Current through Reg. 50, No. 13; March 28, 2025
(a) Purpose. The
purpose of this section is to establish the terms for power generation
companies (PGCs) that are licensed by the Nuclear Regulatory Commission for
using a PGC decommissioning trust to satisfy the financial assurance
requirements for decommissioning a nuclear generating unit and to delineate the
rights and obligations of PGCs electing to use a commission-approved method for
providing funds from Texas customers for decommissioning a nuclear generating
unit, as a means of complying with nuclear decommissioning financial assurance
requirements.
(1) A PGC is not required to
use the methods set out in this section and may discontinue the use of the
methods set out in this section, if it chooses to satisfy the financial
assurance requirements of the federal Nuclear Regulatory Commission by using
other methods acceptable to the Nuclear Regulatory Commission.
(2) A PGC decommissioning trust established
in accordance with this section is separate from a Nuclear Decommissioning
Trust created under §
25.303 of this title (relating to
Nuclear Decommissioning Following the Transfer of Texas Jurisdictional Nuclear
Generating Plant Assets).
(b) Applicability. A PGC owning all or a
portion of a qualifying nuclear generating unit may use a PGC decommissioning
trust as an external sinking fund in compliance with this section, provided
that the use of the methods of financial assurance set out in this section
shall be available only to the first six nuclear generating units the
construction of which begins on or after January 1, 2013, and before January 1,
2033, that elect to use a PGC decommissioning trust.
(c) Definitions.
(1) Decommissioning--includes the safe
decommissioning and decontamination of a nuclear generating unit, equipment,
and materials consistent with federal Nuclear Regulatory Commission
requirements.
(2) PGC
decommissioning trust--Funds that are contained in one or more external and
irrevocable trusts created for the purpose of protecting and holding revenue
collected from a PGC to cover the costs of decommissioning a Texas
jurisdictional nuclear generating plant at the end of its useful life. A PGC
decommissioning trust is a type of external sinking fund that is established
and maintained by setting aside funds periodically in an account segregated
from the PGC's assets and outside the PGC's administrative control in which the
total amount of funds would be sufficient to pay decommissioning costs at the
time termination of operations is expected.
(3) Retail electric customer--A retail
electric customer in a geographic area of Texas in which retail customer choice
has been implemented, or a retail electric customer of a municipally-owned
utility or electric cooperative that has an agreement to purchase power from a
nuclear generating unit.
(4) Under
construction--A nuclear generating unit for which the PGC has initiated the
pouring of safety-related concrete for the reactor building.
(d) Application. If a PGC elects
to use a PGC decommissioning trust, the PGC shall submit an application to the
commission for an order establishing the amount of annual decommissioning
funding and approving trust agreements. A PGC may combine applications for more
than one qualifying nuclear generating unit. An application must contain the
following information:
(1) Identification of
each nuclear generating unit included in the application;
(2) Quantification of the PGC's percentage of
ownership of each unit;
(3)
Decommissioning cost study using the most currently available information on
the cost of decommissioning each unit as set out in subsection (h)(2) of this
section;
(4) Funding analysis
identifying the expected amount of annual decommissioning funding determined as
set out in subsection (i) of this section;
(5) Description of the method to be used to
satisfy the state assurance obligation set forth in subsection (k) of this
section, including any guarantee agreements, support agreements, credit
agreements, or letters of credit or surety bonds;
(6) Agreements with an institutional trustee
and investment manager to manage the PGC decommissioning trust that are
consistent with this section and the terms and conditions required by the
federal Nuclear Regulatory Commission; and
(7) Projected date for beginning funding of
the PGC decommissioning trust, which must be prior to the commencement of
initial fuel load and commercial operation of the nuclear generating
unit.
(e) Commission
Review.
(1) The commission staff will
endeavor to recommend approval, amendment, or disapproval of an application
setting annual decommissioning funding and financial agreements to implement
the trust requirements within 120 days of receipt of a sufficient application,
unless a hearing on the application is required.
(2) A request for hearing shall be filed by
the date specified by the presiding officer which shall be no more than 60 days
after the filing of the application. If a hearing is scheduled, the commission
will endeavor to issue a final order within 180 days after the filing of a
request for hearing.
(3) If no
hearing is requested, the commission staff concludes that the application
setting annual decommissioning funding and the trust agreements meet all
requirements of this section, and the commission staff recommends approval, the
application may be approved administratively or informally pursuant to §
22.35 of this title (relating to
Informal Disposition).
(4) If the
commission staff recommends an amendment to the funding or trust agreements,
within 14 days after filing of staff's recommendation, the PGC shall either
file an amended application incorporating the staff's proposed amendments or
request a hearing.
(5) If no
hearing is requested and the PGC files an amended application that meets all
requirements of this section and incorporates the staff recommendations, the
application may be approved administratively or informally pursuant to §
22.35 of this title.
(6) If the commission staff recommends denial
and the PGC requests a hearing, or if the PGC does not file an amended
application incorporating staff's recommendations within 14 days, the request
shall be docketed as a contested case proceeding to approve, modify, or reject
the application.
(f)
Order. An order approving the application shall establish the amount of annual
funding necessary to meet the decommissioning obligations for the nuclear
generating unit over the unit's operating license period as established by the
federal Nuclear Regulatory Commission or over a shorter period of time at the
election of the PGC.
(g) Annual
Reports. On or before May 1 of each year, each PGC for which the commission has
approved a funding amount and trust agreements under this section shall file an
annual report for the prior year using a form approved by the commission. The
report shall provide the status of the PGC's decommissioning trusts and any
changes in the administration of the trusts, an update of its ability to fund
the PGC decommissioning trust; and other information specified by the
commission in the form.
(h)
Periodic Commission Review. At least once every three years the PGC shall file
a decommissioning cost study and funding analysis or updates of previous
studies using the most current information reasonably available to the PGC.
(1) The commission shall review the studies
submitted by a PGC and other currently available information using the
procedure provided in subsection (e) of this section.
(2) During the initial and each periodic
review of decommissioning costs, the following information shall be provided:
(A) The decommissioning cost study and
funding analysis accompanied by a report and testimony supporting the analysis
and the requested annual funding amount. The funding analysis shall be based on
the most current information reasonably available concerning the cost of
decommissioning, an allowance for contingencies of not more than 10% of the
cost of decommissioning, the balance of funds in the decommissioning trusts,
anticipated escalation rates, the anticipated after-tax return on the funds in
the trust, and other relevant factors. In no event will the cost estimate for
basic radiological decommissioning be less than the minimum amount required by
the federal Nuclear Regulatory Commission. The funding analysis shall be
accompanied by a description of the assumptions used in the analysis and shall
calculate the required annual funding amount necessary to ensure sufficient
funds to decommission the nuclear generating plant at the end of its useful
life.
(B) A demonstration that the
decommissioning funds are being or will be invested prudently and in compliance
with the investment guidelines in subsection (o) of this section.
(C) A demonstration of efforts to achieve
optimum tax efficiency as defined in subsection (o)(2)(C) of this section,
including, as applicable, maintenance of tax-exempt status or efforts to
achieve "qualified" status in accordance with Internal Revenue Code §468A
(or any successor thereto) with respect to the PGC's taxable PGC
decommissioning trusts.
(D)
Confirmation that the federal Nuclear Regulatory Commission either has made, or
will make, a finding that there is reasonable assurance of the financial
qualifications of the PGC, as required by federal regulations.
(E) Compliance with the state funding
assurance obligation set forth in subsection (k) of this section.
(3) The commission shall ensure
that the amount of annual decommissioning funding is consistent with the most
recent decommissioning cost study and funding analysis, and that the PGC
decommissioning trust is adequately funded. The PGC shall update its state
assurance obligation to reflect changes in the annual decommissioning funding
amount.
(i) Annual
Decommissioning Funding Amount. The amount of annual decommissioning funding
for a PGC decommissioning trust shall be an amount that, based on such factors
as the balance of funds in the decommissioning trust, anticipated escalation
rates, and anticipated after-tax return on funds in the decommissioning trust,
will cover the cost of decommissioning a nuclear generating unit at the end of
its operating license period. The amount shall be calculated based on the most
current reasonably available information, consistent with the most recent
decommissioning cost study, and divided by the remaining years of the license
or a shorter period of time at the election of the PGC. The decommissioning
cost study and funding analysis shall include the information required by
subsection (h)(2)(A) of this section. The commission, on its own motion or on
the motion of the commission staff, may initiate a proceeding to review the
PGC's trust balances or the annual funding amount. The PGC shall provide any
information required to conduct the review in accordance with the commission's
procedural rules.
(j)
Creditworthiness of PGC. For the purposes of the initial application under this
section, creditworthiness of the PGC will be established primarily through
satisfying the State Assurance Obligation as provided for in subsection (k) of
this section.
(k) State Assurance
Obligation. A PGC using a commission approved PGC decommissioning trust shall
provide additional financial assurances that funds will be available to satisfy
16 years of annual decommissioning funding, based on the most recent annual
decommissioning funding amount approved by the commission (the state assurance
obligation amount). If the remaining funding contribution period is less than
16 years, the state assurance obligation will be based on the remaining number
of years of annual decommissioning funding. The state assurance obligation
amount will be the discounted value of annual decommissioning funding for the
relevant period up to 16 years. Any arrangement for satisfying the state
assurance obligation shall permit the trustee of a decommissioning trust to
demand payment by any company holding funds or providing an assurance and
require the company holding funds or providing an assurance to remit funds to
the trust, in accordance with this section. The PGC shall include in its annual
report a demonstration of compliance with the requirements of this subsection.
The state assurance may be used to provide assurance required by state or
federal law for other similar purposes relating to the operation of the
facility, such as assurance for the funding to cover estimated operation costs,
provided that adequate terms are included to replenish the amounts available
under the assurance mechanism if funds are withdrawn for any such other
purpose. The state assurance obligation may be accomplished by using one or
more of the following methods at the election of the PGC, in the form approved
by the commission:
(1) A PGC may satisfy the
state assurance obligation by depositing the required amount of funds into an
escrow account, a government fund, a nuclear decommissioning trust subject to
the commission's investment standards set out in this title, or other type of
acceptable agreement with an entity whose operations are regulated and examined
by a federal or State agency.
(2) A
PGC may satisfy the state assurance obligation by obtaining a written guarantee
or financial support agreement from a direct or higher-tier parent corporation
or a corporation with a substantial business relationship with the PGC or by
meeting the following standards itself. The guarantee or financial support
agreement must be payable to the PGC decommissioning trust. The parent or
supporting corporation, or PGC must meet one of the following standards:
(A) The parent or supporting corporation, or
PGC must have:
(i) Tangible net worth of at
least 10 times the state assurance amount, excluding the net book value of the
nuclear units subject to the state assurance obligation;
(ii) Tangible net worth of at least $500
million;
(iii) Net working capital
of at least 10 times the annual decommissioning funding amount; and
(iv) Assets located in the United States
amounting to at least 90% of the total assets or at least 10 times the state
assurance amount.
(B)
The parent or supporting corporation, or PGC must be otherwise financially
qualified, based upon a finding by the commission that there is reasonable
assurance that the parent or supporting corporation will be able to meet its
obligations under the guarantee or other agreement.
(3) A PGC may satisfy the state assurance
obligation by providing an adequate surety, insurance, or other guarantee
method that meets the following minimum requirements:
(A) A guarantee that the state assurance
obligation will be paid to the PGC decommissioning trust upon any default by
the PGC in satisfying its annual funding obligation.
(B) A surety method may be in the form of a
surety bond, letter of credit, or line of credit. Any surety method or
insurance used to satisfy the state assurance obligation must contain the
following conditions:
(i) The surety method
or insurance must be open-ended, or, if written for a specified term, such as
five years, must be renewed automatically, unless 90 days or more prior to the
renewal day the issuer notifies the commission and the PGC of its intention not
to renew. The surety or insurance must also provide that the full face amount
will be paid to the PGC decommissioning trust automatically prior to the
expiration without proof of forfeiture if the PGC fails to provide a
replacement acceptable to the commission within 30 days after receipt of
notification of cancellation.
(ii)
The issuer must have a minimum rating of A- by Standard and Poor's Corporation,
A3 by Moody's Investor's Service or the equivalent rating from A.M.
Best.
(iii) The surety or insurance
must be payable to the PGC decommissioning trust.
(4) A PGC may satisfy the state
assurance obligation using any other method acceptable to the commission
considering the relative risk factors and creditworthiness attributes of the
applicant's financial characteristics to minimize exposure of retail electric
customers to default by power generation companies.
(5) A PGC shall notify the commission within
10 days of the date of any material change in its ability to meet its state
assurance obligation and provide a plan to cure any deficiency if the material
change results in a PGC's inability to meet the state assurance obligation.
Upon receipt of such notice, the commission may initiate a formal proceeding to
review the PGC's ability to meet the state assurance obligation, or take any
other action it deems appropriate. The PGC shall provide any information
required to conduct the review in accordance with the commission's procedural
rules.
(l) Annual
Funding Obligation. A PGC using a PGC decommissioning trust shall remit
annually to the fund the most recent annual decommissioning funding amount
required by the commission. A PGC shall make periodic payments according to a
schedule submitted to the commission and shall notify the trustee of the
decommissioning trust and the commission within 10 days of the date of any
failure to make a scheduled payment. The commission shall not consider a PGC to
be in default of its annual funding obligation unless it fails to remit the
necessary amounts within 60 days of notice of potential default. If a PGC is in
default of its annual funding obligation, it shall notify the trustee of the
decommissioning trust and the commission within 10 days of the date of the
default. If the PGC fails to cure its failure to make scheduled payment within
60 days of the commission notice, the commission may direct the trustee to
request that any entity providing state assurance remit annually to the fund
the most recent annual decommissioning funding amount required by the
commission in accordance with the schedule approved by the commission,
including any payments that the PGC has failed to make, until the PGC is not in
default or until the assurance is depleted.
(m) Funding Shortfall and Unspent Funds.
(1) If the PGC fails to meet its annual
funding requirements and if the state assurance obligations are insufficient to
meet the annual funding obligations or are otherwise not honored, the
commission shall determine the manner in which any shortfall in the cost of
decommissioning a nuclear generating unit shall be recovered from retail
electric customers in the state. For retail electric customers of a
municipally-owned utility or an electric cooperative that has an agreement to
purchase power from a nuclear generating unit, the amount of the shortfall in
the cost of decommissioning the nuclear generating unit that the customers are
responsible for is limited to a portion of that shortfall that bears the same
proportion to the total shortfall as the amount of electric power generated by
the nuclear generating unit and purchased by the municipally-owned utility or
electric cooperative bears to the total amount of power generated by the
nuclear generating unit.
(2)
Decommissioning funds that remain unspent after decommissioning of the nuclear
generating unit is complete shall be returned to the PGC and the retail
electric customers based on the proportionate amount, in real terms, that the
PGC and retail electric customers paid into the fund.
(3) While the nuclear generating unit is
operational, as a condition of operating the generating unit, the PGC or any
new owner shall repay the costs the electric customers incurred in a manner
determined by the commission. The PGC shall be responsible for accounting for
the need for repayment of any decommissioning shortfall amounts paid by
customers and shall report such amounts pursuant to subsection (g) of this
section. The PGC shall submit a proposal to repay shortfall amounts paid by
customers pursuant to subsection (h) of this section. The commission shall
review this information using the procedure described in subsection (e) of this
section.
(n)
Administration of the PGC Decommissioning Trust Funds.
(1) The PGC shall assure that the PGC
decommissioning trust is managed so that the funds are secure and earn a
reasonable return; and that the funds provided from the PGC's operating
revenues, plus the amounts earned from investment of the funds, will be
available at the time of decommissioning.
(2) The PGC shall appoint an institutional
trustee and may appoint one or more investment managers. Unless otherwise
specified in this section, the Texas Trust Code controls the administration and
management of the PGC decommissioning trusts, except that the appointed
trustees need not be qualified to exercise trust powers in Texas.
(3) The PGC shall retain the right to replace
the trustee with or without cause. In appointing a trustee, the PGC shall have
the following duties, which will be of a continuing nature:
(A) A duty to determine whether the trustee's
fee schedule for administering the trust is reasonable, when compared to other
institutional trustees rendering similar services, and meets the requirement of
this section;
(B) A duty to
investigate and determine whether the past administration of trusts by the
trustee has been reasonable;
(C) A
duty to investigate and determine whether the financial stability and strength
of the trustee is adequate;
(D) A
duty to investigate and determine whether the trustee has complied with the
trust agreement and this section as it relates to trustees; and
(E) A duty to investigate any other factors
that may bear on whether the trustee is suitable.
(4) The PGC shall retain the right to replace
the investment manager with or without cause. In appointing an investment
manager, the PGC shall have the following duties, which will be of a continuing
nature:
(A) A duty to determine whether the
investment manager's fee schedule for investment management services is
reasonable, when compared to other such managers, and meets the requirement of
this section;
(B) A duty to
investigate and determine whether the past performance of the investment
manager in managing investments has been reasonable;
(C) A duty to investigate and determine
whether the financial stability and strength of the investment manager is
adequate for purposes of liability;
(D) A duty to investigate and determine
whether the investment manager has complied with the investment management
agreement and this section as it relates to investments; and
(E) A duty to investigate any other factors
which may bear on whether the investment manager is suitable.
(5) The PGC shall execute an
agreement with the institutional trustee. The agreement shall be consistent
with this section and may include additional restrictions on the trustee. A PGC
shall not grant the trustee powers that are greater than those provided to
trustees under the Texas Trust Code or that are inconsistent with the
limitations of this section. The agreement shall include the restrictions set
forth in this section and may include additional restrictions on the trustee.
(A) The interest or other earnings of the
trust become part of the trust corpus.
(B) A trustee owes the same duties with
regard to the interest and other earnings of the trust as are owed with regard
to the corpus of the trust.
(C) A
trustee shall have a continuing duty to review the trust portfolio for
compliance with investment guidelines and governing regulations.
(D) A trustee shall not lend funds from the
PGC decommissioning trust to itself, its officers, or its directors.
(E) A trustee shall not invest or reinvest
PGC decommissioning trusts in instruments issued by the trustee, except for
time deposits, demand deposits, or money market accounts of the trustee.
However, investments of a PGC decommissioning trust may include mutual funds
that contain securities issued by the trustee if the securities of the trustee
constitute no more than 5% of the fair market value of the assets of such
mutual funds at the time of the investment.
(F) The agreement shall comply with all
applicable requirements of the federal Nuclear Regulatory Commission.
(6) The PGC shall execute an
agreement with the investment manager. If the trustee performs investment
management functions, the contractual provisions governing those functions must
be included in either the trust agreement or a separate investment management
agreement. A PGC shall not grant the manager powers that are greater than those
provided to trustees under the Texas Trust Code or that are inconsistent with
the limitations of this section. The agreement shall include the restrictions
set forth in this section and may include additional restrictions on the
manager.
(A) An investment manager shall, in
investing and reinvesting the funds in the trust, comply with this
section.
(B) The interest and other
earnings of the trust become part of the trust corpus.
(C) An investment manager owes the same
duties with regard to the interest and other earnings of the trust as are owed
with regard to the corpus of the trust.
(D) An investment manager shall have a
continuing duty to review the trust portfolio to determine the appropriateness
of the investments.
(E) An
investment manager shall not invest funds from the PGC decommissioning trust
with itself, its officers, or its directors.
(F) The agreement shall comply with all
applicable requirements of the federal Nuclear Regulatory Commission.
(7) Prior to executing an amended
agreement with the institutional trustee or investment managers, the proposed
amended agreement shall be filed at the commission for review along with a
redlined version showing all changes made since the document was reviewed by
the commission, and copies shall be provided to the commission's Legal Division
and Rate Regulation Division or successor divisions.
(8) A copy of the trust agreement, any
investment management agreement, and any amendments shall be filed with the
commission within 30 days after the execution or modification of the agreement,
and copies shall be provided to appropriate commission staff and the Office of
Public Utility Counsel.
(o) Trust investments.
(1) The funds in a PGC decommissioning trust
should be invested consistent with the following goals. The PGC may apply
additional prudent investment goals to the funds so long as they are not
inconsistent with the stated goals of this subsection.
(A) The funds should be invested with a goal
of earning a reasonable return commensurate with the need to preserve the value
of the assets of the trusts.
(B) In
keeping with prudent investment practices, the portfolio of securities held in
the PGC decommissioning trust shall be diversified to the extent reasonably
feasible given the size of the trust.
(C) Asset allocation and the acceptable risk
level of the portfolio should take into account market conditions, the time
horizon remaining before the commencement and completion of decommissioning,
and the funding status of the trust. While maintaining an acceptable risk level
consistent with the goal in this section, the investment emphasis when the
remaining life of the liability exceeds five years should be to maximize net
long-term earnings. The investment emphasis in the remaining investment period
of the trust should be on current income and the preservation of the fund's
assets.
(D) In selecting
investments, the impact of the investment on the portfolio's volatility and
expected return net of fees, commissions, expenses and taxes should be
considered.
(2) The
following requirements shall apply to all PGC decommissioning trusts under this
section. Where a PGC has multiple trusts for a single generating unit, the
restrictions contained in this subsection apply to all trusts in the aggregate
for that generating unit. For purposes of this section, a commingled fund is
defined as a professionally managed investment fund of fixed-income or equity
securities established by an investment company regulated by the Securities
Exchange Commission or a bank regulated by the Office of the Comptroller of the
Currency.
(A) The total trustee and
investment manager fees paid on an annual basis by the PGC for the entire
portfolio including commingled funds shall not exceed 0.7% of the entire
portfolio's average annual balance.
(B) For the purpose of this subsection, a
commingled or mutual fund is not considered a security; rather, the
diversification standard applies to all securities, including the individual
securities held in commingled or mutual funds. Once the portfolio of securities
(including commingled funds) held in the PGC decommissioning trusts contains
securities with an aggregate value in excess of $20 million, it shall be
diversified such that:
(i) no more than 5.0%
of the securities held may be issued by one entity, with the exception of the
federal government, its agencies and instrumentalities, and
(ii) the portfolio shall contain at least 20
different issues of securities. Municipal securities and real estate
investments shall be diversified as to geographic region.
(C) The PGC may invest the decommissioning
funds by means of qualified or unqualified PGC decommissioning trusts; however,
the PGC shall, to the extent permitted by the Internal Revenue Service, invest
its decommissioning funds in "qualified" PGC decommissioning trusts, in
accordance with the Internal Revenue Service Code §468A. The PGC shall
avoid, whenever possible, the investment of taxable decommissioning funds in
"unqualified" PGC decommissioning trusts.
(D) The use of derivative securities in the
trust is limited to those whose purpose is to enhance returns of the trust
without a corresponding increase in risk or to reduce risk of the portfolio.
Derivatives may not be used to increase the value of the portfolio by any
amount greater than the value of the underlying securities. Prohibited
derivative securities include, but are not limited to, mortgage strips; inverse
floating rate securities; leveraged investments or internally leveraged
securities; residual and support tranches of Collateralized Mortgage
Obligations; tiered index bonds or other structured notes whose return
characteristics are tied to non-market events; uncovered call/put options;
large counter-party risk through over-the-counter options, forwards and swaps;
and instruments with similar high-risk characteristics.
(E) The use of leverage (borrowing) to
purchase securities or the purchase of securities on margin for the trust is
prohibited.
(F) The following
investment limits shall apply to the percentage of the aggregate market value
of all non-fixed income investments relative to the total portfolio market
value.
(i) Except as noted in clause (ii) of
this subparagraph, when the weighted average remaining life of the liability
exceeds five years, the equity cap is 60%;
(ii) When the weighted average remaining life
of the liability ranges between five years and 2.5 years, the equity cap shall
be 30%;
(iii) When the weighted
average remaining life of the liability is less than 2.5 years, the equity cap
shall be 0%. Additionally, during all years in which expenditures for
decommissioning the nuclear units occur, the equity cap shall also be
0%;
(iv) For purposes of this
subsection, the weighted average remaining life in any given year is defined as
the weighted average of years between the given year and the years of each
decommissioning outlay, where the weights are based on each year's expected
decommissioning expenditures divided by the amount of the remaining liability
in that year; and
(v) Should the
market value of non-fixed income investments, measured monthly, exceed the
appropriate cap due to market fluctuations, the PGC shall, as soon as
practicable, reduce the market value of the non-fixed income investments below
the cap. Such reductions may be accomplished by investing all future
contributions to the fund in debt securities as is necessary to reduce the
market value of the non-fixed income investments below the cap, or if prudent,
by the sale of equity securities.
(vi) A PGC decommissioning trust shall not
invest in securities issued by the PGC collecting the funds or any of its
affiliates or any company providing security for the state assurance
obligation; however, investments of a PGC decommissioning trust may include
commingled funds that contain securities issued by the PGC if the securities of
the PGC constitute no more than 5.0% of the fair market value of the assets of
such commingled funds at the time of the investment.
(3) The following restrictions
shall apply to all PGC decommissioning trusts. Where a PGC has multiple trusts
for a single generating unit, the restrictions contained in this subsection
apply to all trusts in the aggregate for that generating unit.
(A) A PGC decommissioning trust shall not
invest trust funds in corporate or municipal debt securities that have a bond
rating below investment grade (below "BBB-" by Standard and Poor's Corporation
or "Baa3" by Moody's Investor's Service) at the time that the securities are
purchased and shall reexamine the appropriateness of continuing to hold a
particular debt security if the debt rating of the company in question falls
below investment grade at any time after the debt security has been purchased.
Commingled funds may contain some below investment grade bonds; however, the
overall portfolio of debt instruments shall have a quality level, measured
quarterly, that is not below a "AA" grade by Standard and Poor's Corporation or
"Aa2" by Moody's Investor's Service. In calculating the quality of the overall
portfolio, debt securities issued by the federal government shall be considered
as having a "AAA" rating.
(B) At
least 70% of the aggregate market value of the equity portfolio, including the
individual securities in commingled funds, shall have a quality ranking from a
major rating service such as the earnings and dividend ranking for common stock
by Standard and Poor's or the quality rating of Ford Investor Services.
Further, the overall portfolio of ranked equities shall have a weighted average
quality rating equivalent to the composite rating of the Standard and Poor's
500 index, assuming equal weighting of each ranked security in the index. If
the quality rating, measured quarterly, falls below the minimum quality
standard, the PGC shall as soon as practicable and prudent to do so, increase
the quality level of the equity portfolio to the required level. A PGC
decommissioning trust shall not invest in equity securities where the issuer
has a capitalization of less than $100 million.
(C) The following guidelines shall apply to
the investments made through commingled funds. Examples of commingled funds
appropriate for investment by PGC decommissioning trusts include equity-indexed
funds, actively managed equity funds, balanced funds, bond funds, and real
estate investment trusts.
(i) The commingled
funds should be selected consistent with the goals of this section.
(ii) In evaluating the appropriateness of a
particular commingled fund, the PGC has the following duties, which shall be of
a continuing nature:
(I) A duty to determine
whether the fund manager's fee schedule for managing the fund is reasonable,
when compared to fee schedules of other such managers;
(II) A duty to investigate and determine
whether the past performance of the investment manager in managing the
commingled fund has been reasonable relative to prudent investment and PGC
decommissioning trust practices and standards; and
(III) A duty to investigate the
reasonableness of the net after-tax return and risk of the fund relative to
similar funds, and the appropriateness of the fund within the entire PGC
decommissioning trust investment portfolio.
(iii) The payment of load fees shall be
avoided.
(iv) Commingled funds
focused on specific foreign countries, industries, or market sectors or
concentrated in a few holdings shall be used only as necessary to balance the
trust's overall investment portfolio mix.
