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COMPARING 2019 SECURITIZATIONLEGISLATION IN COLORADO,MONTANA, AND NEW MEXICOBY RON LEHR AND MIKE O’BOYLE ● SEPTEMBER 2020Three Western states—Colorado, Montana,
TABLE OF CONTENTS
and New Mexico—passed securitization
legislation in 2019. All three new laws
CONSUMER, PUBLIC INTEREST ISSUES FOR
authorize ratepayer-backed or “securitized”
COAL SECURITIZATION LEGISLATION
1bonds to refinance utility investments in earlySECURITIZATION
2retired electric generation plants. In the nearterm, these provisions are likely to be used (ifKEY ELEMENTS OF LEGISLATION
4
at all) on uneconomic but as-yet undepreciated
CONCLUSIONS, RECOMMENDATIONS 9
coal plants. The details of the three bills reflectvaried choices about policy effects, particularly
APPENDIX ONE: SUMMARIES OFLEGISLATION
10
on electricity consumers and the public
interest.
APPENDIX TWO: COLORADO LEGISLATIVELANGUAGE
21This issue brief, part of an ongoing series on
managing the utility financial transition from
APPENDIX THREE: COLORADO
coal to clean energy, compares the three new
LEGISLATIVE LANGUAGE
24
laws to illustrate differences in how legislators
APPENDIX FOUR: MONTANA LEGISLATIVE
handled key consumer and public interest
LANGUAGE
30
issues. As similar legislation is considered inother states in future legislative sessions, thesecomparisons can support informed decision-making when legislators decide how much protection
to offer consumers and how much attention should be paid to public interest values and utility
interests.

CONSUMER AND PUBLIC INTEREST ISSUES FOR COAL SECURITIZATIONLEGISLATION
Protecting consumers by refinancing utility investments through low-cost bonds represents a
central goal in all three states’ legislation, yet each state’s policy reflects varying degrees ofattention to these outcomes. The three bills each contain low-cost goals, but the bills varyconsiderably on the following issues:
1

•
•
•
•
•
•

What utilities must include in applications to regulating commissions for financing orders
approving bond issuance;
What commissions deciding on utility applications must consider;
What findings are required in commission financing orders;
How much consulting and what kind of help commissions can use in making their decisions;
Whether bonds may be issued for purposes other than refinancing for early plant
retirements; andWhether bond proceeds can be used specifically to mitigate impacts on communities andworkers when fossil plants are retired early.

In both Colorado and New Mexico, securitization legislation passed in 2019 had been consideredin previous legislative sessions. In Colorado, a bill passed the House in 2017, but did not pass the
Senate.i In New Mexico, legislation was considered but not enacted in 2018, and the legislation
was passed in 2019 with substantial changes. In both states, securitization was one part of very
substantial energy policy changes that set aggressive carbon reduction goals, among many otherpolicies. In Montana, securitization was a stand-alone enactment, driven primarily byenvironmental advocates using ratepayer savings to motivate bipartisan support. The bill also
had support from a smaller investor-owned utility that wanted the option to use bonds torefinance retirement of older coal plants.

SECURITIZATION
The tool variously referred to as “securitized bonds,” “ratepayer-backed bonds,” or “ratepayer
obligation charge bonds” is a low-cost capital option for utilities to replace higher-cost corporate
finance.ii These bonds were extensively used to address utility-owned uneconomic, nonperforming, and stranded generation assets in the 1990s and early 2000s, when about twenty
states restructured utility generation markets to allow for competition in generating energy.
Vertically integrated, regulated monopoly utilities that owned generation, transmission, andelectricity distribution facilities were required to divest their generation assets before their costs
were fully recovered from customers. This resulted in “stranded assets”—stranded because theircost recovery was no longer allowed to be charged to consumers in their electricity rates, andoften these assets were unable to generate comparable returns in competitive markets. To
reduce financial impacts of these unrecovered amounts, they were refinanced with securitizedbonds.iii
At present, utility generation portfolios are undergoing similar changes. Wind and solar now
usually provide lower-cost generation than existing coal-fired plants, necessitating a similar
financial transition. Securitized bonds can be used to reduce consumer costs for paying off
investment remaining when fossil plants are retired early. About $50 billion in securitized utility
bonds have been issued over the last twenty years, so many institutional investors are familiar
with this class of investments.

2

Using state law and public utility commission (PUC) powers to create non-bypassable charges on
utility consumers’ bills creates investment security that makes low-cost capital available tomitigate consumer costs. Bonds issued are guaranteed by the states’ legislative and regulatory
powers to set rates and include conditions that can lead to AAA bond ratings. Whereas thereturns paid to utility shareholders on assets in rate base sit in the 8-11 percent range,
securitized bonds can deliver the lowest possible consumer costs in the 3-4 percent range forfinancing a range of utility capital requirements.

Figure 1 – Comparing rates of return for different utility financing mechanisms. Source: Debt for Equity Utility FinanceWith correct legislative guidance, increased transparency surrounding debt issuances can lead tolowest costs for financing transactions, thus reducing consumers’ costs. Most state regulatorycommissions do not closely regulate utility financial transactions, since they oversee utility costsof capital. Without scrutiny, utilities and their financial partners finance utility investment
requirements with incentives that include, but are not solely focused on, consumer welfare andpublic interest outcomes. The right policies in securitization legislation can empowercommissions to provide increased and improved oversight of utility capital acquisitions, both
debt and equity, by their experience gained paying close attention to terms on which new
securitized debt is obtained. Less financing risk leads to lower costs for money.
Permissible bond uses must be defined in the state statute creating the bonds. For example,
bonds can and have been used to pay off unrecovered capital costs in several cases:
•
•
•
•
•
•
•
•

Plants that are retired early;
Uneconomic plants sold at a loss to regulated utilities forced to restructure;
System damages, e.g. storm damage;
Financing recovery from catastrophic events (including revenue deficiencies due to COVID-19
economic disruptioniv);
Funding pollution reduction investments;
Grid modernization;
Cleaning up environmental pollution from utility operations; andTransition support payments to communities and workers impacted by retirements anddiscontinuation of generation plant and fossil fuel mining and transportation operations.

3Key elements in a successful securitization bond offering, which must be codified in enabling
legislation to meet investors’ security requirements, include:
•
•
•
•
•
•

Statutory authorization
State pledge not to impair bondholders’ right to being repaid on time and in full
Active commission oversightCommission assistance from independent legal counsel and financial experts
Irrevocable commission financing authorization order
Automatic payment adjustment mechanism—truing bond charges up or down.v

KEY ELEMENTS OF LEGISLATION
Lessons drawn from comparing new securitization laws in Colorado, New Mexico, and Montana
suggest that key elements of such enactments include sufficiently defining security; devoting
attention to public interest outcomes; ensuring consumers are benefitted through lower costs;
addressing replacement resources; and providing financing to mitigate community and worker
impacts.
DEFINING SECURITY SUFFICIENTLY TO MEET AGENCY RATING REQUIREMNETS
Since the bond creation, issuance, and repayment provisions are standardized to meet WallStreet rating agency requirements to obtain least-cost financing, the three new state laws—andmost of the other existing laws on the books across the country—are quite similar. As such,these provisions in the new state laws do not offer comparative lessons, and each provides amodel to satisfy rating agency requirements.
ATTENTION TO PUBLIC INTEREST OUTCOMES
Public interest outcomes are defined in the three new state laws through provisions that identify
permissible purposes for issuing bonds. To varying degrees, legislation:•••

Specifies what public interest benefits utilities must quantify and include in their application
for a commission financing order;
Requires commissions to consider and make findings on public interest issues; andDefines replacement resources when plant retirements are contemplated.

Public interest outcomes include provisions that allow bonds to be used to improve generation
economics, modernize utility infrastructure, rebuild after storm or fire damage, reduce or clean
up pollution, mitigate impacts of plant retirements on communities and workers, and saveconsumers money. Since securitized bonds can be used in a variety of circumstances, it isprobably wise to authorize bonds before they are needed, so as to be available in times ofneed.vi In other words, it is better to have the tool available and not need it than to need it andnot have it. PUCs require varying levels of explicit authorization, depending on regulatory norms
and whether state judicial precedent grants commissions discretion to consider public interest
matters of first impression.

4Colorado’s new law1 devotes the most attention to public interest and consumer protection.
Montana’s law2 follows Colorado’s approach, but does not go into as much detail or contain as
many provisions related to these outcomes. New Mexico’s law3 has the least attention to theseissues; the legislation preempts PUC oversight of consumer costs by defining recoverable dollar
amounts and limiting time for implementation. Since utilities and their financial advisors havefiduciary duties to their shareholders, legislation should support the commissions’ fiduciary
duties to consumers and the public interest so the correct balance can be struck between
consumers, the public interest, and utilities’ and financial firms’ fiduciary duties.
Recommendation: Legislators should include public interest and consumer protection provisions insecuritization bills to provide for maximum consumer and societal benefits.
CONSUMER BENEFITS – LOWER COSTS
Every securitized dollar paid to utilities is a ratepayer dollar, so the three states’ laws pay a great
deal of attention to saving consumers money. Savings provisions include requirements to seek
lowest cost for issuing bonds, lowest available interest rates, best commercial terms available,
specific bond ratings (AA or Aa2 or better in Montana), and long terms for bonds, allowing forlower annual costs for consumers. Utility applications for bond issuance approval must estimate
consumer savings, calculate avoided rate impacts, reduce rates by amounts refinanced, andissue annual rate impact reports to customers. Additional estimates of transition costs for
retiring a coal plant are required in New Mexico, including decommissioning and site reclamation
as well as worker severance pay and job training expenses for affected plant and mine
employees, which are measures also required by the legislation.4
The Colorado commission is required to perform comprehensive due diligence; oversee bondstructure, marketing, and pricing; maximize benefits and minimize risks; and find that bonds andissuance costs are just, reasonable, and consistent with the public interest. Bonds must
represent a prudent and reasonable financing mechanism, and they must provide substantial,
tangible, and quantifiable net present value savings benefits greater than would exist without
bonds. Securitization must mitigate customer rate impacts, provide materially lower costs, andachieve maximum net present value savings. Impact assistance costs are authorized for
securitization as well.
Montana requires an estimate of consumer savings, requires that rates be reduced by theamount of investment refinanced with bonds, and provides for up to thirty-year bond maturities,
providing the option for long-term bonds that can reduce consumers’ monthly bills.

1

See Appendix Two at page 20 for specific language

2

See Appendix Three at page 24 for specific language

3

See Appendix Four at page 30 for specific language

4

See Financing to Mitigate Community and Worker Impacts, p.8, below.
5All three states enable utility commissions to oversee new bonds effectively. The legislation
authorizes commissions to hire financial advisors or bond counsel with sole loyalty to thecommission. Utilities will employ bond counsel and financial advisors with fiduciary duties owed
to them and not to the commission or customers. Underwriters who are involved in structuring,marketing, and pricing bonds are not fiduciaries who owe allegiance to utilities, commissions, orelectricity customers.5 Underwriters will typically disclose that they owe their primary duty totheir firms’ shareholders.
Oversight provisions in the Colorado statute are stronger than those in the Montana or New
Mexico statutes. Colorado provides that both bond counsel and financial advisors can be hiredby the commission to assist it, with funding for this work provided by the utility and recovered aspart of bond costs. Colorado requires consultants to be free of certain conflicts of interest and tobe solely loyal to the commission. New Mexico only authorizes bond counsel, and provides a
fixed sum ($300,000) for that consulting work regardless of effort. Montana provides that thecommission can hire temporary staff, with fewer provisions specifying who must be hired.
All three states’ laws enable use of bonds for refinancing unpaid investment in coal-fired power
plants upon early plant retirements. Under each statute, bonds may be sought by utilities but arevoluntary. And all three states require bonds to achieve lowest interest rates but with varying
degrees of specificity, which can significantly affect consumer costs. The standards and means
for achieving “lowest-cost” bond economics are extensively detailed in the Colorado law,covered in moderate fashion in the Montana statute, and minimally addressed in New Mexico.
The Colorado statute provides the strongest ratepayer protections and is considered a bestpractices model nationally. The table below identifies legislative priorities and shows whichstates include various provisions.
Montana’s legislative provisions concerning consumer protection and public interest outcomes
appear to fall between Colorado’s extensive requirements and New Mexico’s relatively paltry
coverage. The statute authorizes broader application for securitized bonds to address outcomesin addition to early plant retirements, so will deserve attention in the future to ascertain whether
the broad outcomes authorized are actually addressed in practice by the PUC and utilities.

Public Interest and Consumer Protection Requirements

CO

NM

MT

X

X

Overseeing bond structure, marketing, pricing

X

X

COMMISSION
DUTIESAND
AUTHORIZATION

Performing comprehensive due diligence

5

Underwriters and investment banks state clearly in their contracts that they are engaging in an arms-lengthtransaction and their financial interests are not aligned with those of the issuer or the ratepayer. They are on the“other side” of the negotiating table.
6

REPORTING REQUIREMENTSUTILITY BOND FINANCING APPLICATION AND

Retaining bond counsel, financial experts paid by utility with costs included
in bonds

X

X

Bond counsel and financial experts owe loyalty solely to commission andno financial interest or participation in bonds

X

Financing order must maximize benefits, minimize risks, and provide
oversight for structuring, marketing, and pricing bonds

X

X

Estimate of consumer savings

X

X

Avoided rate impacts

X

Rates reduced by amount financed

X

Annual rate impact reports to customers

X

No commission penalty for electing not to apply for bonds

X

X

X

Abandoned facility description

X

Estimated transition costs identifying severance pay, job training expenses,
affected generation, and mine employees

X

Plant decommissioning, mine reclamation costs

X

Specific financing costs of energy transition bonds

X

REQUIRED COMMISSION FINDINGS

30-year maturities, to be rated AA or Aa2 or better

X

X

Lowest rates consistent with market conditions

X

X

Least-cost transaction

X

Just and reasonable; consistent with public interest (including issuancecosts)

X

Reasonable plant retirement costs

X

Prudent and reasonable financing mechanism

X

X

Substantial, tangible, quantifiable net present value benefits, greater than
without bonds, maximizing net present value savings

X

X

Refinancing mitigates customer rate impacts
Refinancing materially lowers overall costs

X

X

X
X

Description of energy impact assistance property and authorization for
impact assistance costs

X

Recommendation: Provide detailed checklists for consumer protections that regulators must
consider to focus on saving consumers money when bonds are used to refinance utility
investments.

7

REPLACEMENT RESOURCES
Each state’s legislation addresses early plant retirements. Securitized bonds replace utility
equity, on which shareholder returns are earned, with low-cost debt, with the intent to saveconsumers money. To sweeten the pot for utilities, a balanced financial transition to replace
earnings for electric utility shareholders that refills utilities’ rate bases can be a legislative
outcome, and can be managed to maintain customer savings.

AUTHORIZED BOND USES

This outcome is addressed in each state’s legislation. In Colorado, utilities are authorized to own
up to 50 percent of replacement resources, if they are acquired as part of the normal planningand bidding process. New Mexico establishes a detailed process for utilities to acquire
replacement resources through competitive procurement, with attention to locating resourcesin areas affected by plant retirement and with attention to local jobs and economic
development. In Montana, utilities may build and own least-cost new generation, including
storage and network modernization to support least-cost generation.
Replacement Resources

CO

NM

MT

Refinance after early plant retirement

X

X

X

Applies to a specific plant, in quantified amounts
Mitigate community and worker impacts

X
X

Capitalize infrastructure facilities, services, demand-side resources

X

Decommissioning and site restoration costs

X

Replace damaged, destroyed transmission and delivery facilities

X

Competitive procurement of resources with the following attributes:

REPLACEMENT RESOURCE CONDITIONS

X

•
•
•
•
•

X

Ranked by cost, economic development benefits
Jobs with comparable wages and benefits
Higher capital-to-fuel cost ratio
Preferred use of local labor
Projects located in retired plant school district

Carbon dioxide emissions limit

X

Consider new technologies, future environmental regulations
Consistent with integrated resource plans
Building and owning least-cost generation, including
•
•
•
•

X
X

X
X

Regulatory risks
Current, future fuel, delivery infrastructure costs, risks
Storage to increase least-cost generation
Network modernization for least-cost generation

8

Recommendation: Since utilities will face regulatory risks in seeking commission approval forownership of some necessary clean replacement resources, including provisions that specify how
approval can be gained will help reduce utility regulatory risks and resistance to using bonds.
FINANCING TO MITIGATE COMMUNITY AND WORKER IMPACTS
Both Colorado and New Mexico enable bond financing to mitigate impacts to workers andcommunities affected by early generation plant retirements. Colorado’s securitization law allows
the commission to provide funding from bond refinancing as part of its financing order. Colorado
also passed separate legislation that sets up a Just Transition Office in the state’s Department ofLabor; funds were appropriated to support staffing.6 The Colorado PUC is authorized to include
mitigation costs in bonds and to require fund transfers to the new office to implement mitigation
efforts. In New Mexico, specific fund amounts are provided for these purposes, and detailed
instructions are provided for how and where they are to be spent. Montana does not addressthese impacts.
Recommendation: Since impacts to workers and communities can be severe, particularly where
fossil generation and mining are located in remote areas, allowing the use of some savings fromrefinancing for impact mitigation is a low-cost source of significant funding.

CONCLUSIONS AND RECOMMENDATIONSLegislative language addressing public interest and consumer benefits differs among the three
new laws in terms of both content and quantity, providing a range of options for thoseconsidering what protections and benefits to include in proposed legislation. The following
lessons emerge from comparing the three states’ laws:
•
•
•
•

•

Securitized bonds are a method to benefit consumers, if consumer savings are a desired
outcome in power sector financial transitions.
Legislators can choose to emphasize public interest and consumer benefit outcomes byrequiring different levels of utility and commission responsibility and transparency inimplementing refinance through securitized bonds.
Legislators can choose to apply bonding to a variety of outcomes, from early plant
retirements and worker and community impact mitigation, to environmental remediations
and infrastructure damage repairs and grid modernization investments.
Given the rapid pace of change in the electric utility sector, securitized bonds are a tool thatcan provide benefits for consumers, among balanced outcomes that also include public
interest values and protecting utility shareholders.
It is probably better policy to authorize securitized bonds and not need them if other better
options emerge than to need them and not have the authorization in place.

6

HB 19-1314 appropriates $165,000 to open the Colorado Just Transition Office and requires a draft plan be
developed by July 2020 and a final funding recommendation be sent to the General Assembly by 2024. The officehas hired staff who have been on a “listening” tour in coal-dependent areas.
910

APPENDIX ONE: SUMMARIES OF LEGISLATION
To assist those who might be contemplating drafting state securitization legislation, the following
analysis summarizes laws enacted in Colorado, New Mexico, and Montana in 2019. Threeappendices follow that contain language from the new laws.
COLORADO ENERGY IMPACT BOND ACT – SB19-236
The Colorado Energy Impact Bond Actvii was enacted in 2019 as part of SB19-236, which
reauthorized the Colorado Public Utilities Commission (COPUC) after a periodic legislative sunset
review. A summary of public interest and consumer protection provisions follows. Appendix 2
contains the legislative language for each of the summarized provisions.
The COPUC reauthorization legislation contains a wide variety of new Colorado energy policies. It
assigned to the COPUC the challenging duties to consider, act on, and report on regulatory,
incentive, and market reforms that support clean energy goals contained in the legislation.
Companion legislation was also adopted that further defined state clean energy policies, butthese provisions are beyond the scope of this issue brief. The Bond Act, section 26 of SB19-236,
represented a substantial part of the reauthorization bill. It advanced a number of policy
directives to the COPUC aimed at supporting Colorado’s aggressive carbon reduction goals.
The Bond Act contains a variety of provisions that are recommended for legislators seeking tomaximize consumer benefits and emphasize public interest outcomes in legislation authorizing
securitization of early-retired power plants.7 The Bond Act contains provisions addressing bondsthat have become standardized since the first legislation that authorized this approach in the
1990s. These provisions:•

Specifically authorize utilities’ use of securitization, creating a property right to impose,adjust, bill, and collect a portion of consumers’ utility rates dedicated to paying off bonds;• Grant state regulators special authority to issue a financing order for utilities to issue bonds
and charge customers a dedicated monthly amount over the bonds’ life that applies to all
customers and cannot be bypassed;• Provide that PUC financing orders approve an adjustment mechanism that applies to themonthly customer charge to assure payments meet bond obligations; and• Provide that PUC orders are irrevocable and commit that the state will never impair
bondholders’ rights to receive the special charge as adjusted over time to repay bonds in full.
These key provisions create financial “security” that accompanies these bonds to achieve both
low investor risks and low interest costs, as typically associated with AAA bond ratings. Thus, thebonds are both attractive to institutional investors and beneficial as a refinancing technique froma consumer perspective. Since these standard security provisions are typically found in all state7

For utility financial transition policy background and information on securitization see:https://americaspowerplan.com/power-transformation-solutions/financial-transition/11

securitization legislation and are usually quite similar to one another, they are not further
analyzed here.
Colorado energy policy, consumer protection, and public interest securitization
provisions
Analysis of the Colorado legislation reveals consideration of a range of energy policy, consumer
protection, and public interest concerns, as follows:
Utility application•••

Utility applications for a financing order must identify estimated net projected cost savingsand how bonds would avoid or mitigate customer rate impacts.
Utilities are required to reduce rates in amounts equal to revenue requirements associatedwith utility assets being refinanced.
An application for a financing order is voluntary for utilities; the commission may not
penalize a utility solely for electing not to use securitized bonds.

Bonds

•
•

Long-tenor bonds—up to 30 years scheduled with a legal final maturity of 32 years—are
authorized.
Long bond terms enable low bond costs and can appeal to long-term investors such aspension funds, banks, and insurance companies.8

Plant retirement•

Authorization to refinance early power plant retirement including mitigating worker andcommunity impacts. The Act authorizes generation plant retirement as a purpose for issuingbonds. Assistance for affected workers and communities can be included in bond financing, if
approved by the commission.

Commission approval

•
•

•

8

Financing costs include the commission’s expert outside counsel and consultants to ensure
lowest possible transaction costs and best market outcomes.
To issue a financing order, the commission must find retirement costs are reasonable; bondissuance and bond cost collection are just and reasonable and consistent with the public
interest; bonds constitute a prudent and reasonable financing mechanism; and bonds will
provide substantial, tangible, and quantifiable net present value savings or other consumer
benefits greater than benefits without bond financing.
A financing order “must” determine that bond structuring has a significant likelihood oflowering overall costs to consumers or significantly mitigating consumer rate impacts,
compared with traditional methods of financing and recovering costs; the order also must
provide detailed findings of fact addressing cost effectiveness and associated rate impacts oncustomers and customer classes.

Appendix Two contains the statutory language from the Colorado law for each of the listed features.
12

•
•
•
•

Energy assistance funds may be transferred to a third-party entity designated by thecommission to administer transition assistance to displaced workers and affected
communities.
Community assistance is to be provided in amounts equal to costs of voter-approved projects
expected to be paid from revenue sources impacted by retirements.9
The commission may include additional conditions different from those requested in a utility
application.
Conditions may be included in the financing order to maximize benefits and minimize risks; aprocess to structure, market, and price bonds may be specified; reasonableness of financing
costs is required; and the commission must exercise comprehensive due diligence.

Consumer protections

The Bond Act contains a section specifically setting forth consumer protections:••••

The commission may attach conditions to a financing order to maximize benefits andminimize risks of the transition to consumers, impacted workers and communities, andelectric utilities.
The commission may specify and oversee a process to structure, market, and price bonds,
including selection of underwriters, consistent with the public interest.
The commission shall review and determine the reasonableness of all proposed up-front andongoing financing costs.
The commission must perform comprehensive due diligence in deciding whether to issue afinancing order.

Utility reports•••

To provide retrospective transparency, the utility files information within six months of bondissuance.
The commission reviews that information to determine whether actual bond issuanceresulted in the lowest overall costs reasonably consistent with market conditions andfinancing order terms.
o The commission may disallow incremental up-front costs in excess of lowest overall
costs.
o The commission may select and engage outside consultants and counsel experienced insimilar bond financing; their loyalty is due solely to the commission.
o Consultants and counsel must not have financial interests in bonds, and shall notparticipate in underwriting or secondary-market bond trading.
o Costs for consultants and counsel must be paid by the utility applicant and may be
included in bond financing costs.
The utility shall annually analyze and disclose financing impacts on consumer rates.

9

This provision resulted from last-minute negotiations required to gain support to pass the bill. The additional costs
this adds to a bond issue may impose an excessive financial burden on ratepayers, making bond use impractical. Thiscondition from the Colorado legislation is not recommended for other states.
13

Replacement resources

The Bond Act allows utilities to own up to 50 percent of replacement resources, if they are
acquired by competitive bids premised on the COPUC’s energy planning rules and if thecommission approves ownership.
Colorado summary
The Colorado Energy Impact Bond Act is premised on cold demographic math of fossil plant
aging and assumes that retirements are inevitable. It creates a refinancing tool that utilities andregulators can use to rebalance the costs of transition to new cleaner resources in favor of
consumers. By providing a refinancing method to increase consumer benefits, it aims to help
foster a faster, and fairer, transition supported by Colorado legislators, its governor, thecommission, and the public. A transition that saves consumers money is likely to happen faster,
and with less risk, than a transition that costs more.
NEW MEXICO ENERGY TRANSITION ACT – SB 489
New Mexico’s Energy Transition Act (ETA),viii passed in 2019, contains a variety of energy policies,
including authorizing use of securitized, or ratepayer-backed, bonds. A summary of public
interest and consumer protection provisions follows. Appendix 3 contains the legislative
language for each summarized provision. A similar bill was introduced in 2018 but failed to passamid claims that it was a “utility give-away,” providing too many benefits to Public Service of
New Mexico (PNM), the state’s dominant utility, and too few benefits to consumers and theenvironment. The lesson was that a utility-sponsored bill devoid of public interest protections
could not gain enough support to pass.
In 2019, with substantial changes and amid political shifts favorable to clean energy policies,
securitization became law in New Mexico as part of omnibus energy legislation.10 The legislation
was supported by PNM and shows evidence of the utility’s impact on the legislative process.
Most of the securitization provisions, responding to financial ratings agencies and investor
concerns about security, are aimed at bond issuance processes and procedures and are focusedon ensuring that bond investors are repaid. Because such provisions address rating agencies’
requirements, they are fairly standard across different states and are not the focus of theanalysis that follows.
Limits in the ETAETA definitions specify amounts subject to securitization for the abandoned San Juan Generating
Station, removing these amounts from the Public Regulatory Commission’s (PRC) discretion. This
unusual provision differs from securitization statutes in other states. Most states specify what
securitization bonds can be used for but leave determination of amounts to the discretion of the10

The Act was challenged at the New Mexico Supreme Court, which declined contesting petitions, sending thecontesting parties back to the Public Regulation Commission: https://www.sfreporter.com/news/2019/10/04/theprc-is-back-in-charge/. And see: https://www.prnewswire.com/news-releases/new-mexico-supreme-court-declinesto-rule-on-applicability-of-energy-transition-act-300931095.html
14regulatory commission. The New Mexico amounts are “hard wired” into the legislation so theutility has complete certainty as to remaining investment amounts it can recover. These
provisions, likely included to gain utility support, limit the ETA’s applicability to this single
example and limit its application to future plant retirements or other potential uses of thisrefinancing technique, such as storm damage recovery or pollution reduction investments.
Another restriction on the use of securitized bonds in the ETA is a specified amount that can beconsidered, limiting “energy transition costs” to the lower of $375 million or 150 percent of
undepreciated investment in an abandoned plant, plus $30 million for decommissioning and$20 million for employee severance and job training.
The ETA also includes a quantified amount ($300,000) for commission expenses for contract
bond counsel to help the commission review its financing order and to oversee the structure andmarketing of proposed energy transition bonds. The Act includes standards that require utility
efforts to consummate a “commercially reasonable” bond transaction, which is arguably a lower
standard than “best efforts.” If the standard for meeting public interest criteria becomes an issue
before the PRC, the commission will need to establish criteria in addition to those found in thelegislation, such as most favorable bond interest rates possible, least transaction costs, andoverall consumer benefits net of costs.
Notably, the ETA does not specifically authorize the commission to engage bond financial
experts. However, bond costs may include “any other related costs approved for recovery in thefinancing order.” This language, read expansively, might allow the PRC to include additional costs
for expert financial advisors, if the commission is willing to risk exceeding the “not to exceed”
limit in the reasonable expenses provision above. However, the commission has broad generalauthority over what costs can be required to be paid by the utility and recovered from
customers.
The Act narrowly defines “qualifying generating facility” to include coal-fired plants owned orleased by a “qualifying utility” (an investor-owned utility such as PNM), authorized to beabandoned after December 31, 2018, or before January 1, 2023, or by January 1, 2032, if notoperated by a “qualifying utility.” These limits almost certainly confine the Act’s applicability to
the PNM San Juan plant.
Replacement resources

The ETA addresses several considerations relating to how utilities are to acquire replacement
resources for a retired coal plant. The utility that abandons a plant applies within a year for
approval of competitively procured resources to replace the abandoned facility. Resources underconsideration to provide replacement power must be ranked with regard to cost, economic
development potential, and ability to create jobs with pay and benefits comparable to those at
the abandoned facility. In deciding about replacement resources, the commission must consider
higher ratios of capital-to-fuel costs and reclamation cost reductions through use of previously
mined lands within the county where the abandoned plant was located.

15

In the acquisition process, the utility must inform potential bidders that it prefers use of New
Mexico labor. Replacement resources are defined to include up to 450 MW, including storage,“located in the school district in New Mexico where the abandoned facility is located. . . .” These
requirements are aimed at steering jobs and reinvestment into San Juan County, where
retirement of the San Juan Generating Station primarily affects workers and the community.
Financing order application

An abandoning utility may apply for a financing order to recover “all of its energy transition
costs.” The application must include:••••

A description of the facility to be abandoned;
The estimated energy transition costs identifying severance pay and job training expenses for
affected generation facility and associated mine employees;
Plant decommissioning and mine reclamation costs; andFinancing costs of energy transition bonds.

Lowest bond cost objective

The applicant utility will “use commercially reasonable efforts” to obtain the lowest bond costs.
The “lowest cost objective” means that structuring, marketing, and pricing energy transition
bonds results in the lowest energy transition charges consistent with prevailing market
conditions at the time of pricing energy transition bonds and the structure and terms of energy
transition bonds approved pursuant to the financing order. This language is considered byconsumer and clean energy advocates to be too broad to achieve least-cost bonds and toprovide maximum savings for ratepayers.
Bond issuance and operations provisions that animate the bond transactions and assure thatbondholders are repaid are found in Sections 5-9 of the Act. These provisions are consistent withsimilar provisions found in other states, so they are not further analyzed here.
The next unique provision of the New Mexico legislation is found in Section 10 of the Act:D. “the qualifying utility’s generation and sources of energy procured pursuant to powerpurchase agreements with a term of twenty-four months or longer, and that arededicated to serve the qualifying utility’s retail customers, shall not emit, on average,
more than four hundred pounds of carbon dioxide per megawatt-hour by January 1, 2023,
and not more than two hundred pounds of carbon dioxide per megawatt-hour by January
1, 2032 and thereafter.” (Emphasis added).
This performance standard for generation requires increasing limits on carbon dioxide emissions
over time and contributes to “carbon-free” electric sector goals that are found elsewhere in theAct.
Section 11 of the Act also limits applicability of use of securitized bonds in New Mexico. It statesthat the commission shall not order or require a qualifying utility to issue energy transition bonds
to finance any costs associated with abandonment of a qualifying generating facility. A utility’s
decision not to issue energy transition bonds shall not be a basis for the commission to refuse to16

allow a qualifying utility to recover energy transition costs in an otherwise permissible fashion, ora basis to refuse or condition authorization to issue securities. These provisions balance
application of the new law in favor of preserving the utility’s decision-making prerogatives andcontrol.
Community and worker impact mitigation provisions

Section 16 of the Act sets up two new funds, one for community assistance and the other for
worker assistance. Community assistance aims to diversify and promote affected communities’
economies by fostering economic development opportunities unrelated to fossil fueldevelopment or use. The state economic development department develops economic
diversification and development plans that provide for disbursement of money in an assistancefund, using a public planning process. Fund proceeds can be provided to approved program
entities, to assist employers to qualify for tax relief for hiring displaced workers, or to a city,
county, or tribe to promote economic development.
The displaced worker assistance fund consists of appropriations, gifts, grants, donations, andbequests made to the fund and fund income. The workforce solutions department administers
fund, and money in the fund is subject to appropriation by the legislature only to thatdepartment to assist displaced workers in an affected community. The department develops aworker development plan to assist displaced workers in an affected community, using a publicplanning process in the community to inform use of funds. Fund expenditures are to support:•

Employers of displaced workers to qualify for any tax relief established under state or federallaw;• Displaced workers using any department program;• Payment of costs associated with displaced workers enrolling and participating in certified
apprenticeship programs in New Mexico; and• A municipality, county, Indian nation, pueblo or tribe or land grant community in New
Mexico with job training and apprenticeship programs for displaced workers or programs
designed to promote economic development in the affected community.
To fund these impact mitigations, utilities transfer percentages of the financed amount of energy
transition bonds as follows:•

One and sixty-five hundredths percent to the economic development department for depositin the economic development assistance fund; and• Three and eighty-five hundredths percent to the workforce solutions department for depositin the displaced worker assistance fund.
An “affected community” means a New Mexico county located within 100 miles of a New Mexico
facility producing electricity that closes, displacing at least forty workers. A “displaced worker”
means a New Mexico resident who, within the previous twelve months, was terminated from
employment, or whose contract was terminated, due to the abandonment of a New Mexico
electric-producing facility that resulted in displacement of at least forty workers where theworker:

17

•
•
•

Had at least 75 percent of the resident’s net income from the employment or contract
associated with the abandoned facility;
Has been unable to replace lost wages or whose annual wages are at least 25 percent lessthan when the qualifying facility was operating; andDoes not qualify to take full benefits pursuant to a pension or retirement plan.

Twelve-year sunset provision

The ETA shall not apply to a qualifying utility that makes an initial application for a financing
order more than twelve years after the effective date of the Act.
Apprenticeships

Section 24 of the Act requires percentage hiring requirements, as follows, for apprentices at
generating facilities starting construction:•••

Between January 1, 2020, and January 1, 2024 – 10 percent
Between January 1, 2024, and January 1, 2026 – 17 percent
After January 1, 2026 – 25 percent

New Mexico summary
New Mexico’s ETA, like Colorado’s Bond Act, contains a variety of energy policies, standard bondimplementation provisions, and a few references to consumer protection, although not as muchemphasis on low-cost outcomes and consumer savings as the Colorado law. It sets time anddollar limits. The Act is aimed at a particular utility and, at least arguably, a single power plant. It
provides transition assistance for workers and communities impacted by the abandonment ofthat plant, again in quantified dollar terms. These limits restrict the use of securitized bonds in
New Mexico so the refinancing option has specific outcomes rather than general applicability.
MONTANA ENERGY ASSISTANCE BOND ACT – HB 467
The Montana Energy Assistance Bond Act, passed in the 2019 legislative session, has bothsimilarities with the new Colorado and New Mexico laws and a few differences.ix Montana’s
legislation is the briefest of the three and, like the others, contains standard bond securitycreating provisions sufficient to animate utility applications, commission consideration, and bondissuance procedures and assurances. Since these provisions do not differ much among the threestates, they are not discussed here. Of interest, however, is how Montana assures public interest
outcomes, and how the legislation dovetails with energy policy regarding climate goals and thetransition to clean resources. Those provisions are summarized next. Appendix 3 contains
language from Montana’s statute for each of the summarized provisions.
Legislative intent
Montana’s legislature found it “imperative” to implement an “alternative financing mechanism”
for “retirement and replacement” of electric infrastructure or facilities by using “low-cost
securitized, rate-payer backed bonds.” It authorized the Public Service Commission (PSC) toreview and approve financing orders, if appropriate and “in the interest of ratepayers.” Bond
proceeds can be used to:
18

•
•

Reduce long-term costs for retired or replaced electric infrastructure or facilities; andMake capital available for modernized infrastructure, facilities, and services, including “leastcost electric generating facilities and other supply-side and demand-side resources.”

Bond tenor and included costs•

Montana bonds have 30-year maturities, rated AA or Aa2 or better to appeal to large
institutional bond investors and achieve lowest possible interest rates. Bond costs approvedby the commission can include unrecovered capitalized costs of retired or replaced electric
infrastructure or facilities and decommissioning and site restoration costs.

Application requirements, financing orders
Utilities “may” file applications with the PSC for bond approval. Filings must include an estimateof net present value of electric customer savings expected to result, compared with costs
expected without bond refinancing, and one or more alternative refinancing options. Afternotice and hearing, the PSC may issue a financing order authorizing bonds if it finds:•••

Costs are reasonable;
Issuance of bonds and collection of charges to pay bond costso Are just and reasonable;o Are consistent with the public interest;o “Constitute a prudent and reasonable mechanism for the financing of Montana energy
impact assistance costs described in the application”; ando Will provide substantial, tangible, and quantifiable benefits to customers that are greaterthan benefits that would have been achieved absent issuance of Montana energy impact
assistance bonds; andThe proposed structuring, marketing, and pricing of bonds willo Significantly lower overall costs to customers or significantly mitigate rate impacts tocustomers relative to traditional methods of financing; ando Achieve maximum net present value of customer savings, as determined by thecommission in a financing order, consistent with market conditions at the time of saleand financing order terms.

Financing order
The financing order must:••••

Determine maximum costs that may be financed from bond proceeds;
Describe a proposed customer billing mechanism for Montana energy impact assistancecharges and include a finding that the mechanism is just and reasonable;
Describe financing costs that may be recovered through Montana energy impact assistancecharges and the period over which costs may be recovered, which must end no earlier thanthe date of final legal bond maturity;
Describe Montana energy impact assistance property that is created and that may be used topay, and secure payment of, Montana energy impact assistance bonds and financing costs
authorized in the financing order; and19•Authorize the electric utility to finance Montana energy impact assistance costs throughissuance of one or more series of Montana energy impact assistance bonds.

Rate reductions
Utilities must file rate reductions simultaneously with the inception of bond charges oncustomers, independently of schedules for closing and decommissioning retired facilities. They
must specify a ratemaking process to reconcile differences between costs refinanced with bonds(such as taxes). The PSC may include conditions necessary to “promote the public interest andgrant relief different than that requested in the utility bond application.”
Temporary staff, specialized counsel, expert consultants
PSC costs to engage temporary staff, specialized counsel, and expert consultants are consideredbond financing costs.
No utility penalties for financing choices
The PSC may not refuse to allow cost recovery for retirements or replacements “solely” because
utilities elect to finance them through mechanisms other than bonds.
Consumer protections
The commission’s approval of a financing order is irrevocable, typically addresses very large
amounts of financing undertaken, and is not reviewable by future commissions. Thus, in addition
to its other powers and duties, the commission:
•
•
•
•
•
•

Shall perform comprehensive due diligence in evaluating an application for a financing order;
Shall oversee the process used to structure, market, and price energy impact assistancebonds;
May attach conditions to approval of a financing order as the commission finds appropriate
to maximize financial benefits or minimize financial transaction risks to customers and todirectly impacted Montana workers and communities;
May specify details of the process used to structure, market, and price bonds, including
underwriter selection;
Shall review and determine the reasonableness of all proposed upfront and ongoing
financing costs; andShall ensure that structuring, marketing, and pricing of bonds maximizes net present value
customer savings, consistent with market conditions and financing order terms.

Within 120 days after bond issuance, a utility shall file with the PSC information regarding actual
upfront and ongoing bond financing costs, which the PSC shall review to:• Determine the prudence of the utility’s actions; and• Determine whether costs resulted in lowest overall costs that were reasonably consistent
with both market conditions at the time of the issuance and financing order terms.
If the commission determines that electric utility actions were not prudent or were inconsistent
with the financing order, it may apply any available remedies. The commission may not apply any

20remedy that has the effect, directly or indirectly, of impairing bond security. In performing its
responsibilities in accordance with [the portions of the Act governing bond issuance], thecommission may engage outside consultants and counsel experienced in bond financing similar
to Montana energy impact assistance bonds, and expenses associated with the engagement may
be included as financing costs and included in the Montana energy impact assistance charge.
Costs are not a state obligation and are assigned solely to the transaction.
Annual consumer disclosure
The utility must explain rate impacts from the financing of retirement or replacement of electric
infrastructure in an annual filing with the commission.
Commission may approve utilities’ use of funds
The commission may approve utilities’ expenses for or investments in:
•
•
•
•
•

Montana energy impact assistance property that reduces impact costs, considering newtechnologies and future environmental regulations;
Building and owning least-cost generation resources, taking into consideration regulatory
risks; current and future fuel; and fuel delivery infrastructure, costs, and risks, if added
consistent with resource procurement or integrated least-cost resource plan;
Building, owning, or purchasing electricity storage required by law or rule, if least cost or
needed to increase least-cost resources in a generation portfolio;
Investments in network modernization necessary to increase the amount of least-costresources that can be added to a utility’s system; andReplacing damaged or destroyed infrastructure or facilities for transmission or delivery ofelectricity to customers.

21

APPENDIX TWO: COLORADO LEGISLATIVE LANGUAGE
Sunset Public Utilities Commission - SB 19-236 (2019)https://leg.colorado.gov/bills/sb19-236
LONG-TENOR BONDS
C.R.S. 40-1-102(5) CO-EI Bonds defined “. . . SCHEDULED MATURITY DATE AS DETERMINEDREASONABLE BY THE COMMISSION BUT NOT LATER THAN THIRTY-TWO YEARS. . .” “. . .RATED AA
OR AA2 OR BETTER. . .”RETIREMENTS, MITIGATING WORKER AND COMMUNITY IMPACTS(7)(a) “CO-EI COSTS” MEANS “. . . CAUSED BY, ASSOCIATED WITH, OR REMAIN AS A RESULT OF
THE RETIREMENT OF AN ELECTRIC GENERATING FACILITY LOCATED IN THE STATE.”(B)(2) “AMOUNTS FOR ASSISTANCE TO AFFECTED WORKERS AND COMMUNITIES IF APPROVED
BY THE COMMISSION”;
COMMISSION OUTSIDE COUNSEL AND FINANCIAL EXPERTS(13)(f) “ANY COSTS INCURRED BY AN ELECTRIC UTILITY TO PAY THE COMMISSION’S COSTS OF
ENGAGING SPECIALIZED COUNSEL AND EXPERT CONSULTANTS EXPERIENCED IN SECURITIZED
ELECTRIC UTILITY RATEPAYER-BACKED BOND FINANCING. . .”UTILITY APPLICATION ESTIMATES SAVINGS, AVOID OR MITIGATE CUSTOMER RATEIMPACTS
40-41-103. Financing orders - application requirements(3) (a) AN APPLICATION FOR A FINANCING ORDER MUST INCLUDE THE FOLLOWINGINFORMATION:(VII) AN ESTIMATE OF THE NET PROJECTED COST SAVINGS OR A DEMONSTRATION OF HOW THE
ISSUANCE OF CO-EI BONDS AND THE IMPOSITION OF CO-EI CHARGES WOULD AVOID ORSIGNIFICANTLY MITIGATE RATE IMPACTS TO CUSTOMERS AS COMPARED WITH TRADITIONALMETHODS OF FINANCING AND RECOVERING CO-EI COSTS FROM CUSTOMERS.
COMMISSION FINANCING ORDERS REQUIRED FINDINGS
40-41-104. Issuance of financing orders. Commission may issue a financing order if:(a) THE CO-EI COSTS DESCRIBED IN THE APPLICATION RELATED TO THE RETIREMENT OF THE
ELECTRIC GENERATING FACILITIES ARE REASONABLE; (b) THE PROPOSED ISSUANCE OF CO-EI
BONDS AND THE IMPOSITION AND COLLECTION OF CO-EI CHARGES: (I) ARE JUST AND
REASONABLE; (II) ARE CONSISTENT WITH THE PUBLIC INTEREST; (PAGE 45-SENATE BILL 19-236)(III) CONSTITUTE A PRUDENT AND REASONABLE MECHANISM FOR THE FINANCING OF THE CO-EICOSTS DESCRIBED IN THE APPLICATION; AND (IV) WILL PROVIDE SUBSTANTIAL, TANGIBLE, AND
QUANTIFIABLE NET PRESENT VALUE SAVINGS OR OTHER BENEFITS TO CUSTOMERS THAT ARE
GREATER THAN THE BENEFITS THAT WOULD HAVE BEEN ACHIEVED ABSENT THE ISSUANCE OF

22

CO-EI BONDS; AND THE PROVISIONS OF THE FINANCING ORDER WILL ENSURE THAT THE
PROPOSED STRUCTURING, MARKETING, AND PRICING OF THE CO-EI BONDS WILL: (I)
MATERIALLY LOWER OVERALL COSTS TO CUSTOMERS OR AVOID OR MITIGATE RATE IMPACTS TOCUSTOMERS RELATIVE TO TRADITIONAL METHODS OF FINANCING AND RECOVERING CO-EICOSTS FROM CUSTOMERS; AND (II) ACHIEVE THE MAXIMUM NET PRESENT VALUE OF
CUSTOMER SAVINGS, AS DETERMINED BY THE COMMISSION IN A FINANCING ORDER,CONSISTENT WITH MARKET CONDITIONS AT THE TIME OF SALE AND THE TERMS OF THE
FINANCING ORDER.
COMMISSION REQUIRED FINANCING ORDER FINDINGS, COMPARISONS, IMPACTS
ON CUSTOMER CLASSES(e) DETERMINE WHETHER THE PROPOSED STRUCTURING, EXPECTED (PAGE 46-SENATE BILL 19236) PRICING, AND FINANCING COSTS OF CO-EI BONDS HAVE A SIGNIFICANT LIKELIHOOD OF
LOWERING OVERALL COSTS TO CUSTOMERS OR AVOIDING OR SIGNIFICANTLY MITIGATING RATEIMPACTS TO CUSTOMERS AS COMPARED WITH TRADITIONAL METHODS OF FINANCING AND
RECOVERING CO-EI COSTS FROM CUSTOMERS. A FINANCING ORDER MUST PROVIDE DETAILED
FINDINGS OF FACT ADDRESSING COST-EFFECTIVENESS AND ASSOCIATED RATE IMPACTS UPONCUSTOMERS AND CUSTOMER CLASSES.
TRANSFER ENERGY ASSISTANCE FUNDS TO THIRD-PARTY ADMINISTRATOR(II) THE ENERGY ASSISTANCE FUNDS, IF INCLUDED IN THE BOND ISSUE, MAY BE TRANSFERREDTO A THIRD-PARTY ENTITY DESIGNATED BY THE COMMISSION TO ADMINISTER TRANSITIONASSISTANCE ON BEHALF OF DISPLACED WORKERS AND AFFECTED COMMUNITIES NO LATER
THAN THE DATE ON WHICH THE ELECTRIC GENERATING FACILITY CEASES OPERATION;UTILITY REQUIRED TO REDUCE RATES(4) A FINANCING ORDER MUST REQUIRE THE APPLICANT ELECTRIC UTILITY, SIMULTANEOUSLY
WITH THE INCEPTION OF THE COLLECTION OF CO-EI CHARGES, TO REDUCE ITS RATES THROUGH
A REDUCTION IN BASE RATES OR BY A NEGATIVE RIDER ON CUSTOMER BILLS IN AN AMOUNTEQUAL TO THE REVENUE REQUIREMENT ASSOCIATED WITH THE UTILITY ASSETS BEING
FINANCED BY CO-EI BONDS.
COMMUNITY ASSISTANCE FOR VOTER-APPROVED PROJECTS11(5) “. . .THE FINANCING ORDER MUST PROVIDE FOR THE PAYMENT OF COMMUNITY ASSISTANCE
TO THE LOCAL GOVERNMENT IN AN AMOUNT EQUAL TO THE COSTS OF THE VOTER-APPROVED
PROJECTS THAT WERE EXPECTED TO BE PAID FROM THE REVENUE SOURCES DIRECTLYIMPACTED BY THE RETIREMENT. . . REDUCED ON AN EQUIVALENT BASIS TO THE EXTENT THATPROPERTY TAX IS DERIVED FROM NEW ELECTRIC INFRASTRUCTURE DEVELOPED IN THE SAMEIMPACTED COMMUNITY.”

11

This language for transition assistance is very costly to ratepayers and is not recommended.
23

CONDITIONS TO MAXIMIZE BENEFITS, MINIMIZE RISKS; PROCESS TO STRUCTURE,
MARKET, PRICE BONDS; REASONABLENESS OF FINANCING COSTS;COMPREHENSIVE COMMISSION DUE DILIGENCE
40-41-107. Electric utility customer protection. (1) IN ADDITION TO ANY OTHER AUTHORITY OF
THE COMMISSION: (a) THE COMMISSION MAY ATTACH SUCH CONDITIONS TO THE APPROVALOF A FINANCING ORDER AS THE COMMISSION DEEMS APPROPRIATE TO MAXIMIZE THE
BENEFITS AND MINIMIZE THE RISKS OF THE TRANSACTION TO CUSTOMERS, DIRECTLY IMPACTEDCOLORADO WORKERS AND COMMUNITIES, AND THE ELECTRIC UTILITY; (b) THE COMMISSIONSHALL SPECIFY IN THE FINANCING ORDER A PROCESS TO STRUCTURE, MARKET, AND PRICE CO-EI
BONDS, INCLUDING THE SELECTION OF THE UNDERWRITER OR UNDERWRITERS, IN A MANNERCONSISTENT WITH THE PUBLIC INTEREST AND THE LEGAL OBLIGATIONS OF THE ELECTRICUTILITY; (c) THE COMMISSION SHALL REVIEW AND DETERMINE THE REASONABLENESS OF ALLPROPOSED UP-FRONT AND ONGOING FINANCING COSTS; AND (d) THE COMMISSION HAS THE
AUTHORITY REQUIRED TO PERFORM COMPREHENSIVE DUE DILIGENCE IN ITS EVALUATION OF
AN APPLICATION FOR A FINANCING ORDER AND HAS THE AUTHORITY TO OVERSEE THE PROCESSUSED TO STRUCTURE, MARKET, AND PRICE CO-EI BONDS.
COMMISSION MAY INCLUDE ADDITIONAL CONDITIONS DIFFERENT FROM THOSE
REQUESTED IN A UTILITY APPLICATION(6) IN A FINANCING ORDER, THE COMMISSION MAY INCLUDE ANY CONDITIONS THAT ARE
NECESSARY TO PROMOTE THE PUBLIC INTEREST AND MAY GRANT RELIEF THAT IS DIFFERENTFROM THAT WHICH WAS REQUESTED IN THE APPLICATION SO LONG AS THE RELIEF IS WITHINTHE SCOPE OF THE MATTERS ADDRESSED IN THE COMMISSION'S NOTICE OF THE APPLICATION.
SIX-MONTH REVIEW: LOWEST OVERALL COSTS, DISALLOW EXCESS COSTS; ENGAGEOUTSIDE COUNSEL AND EXPERTS, DUTY OF LOYALTY TO COMMISSION, EXPENSES
PART OF FINANCING COSTS(2) WITHIN ONE HUNDRED TWENTY DAYS AFTER THE ISSUANCE OF CO-EI BONDS, THE
APPLICANT SHALL FILE WITH THE COMMISSION INFORMATION REGARDING THE ACTUAL UPFRONT ISSUANCE COSTS OF THE CO-EI BONDS. THE COMMISSION SHALL REVIEW, ON A
REASONABLY COMPARABLE BASIS, SUCH INFORMATION TO DETERMINE IF THE ISSUANCERESULTED IN THE LOWEST OVERALL COSTS THAT WERE REASONABLY CONSISTENT WITH BOTH
MARKET CONDITIONS AT THE TIME OF THE PRICING AND THE TERMS OF THE FINANCINGORDER. THE COMMISSION MAY DISALLOW INCREMENTAL UP-FRONT ISSUANCE COSTS IN
EXCESS OF THE LOWEST OVERALL COSTS BY REQUIRING THE ELECTRIC UTILITY TO MAKE A
CREDIT IN AN AMOUNT EQUAL TO THE EXCESS OF ACTUAL ISSUANCE COSTS INCURRED, AND
PAID FOR OUT OF CO-EI BOND PROCEEDS, AND THE LOWEST OVERALL ISSUANCE COSTS AS
DETERMINED BY THE COMMISSION. THE COMMISSION MAY NOT MAKE ADJUSTMENTS TO THE
CO-EI CHARGES FOR ANY SUCH EXCESS UP-FRONT ISSUANCE COSTS. (3) IN PERFORMING ITSRESPONSIBILITIES UNDER THIS ARTICLE 4 1, THE COMMISSION MAY ENGAGE OUTSIDECONSULTANTS AND COUNSEL, SELECTED BY THE COMMISSION, WHO ARE EXPERIENCED IN

24

SECURITIZED ELECTRIC UTILITY RATEPAYER-BACKED BOND FINANCING SIMILAR TO CO-EI BONDS.
THESE OUTSIDE CONSULTANTS AND COUNSEL HAVE A DUTY OF LOYALTY SOLELY TO THE
COMMISSION, MUST NOT HAVE ANY FINANCIAL INTEREST IN THE CO-EI BONDS, AND SHALL NOTPARTICIPATE IN THE UNDERWRITING OR SECONDARY MARKET TRADING OF THE CO-EI BONDS.
THE EXPENSES ASSOCIATED WITH ANY ENGAGEMENT SHALL BE PAID BY THE APPLICANT UTILITY
AND SHALL BE INCLUDED AS FINANCING COSTS AND INCLUDED IN THE CO-EI CHARGE, ARE NOTAN OBLIGATION OF THE STATE, AND ARE ASSIGNED SOLELY TO THE TRANSACTION. (4) IF AN
ELECTRIC UTILITY'S APPLICATION FOR A FINANCING ORDER IS DENIED OR WITHDRAWN OR FOR
ANY REASON NO CO-EI BONDS ARE ISSUED, ANY COSTS OF RETAINING EXPERT CONSULTANTS
AND COUNSEL ON BEHALF OF THE COMMISSION, AS AUTHORIZED BY SUBSECTION (3) OF THISSECTION AND APPROVED BY THE COMMISSION, SHALL BE PAID BY THE APPLICANT ELECTRICUTILITY AND SHALL BE ELIGIBLE FOR RECOVERY BY THE ELECTRIC UTILITY, INCLUDING CARRYINGCOSTS, IN THE ELECTRIC UTILITY'S FUTURE RATES.
UTILITIES MUST EXPLAIN FINANCING IMPACTS ON CUSTOMER RATES
40-41-109. Electric utilities - duties. (1)(c) MUST EXPLAIN TO CUSTOMERS IN AN ANNUAL FILING
WITH THE COMMISSION THE RATE IMPACT THAT FINANCING THE RETIREMENT OF ELECTRIC
GENERATING FACILITIES WILL HAVE ON CUSTOMER RATES.
APPLICATION FOR FINANCING ORDER VOLUNTARY; COMMISSION MAY NOTPENALIZE UTILITY SOLELY FOR ELECTING NOT TO USE SECURITIZED BONDS
40-41-106 (2)(b)(3). Effect on commission jurisdiction.
THE COMMISSION MAY NOT REFUSE TO ALLOW THE RECOVERY OF ANY COSTS ASSOCIATED
WITH THE RETIREMENT OF ELECTRIC GENERATING FACILITIES BY AN ELECTRIC UTILITY SOLELYBECAUSE THE ELECTRIC UTILITY HAS ELECTED TO RECOVER THOSE COSTS THROUGH
TRADITIONAL RATEMAKING METHODS OR TO FINANCE THOSE ACTIVITIES THROUGH A
FINANCING MECHANISM OTHER THAN CO-EI BONDS, WHETHER OR NOT A FINANCING ORDER
WITH RESPECT TO SUCH COSTS HAS BEEN APPLIED FOR BY THE UTILITY OR ISSUED BY THE
COMMISSION.

25

APPENDIX THREE: NEW MEXICO LEGISLATIVE LANGUAGE
Energy Transition Act - SB 489 (2019)https://www.nmlegis.gov/Legislation/Legislation?Chamber=S&LegType=B&LegNo=489&year=19
Appendix three contains the New Mexico Energy Transition Act language summarized above
regarding key clean energy policy and bond securitization public policy and consumer
protections, along with additional provisions that cover various other energy policy andregulatory considerations. These include:••••

Carbon dioxide limits for generation;
A reasonable cost threshold of $60 per MWh at new generators’ points of interconnection
with the utility;
A requirement that the NMPRC open a docket to consider a performance regulation thatrewards utilities that exceed the renewable energy standards; andUtility reports on competitive solicitations and strategies used to minimize integration costs
for new renewable energy.

ETA SECTION 2(H)“energy transition cost” means the sum of: (1) financing costs; (2) abandonment costs, which fora qualifying generating facility shall not exceed the lower of three hundred seventy-five million
dollars ($375,000,000) or one hundred fifty percent of the undepreciated investment in aqualifying generating facility being abandoned, as of the date of the abandonment and may
include: (a) up to thirty million dollars ($30,000,000) per qualifying generating facility in costs notpreviously collected from the qualifying utility’s customers for plant decommissioning and minereclamation costs, subject to any limitations ordered by the commission prior to January 1, 2019
and affirmed by the New Mexico supreme court prior to the effective date of the Energy
Transition Act, associated with the abandoned qualifying generating facility; (b) up to twenty
million dollars ($20,000,000) per qualifying generating facility in costs for severance and job
training for employees losing their jobs as a result of an abandoned qualifying generating facility
and any associated mine that only services the abandoned qualifying generating facility; (c)undepreciated investments as of the date of abandonment on the qualifying utility’s books andrecords in a qualifying generating facility that were either being recovered in rates as of January
1, 2019 or are otherwise found to be recoverable through a court decision; and (d) other
undepreciated investments in a qualifying generating facility incurred to comply with law,whether established by statute, court decision or rule, or necessary to maintain the safe andreliable operation of the qualifying generating facility prior to the facility's abandonment; (3) any
other costs required to comply with changes in law enacted after January 1, 2019 incurred by
the qualifying utility at the qualifying generating facility; and (4) payments required pursuant to
Section 16 of the Energy Transition Act. . .”26

K. (1) FINANCING COSTS INCLUDE“reasonable commission expenses not to exceed three hundred thousand dollars ($300,000),incurred for contract bond counsel that is accredited by a nationally recognized association ofbond lawyers to provide advice and assistance to commission staff in reviewing an application
fora financing order and the structure and marketing of the proposed energy transition bonds.”
SECTION N. OF THESE DEFINITIONS DEFINES “LOWEST COST OBJECTIVE”“lowest cost objective” means that the structuring, marketing and pricing of energy transition
bonds results in the lowest energy transition charges consistent with prevailing market
conditions at the time of pricing of energy transition bonds and the structure and terms ofenergy transition bonds approved pursuant to the financing order;“QUALIFYING GENERATING FACILITY” IS DEFINED NARROWLY
S. “qualifying generating facility” means a coal-fired generating facility in New Mexico that may
be composed of multiple generating units that: (1) has been granted a certificate of publicconvenience and for which abandonment authority is granted after December 31, 2018; (2) isowned or leased, in whole or in part, by a qualifying utility; (3) if operated by a qualifying utility
prior to the effective date of the Energy Transition Act, is to be abandoned prior to January 1,
2023; and (4) if not operated by a qualifying utility prior to the effective date of the Energy
Transition Act, is to be abandoned prior to January 1, 2032. . .”SECTION 3. [NEW MATERIAL] LOCATION OF RESOURCE DEVELOPMENT AFTERABANDONMENT.
Sections A-F. Utility that abandons a plant shall apply within one year for approval of acompetitive procured replacement resources ranked with regard to cost, economic
development potential and ability to create jobs with pay and benefits comparable to thoseat the abandoned generation facility. Higher ratios of capital to fuel costs and reclamation
cost reductions through use of previously mind lands within the county where theabandoned plant was located are to be considered in the commission’s decision. In theacquisition process the utility is required to inform potential bidders that it will prefer use of
New Mexico labor. Replacement resources means up to 450 MW, including storage, “. .
.located in the school district in New Mexico where the abandoned facility is located. . .”SECTION 4. [NEW MATERIAL] FINANCING ORDER—APPLICATION CONTENTS-PENDING APPLICATIONS.
A. Abandoning utility may apply for financing order to recover “. . .all of its energy transition
costs.”
B. Application shall include description of facility to be abandoned, estimate of energy
transition costs identifying severance pay and job training expenses for affected
generation facility and associated mine employees, plant decommissioning and minereclamation costs, and financing costs of energy transition bonds.
Utility will “use commercially reasonable efforts” to obtain the lowest (bond) cost
objective.
27

SECTION 5. [NEW MATERIAL] FINANCING ORDER--ISSUANCE--TERMS OF BONDS-REPORTS TO COMMISSION OF DISBURSEMENT OF BONDPROCEEDS--REVIEW AND
AUDIT OF RECORDS.
SECTION 6. [NEW MATERIAL] ADJUSTMENT MECHANISM--ADJUSTMENTPROCEDURES--HEARING PROCEDURES IF COMMISSIONDETERMINES ADJUSTMENT
MADE IN ERROR.
SECTION 7. [NEW MATERIAL] FINANCING ORDER--IRREVOCABILITY--AMENDMENTS.
SECTION 8. [NEW MATERIAL] AGGRIEVED PARTIES--REQUEST FORREHEARING-JUDICIAL REVIEWSECTION 9. [NEW MATERIAL] CONDITIONS THAT KEEP FINANCINGORDERS IN
EFFECT AND ENERGY TRANSITION CHARGES IMPOSED.
SECTION 10. [NEW MATERIAL] QUALIFYING UTILITY DUTIES.
E. “. . . the qualifying utility's generation and sources of energy procured pursuant to powerpurchase agreements with a term of twenty-four months or longer, and that arededicated to serve the qualifying utility's retail customers, shall not emit, on average,
more than four hundred pounds of carbon dioxide per megawatt-hour by January 1,
2023, and not more than two hundred pounds of carbon dioxide per megawatt-hour by
January 1, 2032 and thereafter.
SECTION 11. [NEW MATERIAL] COMMISSION TREATMENT OF ENERGY TRANSITIONBONDS.
C. The commission shall not order or require a qualifying utility to issue energy transition
bonds to finance any costs associated with abandonment of a qualifying generating
facility. A utility's decision not to issue energy transition bonds shall not be a basis for thecommission to refuse to allow a qualifying utility to recover energy transition costs in anotherwise permissible fashion, or as a basis to refuse or condition authorization to issue
securities
SECTION 12. [NEW MATERIAL] ENERGY TRANSITION PROPERTY--ENERGY
TRANSITION REVENUES.
SECTION 13. [NEW MATERIAL] SECURITY INTERESTS--CREATION OF SECURITY
INTEREST--PRIORITY OVER OTHER LIENS--ATTACHMENT ON FILING WITH SECRETARYOF STATE.
SECTION 14. [NEW MATERIAL] SALE OF ENERGY TRANSITION PROPERTY-PERFECTING INTERESTS--ABSOLUTE TRANSFER AND TRUE SALEREQUIREMENTS
SECTION 15. [NEW MATERIAL] EXEMPTION FROM FEE ASSESSMENTS.

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SECTION 16. [NEW MATERIAL] ENERGY TRANSITION ECONOMIC DEVELOPMENTASSISTANCE FUND--ENERGY TRANSITION DISPLACED WORKER ASSISTANCE FUND.
B. “. . .the fund is subject to appropriation by the legislature only to that department to assist indiversifying and promoting the affected community's economy by fostering economic
development opportunities unrelated to fossil fuel development or use.
C. The economic development department shall develop an economic diversification anddevelopment plan to assist the affected community that shall provide for the disbursement ofmoney in the energy transition economic development assistance fund. In developing the plan,
the economic development department shall establish a public planning process in the affected
community to inform the use of money in the fund. The public planning process shall include atleast three public meetings in the affected community. Expenditures from the fund shall bemade after completion of the plan and as follows: (1) to an entity approved by the economic
development department to receive funds for any program established at the economic
development department; (2) to assist employers to qualify for any tax relief for hiring displaced
workers established under state or federal law; and (3) to a municipality, county, Indian nation,
pueblo or tribe or land grant community in New Mexico for programs designed to promoteeconomic development in the affected community.
D. The “energy transition displaced worker assistance fund” is created in the state treasury. The
fund shall consist of appropriations, gifts, grants, donations and bequests made to the fund.
Income from the fund shall be credited to the fund, and money in the fund shall not revert or betransferred to any other fund at the end of a fiscal year.
E. The workforce solutions department shall administer the energy transition displaced worker
assistance fund, and money in the fund is subject to appropriation by the legislature only to thatdepartment to assist displaced workers in an affected community.
F. The workforce solutions department shall develop a displaced worker development plan toassist displaced workers in an affected community that shall provide for the disbursement ofmoney in the energy transition displaced worker assistance fund. In developing the plan, theworkforce solutions department shall establish a public planning process in the affected
community to inform the use of money in the fund. The public planning process shall include atleast three public meetings in the affected community. Expenditures from the fund shall bemade after completion of the plan and as follows: (1) to assist employers of displaced workers toqualify for any tax relief established under state or federal law; (2) to the workforce solutions
department: (a) to provide assistance to displaced workers using any program established at thatdepartment; and (b) for payment of costs associated with displaced workers enrolling andparticipating in certified apprenticeship programs in New Mexico; and (3) to a municipality,
county, Indian nation, pueblo or tribe or land grant community in New Mexico for job training
and apprenticeship programs for displaced workers or for programs designed to promoteeconomic development in the affected community.

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G. Within thirty days of receipt of energy transition bond proceeds, a qualifying generating
facility located in New Mexico shall transfer the following percentages of the financed amount ofenergy transition bonds as follows: (1) one and sixty-five hundredths percent to the economic
development department for deposit in the energy transition economic development assistancefund; and (2) three and eighty-five hundredths percent to the workforce solutions department
for deposit in the energy transition displaced worker assistance fund.
H. As used in this section: (1) “affected community” means a New Mexico county located within
one hundred miles of a New Mexico facility producing electricity that closes, resulting in at least
forty displaced workers; (2) "displaced worker" means a New Mexico resident who: (a) within theprevious twelve months, was terminated from employment, or whose contract was terminated,
due to the abandonment of a New Mexico facility producing electricity that resulted in displacing
at least forty workers; (b) had at least seventy-five percent of the resident's net income, as thatterm is defined in the Income Tax Act, from the employment or contract described in
Subparagraph (a) of this paragraph; (c) has not been able to replace the lost wages described in
Subparagraph (b) of this paragraph or whose annual wages are at least twenty-five percent lessthan when the qualifying facility was operating; and (d) does not qualify to take full benefits
pursuant to a pension or retirement plan.
SECTION 17. [NEW MATERIAL] ENERGY TRANSITION BONDS NOT PUBLIC DEBT.
SECTION 18. [NEW MATERIAL] ENERGY TRANSITION BONDS AS LEGAL INVESTMENTS.
SECTION 19. [NEW MATERIAL] STATE PLEDGE NOT TO IMPAIR.
SECTION 23. [NEW MATERIAL] APPLICABILITY.
The provisions of the Energy Transition Act shall not apply to a qualifying utility that makes aninitial application for a financing order more than twelve years after the effective date of thatact.
SECTION 24. A NEW SECTION OF THE PUBLIC UTILITY ACT IS ENACTED TO
READ:"[NEW MATERIAL] REQUIRING THE HIRING OF APPRENTICES FOR THE
CONSTRUCTION OF FACILITIES THAT GENERATE ELECTRICITY.
(1)

ten percent for projects for which on-site construction commences beginning January
1, 2020, and prior to January 1, 2024; (2) seventeen and one-half percent for projects
for which on-site construction commences beginning January 1, 2024, and prior to
January 1, 2026; and (3) twenty-five percent for projects for which on-site
construction commences beginning January 1, 2026.

SECTION 25. SECTION 62-9-1 NMSA 1978 IS AMENDED TO READ:”62-9-1. NEW
CONSTRUCTION--RATEMAKING PRINCIPLES.”
D. In an application for a certificate of public convenience and necessity for an energy storage
system, the commission shall approve procurement of energy storage systems that: (1) reduce
costs to ratepayers by avoiding or deferring the need for investment in new generation and for
upgrades to systems for the transmission and distribution of energy; (2) reduce the use of fossil
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fuels for meeting demand during peak load periods and for providing ancillary services; (3) assist
with ensuring grid reliability, including transmission and distribution system stability, while
integrating sources of renewable energy into the grid; (4) support diversification of energy
resources and enhance grid security; (5) reduce greenhouse gases and other air pollutants
resulting from power generation; and (6) provide the public utility with the discretion, subject toapplicable laws and rules, to operate, maintain and control energy storage systems so as toensure reliable and efficient service to customers.
SECTION 26. 62-15-34. RENEWABLE PORTFOLIO STANDARD.
Distribution cooperatives. A distribution cooperative shall have the following targets andrequirements for renewable energy and zero carbon resources as a percentage of the
distribution cooperative's total retail sales in New Mexico: (a) a requirement of forty percent
renewable energy by January 1, 2025; (b) a requirement of fifty percent renewable energy by
January 1, 2030; (c) a target of achieving the zero-carbon resource standard by January 1, 2050
SECTION 28. RENEWABLE ENERGY ACT.
E. “reasonable cost threshold” $60 per MWH at POISECTION 29. SECTION 62-16-4 RENEWABLE PORTFOLIO STANDARD.
2025 40%2030 50%2040 80%2045 100% zero carbon resources
D. Upon a [commission] motion or application[by a public utility], the commission shall open adocket to develop and provide [appropriate performance-based] financial or other incentives toencourage public utilities to produce or acquire renewable energy [supplies] that [exceed]
exceeds the applicable annual renewable portfolio standard set forth in this section;
UTILITY TO FILE REPORTS, INCLUDING RENEWABLE ENERGY ACQUIRED(a) was the result of a competitive solicitation that included opportunities for bidders to propose
purchased power, facility self-build or facility build-transfer options.
(4) strategies used to minimize costs of renewable energy integration, including location,
diversity, balancing area activity, demand-side management and load management.

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SECTION 33. SECTION 62-16-8 RURAL ELECTRIC COOPERATIVE—VOLUNTARYTARIFFS.
SECTION 36. SECTION 74-2-5 NMSA 1978 DUTIES AND POWERS--ENVIRONMENTAL
IMPROVEMENT BOARD--LOCAL BOARD.
(b) standards of performance that limit carbon dioxide emissions to no more than eight hundred
forty-five pounds per megawatt-hour on and after January 1, 2023 for a source that is an electric
generating facility with an in-service date prior to January 1, 1984, that uses coal as a fuel source.

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APPENDIX FOUR: MONTANA LEGISLATIVE LANGUAGE
Montana Energy Assistance Bond Act - HB 467 (2019)https://leg.mt.gov/bills/2019/BillPdf/HB0467.pdf
LEGISLATIVE INTENT
HB 0467 Section 1. Short title. [Sections 1 through 19] may be cited as the “Montana Energy
Impact Assistance Act”. Section 2. Purpose -- legislative intent. (1) The legislature finds that it isimperative to: (a) implement an alternative financing mechanism to address the retirement andreplacement of electric infrastructure or facilities; and (b) authorize the public service
commission to review and approve one or more financing orders, if it deems approval
appropriate and in the interest of ratepayers.
(b) the state should authorize the issuance of low-cost securitized ratepayer-backed bonds. The
proceeds of these bonds must be used solely to: (i) lower long-term costs paid by electric utility
customers by reducing financing costs of certain retired or replaced electric infrastructure or
facilities; and (ii) make available capital investment for modernized infrastructure and facilities
and services, including least-cost electric generating facilities and other supply-side and demandside resources.
10) “Least-cost generation resource” means an incremental supply-side or demand-side
resource that when included in an electric utility's generation portfolio produces the lowest costamong alternative resources, considering both short-term and long-term costs and assessing the
likelihood of changes in future fuel prices and future environmental requirements, among otherconsiderations
BOND TENOR, INCLUDED COSTS(11) “Montana energy impact assistance bonds” *** have a scheduled maturity of no longer
than 30 years and a final legal maturity date that is not later than 32 years from the issue date,that are rated AA or Aa2 or better by a major independent credit rating agency at the time ofissuance, and that are issued by an electric utility or an assignee pursuant to a financing order.
(17) “Pretax costs” means costs approved by the commission, including but not limited to: (a)unrecovered capitalized costs of retired or replaced electric infrastructure or facilities; (b) costsof decommissioning and restoring the site of the electric infrastructure or facility
FINANCING APPLICATIONS, PSC ORDERS
Section 4. Financing orders -- application requirements. (1) An electric utility may file anapplication with the commission for approval to issue Montana energy impact assistance bonds(e) an estimate of the net present value of electric utility customer savings expected to result if
the financing order is issued as determined by a net present value comparison between thecosts to customers that are expected to result from the financing of the undepreciated balancesof electric infrastructure or facilities with Montana energy impact assistance bonds and the costs
that would result from the application of traditional electric utility financing mechanisms to the33same undepreciated balances; and (f) one or more alternative financing scenarios in addition to
the preferred scenario contained in the application.
Section 5. Issuance of financing orders. (1) After notice and hearing in accordance with [section
4(4)], the commission may issue a financing order if the commission finds: (a) the Montana
energy impact assistance costs described in the application related to the retirement or
replacement of electric infrastructure or facilities are reasonable; (b) the proposed issuance ofMontana energy impact assistance bonds and the imposition and collection of Montana energy
impact assistance charges: (i) are just and reasonable; (ii) are consistent with the public interest;(iii) constitute a prudent and reasonable mechanism for the financing of Montana energy impact
assistance costs described in the application; and (iv) will provide substantial, tangible, andquantifiable benefits to customers that are greater than the benefits that would have beenachieved absent the issuance of Montana energy impact assistance bonds; and (c) the proposed
structuring, marketing, and pricing of the Montana energy impact assistance bonds will: (i)significantly lower overall costs to customers or significantly mitigate rate impacts to customers
relative to traditional methods of financing; and (ii) achieve the maximum net present value ofcustomer savings, as determined by the commission in a financing order, consistent with market
conditions at the time of sale and the terms of the financing order. (2) (a) The financing ordermust: (i) determine the maximum amount of Montana energy impact assistance costs that may
be financed from proceeds of Montana energy impact assistance bonds authorized to be issued
by the financing order; (ii) describe the proposed customer billing mechanism for Montana
energy impact assistance charges and include a finding that the mechanism is just andreasonable; (iii) describe the financing costs that may be recovered through Montana energy
impact assistance charges and the period over which the costs may be recovered, which must
end no earlier than the date of final legal maturity of the Montana energy impact assistancebonds; (iv) describe the Montana energy impact assistance property that is created and that may
be used to pay, and secure the payment of, the Montana energy impact assistance bonds andfinancing costs authorized in the financing order; (v) authorize the electric utility to financeMontana energy impact assistance costs through the issuance of one or more series of Montana
energy impact assistance bonds. An electric utility is not required to secure a separate financing
order for each issuance of Montana energy impact assistance bonds or for each scheduled phaseof the retirement or replacement of electric infrastructure or facilities approved in the financing
order.
RATE REDUCTION(B) the applicant utility files to reduce its rates as required in subsection (5) simultaneously with
the inception of the Montana energy impact assistance charges and independently of theschedule of closing and decommissioning of the electric infrastructure or facility; and (x) specify
a future ratemaking process to reconcile any difference between the projected pretax costs
included in the amount financed by Montana energy impact assistance bonds and the final
actual pretax costs incurred by the utility in retiring or replacing the electric infrastructure or
facility. (b) In a financing order, the commission may include any conditions that are necessary to34

promote the public interest and may grant relief that is different from that which was requested
in the application, as long as the relief is within the scope of the matters addressed in thecommission's notice of the application.
TEMPORARY STAFF, SPECIALIZED COUNSEL, EXPERT CONSULTANTS(f) any costs incurred by the commission to hire and compensate additional temporary staff
needed to perform its responsibilities under [sections 1 through 19] and in accordance with[section 9(4)] engage specialized counsel and expert consultants experienced in securitizedelectric utility ratepayer-backed bond financing similar to Montana energy impact assistancebonds.
(b) Expenses incurred by the commission to hire and compensate additional temporary staff
needed to perform its responsibilities under [sections 1 through 19] must be included as
financing costs and included in the Montana energy impact assistance charge. (5) If a utility's
application for a financing order is denied or withdrawn for any reason and Montana energy
impact assistance bonds are not issued, the commission's costs of retaining expert consultants,
as authorized by subsection (4), must be paid by the applicant utility and are considered by thecommission as a prudent deferred expense for recovery in the utility's future rates.
NO UTILITY PENALTIES FOR FINANCING CHOICES3) The commission may not refuse to allow the recovery of any costs associated with theretirement or replacement of electric infrastructure or facilities by an electric utility solely
because the electric utility has elected to finance those activities through a financing mechanism
other than Montana energy impact assistance bonds
ANNUAL CONSUMER DISCLOSURE(c) explain to customers in an annual filing with the commission the rate impact that financing of
the retirement or replacement of electric infrastructure or facilities has on customer rates.
(4) An electric utility that obtains a financing order and causes Montana energy impact
assistance bonds to be issued must demonstrate in an annual filing with the commission that
Montana energy impact assistance revenues are applied solely to the repayment of Montana
energy impact assistance bonds and other financing costs.
COMMISSION MAY APPROVE UTILITIES’ USE OF FUNDS
Section 18. Use of amounts received by electric utility as consideration for its transfer ofMontana energy impact assistance property. (1) Subject to commission approval as required bysubsection (2), an electric utility shall expend or invest amounts the electric utility receives as
consideration for its transfer of Montana energy impact assistance property to reduce its
Montana energy impact costs and may invest or expand the remaining funds as follows: (a) tobuild and own generation infrastructure and facilities that are least-cost generation resources,
taking into consideration regulatory risk, current and future fuel cost and risk, and fuel delivery
infrastructure costs, the addition of which is not inconsistent with the electric utility's resource
procurement or integrated least-cost resource plan; (b) to build, own, or purchase electricity
35

storage capacity to the extent that the investment is either required by law or rule, is the leastcost, or is needed to increase the amount of least-cost generation resources that the electricutility is able to add to its generation portfolio; (c) to invest in network modernization to theextent that the modernization is necessary to increase the amount of least-cost generation
resources able to be added to the electric utility's system; and (d) to replace any damaged or
destroyed electric infrastructure or facilities involved in the transmission or delivery of electricity
to Montana customers.
(2) In considering any application for approval of the use of Montana energy impact assistancebond proceeds, the commission shall: (a) use its regular process for consideration of
applications; and (b) fully consider new energy technologies and future environmental
regulations.

i “Colorado Energy Impact Assistance Act,” Colorado General Assembly, May 1, 2017,https://leg.colorado.gov/bills/hb17-1339.
ii Fichera, Joseph. “Innovative Financing for Public Policy Objectives.” NARUC Summer Conference. Lecture
presented at the NARUC Summer Conference, July 21, 2009. https://saberpartners.com/wpcontent/uploads/2017/02/Innovative-Financing-NARUC-Seattle-2009.pdf
iii
Varadarajan, Uday, David Posner, Jeremy Fisher. Harnessing Financial Tools to Transform the Electric Sector. Sierra
Club, 2018. https://www.sierraclub.org/sites/www.sierraclub.org/files/sierra-club-harnessing-financial-toolselectric-sector.pdf
iv “2020 Recovery of COVID-19 Costs by Utility Tariff Bonds?” MAYER BROWN, March 31, 2020.
https://www.mayerbrown.com/en/perspectives-events/blogs/2020/03/recovery-of-covid19-costs-by-utility-tariffbonds. See also “Securitization may prove to be a viable COVID-19 cost recovery option,” S&P Market Intelligence,
May 11, 2020.
v
Harnessing Financial Tools to Transform the Electric Sector. Sierra Club, 2018.
vi
Harnessing Financial Tools to Transform the Electric Sector. Sierra Club, 2018.
vii “Sunset Public Utilities Commission.” Colorado General Assembly, May 3, 2019.
https://leg.colorado.gov/sites/default/files/2019a_236_signed.pdf
viii “Energy Transition Action,” New Mexico Legislature. March 22, 2019.
https://www.nmlegis.gov/Sessions/19%20Regular/bills/senate/SB0489.pdf
ix“Montana Energy Assistance Bond Act,” Montana Legislature. May 10, 2019.
https://leg.mt.gov/bills/2019/BillPdf/HB0467.pdf

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