right created under this Rule or created in the financing order and assignable under this Rule or assignable pursuant to a financing order is property in the form of a contract right or a chose in action. Transfer of an interest in coal plant retirement property to an assignee is enforceable only upon the later of (i) the issuance of a financing order, (ii) the assignor having rights in such coal plant retirement property or the power to transfer rights in such coal plant retirement property to an assignee, (iii) the execution and delivery by the assignor of transfer documents in connection with the issuance of coal plant retirement bonds, and (iv) the receipt of value for the coal plant retirement property. An enforceable transfer of an interest in coal plant retirement property to an assignee is perfected against all third parties, including subsequent judicial or other lien creditors, when a notice of that transfer has been given by the filing of a financing statement in accordance with subsection (f)(2)(c) of this Rule. The transfer is perfected against third parties as of the date of filing.

(d) The Secretary of State shall maintain any financing statement filed to perfect any sale, assignment, or transfer of coal plant retirement property under Rule R8-74(f) in the same manner that the Secretary maintains financing statements filed by transmitting utilities under the Code. The filing of any financing statement under this Rule shall be governed by the provisions regarding the filing of financing statements in the Code. The filing of such a financing statement is the only method of perfecting a transfer of coal plant retirement property.

(e) The priority of a transfer perfected under this Rule is not impaired by any later modification of the financing order or coal plant retirement property or by the commingling of funds arising from coal plant retirement property with other funds. Any other security interest that may apply to those funds, other than a security interest perfected under subsection (f)(2) of this Rule, is terminated when they are transferred to a segregated account for the assignee or a financing party. If coal plant retirement property has been transferred to an assignee or financing party, any proceeds of that property must be held in trust for the assignee or financing party.

(f) The priority of the conflicting interests of assignees in the same interest or rights in any coal plant retirement property is determined as follows:

(g) Description or Indication of Property. - The description of coal plant retirement property being transferred to an assignee in any sale agreement, purchase agreement, or other transfer agreement, granted or pledged to a pledgee in any security agreement, pledge agreement, or other security document, or indicated in any financing statement is only sufficient if such description or indication refers to the financing order that created the coal plant retirement property and states that the agreement or financing statement covers all or part of the property described in the financing order. This Rule applies to all purported transfers of, and all purported grants or liens or security interests in, coal plant retirement property, regardless of whether the related sale agreement, purchase agreement, other transfer agreement, security agreement, pledge agreement, or other security document was entered into, or any financing statement was filed.

(h) Financing Statements. - All financing statements referenced in this Rule are subject to Part 5 of Article 9 of the Code, except that the requirement as to continuation statements does not apply.

(i) Choice of Law. - The law governing the validity, enforceability, attachment, perfection, priority, and exercise of remedies with respect to the transfer of an interest or right or the pledge or creation of a security interest in any coal plant retirement property shall be the laws of this State.

(j) Coal plant retirement Bonds Not Public Debt. - Neither the State nor its political subdivisions are liable on any coal plant retirement bonds, and the bonds are not a debt or a general obligation of the State or any of its political subdivisions, agencies, or instrumentalities, nor are they special obligations or indebtedness of the State or any agency or political subdivision. An issue of coal plant retirement bonds does not, directly, indirectly, or contingently, obligate the State or any agency, political subdivision, or instrumentality of the State to levy any tax or make any appropriation for payment of the coal plant retirement bonds, other than in their capacity as consumers of electricity. All coal plant retirement bonds must contain on the face thereof a statement to the following effect: "Neither the full faith and credit nor the taxing power of the State of North Carolina is pledged to the payment of the principal of, or interest on, this bond."

(k) Legal Investment. - All of the following entities may legally invest any sinking funds, moneys, or other funds in coal plant retirement bonds:

(l) Obligation of Nonimpairment. -

(m) Not a Public Utility. - assignee or financing party is not a public utility or person providing electric service by virtue of engaging in the transactions described in this Rule.

(n) Conflicts. - If there is a conflict between this Rule and any other law regarding the attachment, assignment, or perfection, or the effect of perfection, or priority of, assignment or transfer of, or security interest in coal plant retirement property, this Rule shall govern.

(o) Consultation. - In making determinations under this Rule, the Commission or Public Staff or both may engage an outside consultant and counsel.

(p) Effect of Invalidity. - If any provision of this Rule is held invalid or is invalidated, superseded, replaced, repealed, or expires for any reason, that occurrence does not affect the validity of any action allowed under this Rule which is taken by a public utility, an assignee, a financing party, a collection agent, or a party to an ancillary agreement; and any such action remains in full force and effect with respect to all coal plant retirement bonds issued or authorized in a financing order issued under this Rule before the date that such provision is held invalid or is invalidated, superseded, replaced, or repealed, or expires for any reason.