Bill Text: HI SB3096 | 2024 | Regular Session | Amended

Hawaii Senate Bill 3096

Bill Title: Relating To Wildfire Risk Mitigation.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced) 2024-02-16 - Report adopted; Passed Second Reading, as amended (SD 1) and referred to CPN/WAM. [SB3096 Detail]

Download: Hawaii-2024-SB3096-Amended.html

THE SENATE	S.B. NO.	3096
THIRTY-SECOND LEGISLATURE, 2024		S.D. 1
STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO WILDFIRE RISK MITIGATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that the risk of catastrophic wildfires has increased, making it imperative that electric utilities develop, implement, and administer effective plans for wildfire risk mitigation. Electric utilities should develop, implement, and administer wildfire protection plans, and, through a public process, the public utilities commission should review and approve the plans and the recovery of any related costs to implement the plans.

The legislature also finds that a resilience working group, convened throughout 2019 and 2020, sought to:

(1) Identify and prioritize resilience threat scenarios and potential grid impacts;

(2) Identify key customer and infrastructure sector capabilities and needs following a severe event and loss of power;

(3) Identify gaps and priorities in grid and customer capabilities following a severe event and loss of power;

(4) Provide recommendations and inputs for investor-owned utility grid planning to address resilience needs; and

(5) Recommend additional grid and customer actions to close gaps and capabilities following severe events. The resilience working group identified wildfires as one of five types of severe events of utmost importance to consider for achieving a resilient grid and provided resilience options for utilities to consider.

The legislature further finds that securitization may be the most efficient, least-cost way to finance wildfire risk mitigation costs and expenses. Utility rate securitization transactions have an extensive track record of success. Bonds securitized by rates receive AAA credit ratings from credit rating agencies and thus provide a means of securing capital at a lower interest rate than those currently available to utilities, in particular utilities without an investment grade credit rating.

The purpose of this Act is to create a process whereby electric utilities develop and submit effective wildfire risk protection plans to the public utilities commission for approval; the public utilities commission evaluates those plans and either approves them or does so with modifications; the electric utilities are able to timely recover the prudently incurred costs and expenses of developing, implementing, and administrating those plans; and those costs and expenses are not borne disproportionately by any particular ratepayer or county.

SECTION 2. Chapter 269, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"PART . WILDFIRE PROTECTION AND MITIGATION

§269-A Definitions. As used in this part:

"Ancillary agreement" means a bond insurance policy, letter of credit, reserve account, surety bond, swap arrangement, hedging arrangement, liquidity or credit support arrangement, or other similar agreement or arrangement entered into in connection with the issuance of bonds that is designed to promote the credit quality and marketability of the bonds or to mitigate the risk of an increase in interest rates.

"Bond" means any bond, note, or other evidence of indebtedness that is issued by the financing entity under a financing order, the proceeds of which are used directly or indirectly to recover, finance, or refinance financing costs of any wildfire protection costs, and that are secured by or payable from wildfire protection property.

"Catastrophic wildfire" means any wildfire in the State that damaged or destroyed more than five hundred dwellings or commercial buildings.

"Department" means any state department or agency.

"Electric utility" means a public utility, as defined in section 269-1, that is engaged in the production, transmission, or distribution of electricity.

"Financing costs" means the costs to issue, service, repay, or refinance bonds, whether incurred or paid upon issuance of the bonds or over the life of the bonds, if they are approved for recovery by the public utilities commission in a financing order. "Financing costs" may include any of the following:

(1) Principal, interest, and redemption premiums that are payable on bonds;

(2) A payment required under an ancillary agreement;

(3) An amount required to fund or replenish reserve accounts or other accounts established under an indenture, ancillary agreement, or other financing document related to the bonds;

(4) Taxes, franchise fees, or license fees imposed on the wildfire protection plan fee;

(5) Costs related to issuing and servicing bonds or the application for a financing order, including, without limitation, servicing fees and expenses, trustee fees and expenses, legal fees and expenses, accounting fees, administrative fees, underwriting and placement fees, financial advisory fees, original issue discount, capitalized interest, rating agency fees, and any other related costs that are approved for recovery in the financing order; and

(6) Other costs as specifically authorized by a financing order.

"Financing entity" means a public utility and an entity to which a public utility sells or assigns all or a portion of the public utility's interest in wildfire protection property, in each case as approved by the commission in a financing order. For this purpose, an entity to which a public utility sells or assigns all or a portion of the public utility's interest in wildfire protection property shall include any governmental entity eligible to issue federally tax-exempt obligations pursuant to Section 103 of the Internal Revenue Code of 1986, including the State or a political subdivision thereof or any department, agency or instrumentality of the foregoing; provided that the bonds issued thereby shall not constitute a debt or liability of the State or any political subdivision thereof or any department, agency or instrumentality thereof and shall not constitute a pledge of the full faith and credit of the entity or of the State or any political subdivision thereof, but shall be payable solely from the funds provided under this chapter.

"Financing order" means an order of the public utilities commission under this part that has become final as provided by law, and that authorizes the issuance of bonds and the imposition, adjustment from time to time, and collection of wildfire protection fees.

"Wildfire protection costs" means any capital costs and operation and maintenance expenses related to the development, implementation, and administration of a wildfire protection plan prepared pursuant to section 269-C(a). Wildfire protection costs may also include any of the following:

(1) Catastrophic wildfire costs or expenses that the commission has determined were prudently incurred;

(2) Federal and state taxes associated with recovery of the amounts pursuant to paragraph (1); or

(3) Financing costs.

"Wildfire protection fee" means the nonbypassable fees and charges authorized by section 269-F and in a financing order authorized under this part to be imposed on and collected from all existing and future customers of a financing entity or any successor.

"Wildfire protection plan" means the risk-based wildfire protection plan mandated by section 269-C(a) and approved by the public utilities commission.

"Wildfire protection property" means the property right created pursuant to this part, including, without limitation, the right, title, and interest of the financing entity or its transferee:

(1) In and to the wildfire protection fee established pursuant to a financing order, including all rights to obtain adjustments to the wildfire protection fee in accordance with section 269-F and the financing order; and

(2) To be paid in the amount that is determined in a financing order to be the amount that the public utility or its transferee is lawfully entitled to receive pursuant to this part and the proceeds thereof, and in and to all revenues, collections, claims, payments, moneys, or proceeds of, or arising from, the wildfire protection fee that is the subject of a financing order.

§269-B Electric utility workshops. The public utilities commission may periodically convene workshops to help electric utilities develop and share information for the identification, adoption, and implementation of best practices regarding wildfires, including but not limited to risk-based wildfire protection and risk-based wildfire mitigation procedures and standards. The best practices discussed in these workshops may be incorporated into the proposed wildfire protection plans and updates submitted for the approval of the public utilities commission pursuant to section 269-C.

§269-C Wildfire protection plans. (a) Each electric utility shall have and operate in compliance with a risk-based wildfire protection plan, which shall be submitted to the public utilities commission for approval. The risk-based wildfire protection plan shall be based on reasonable and prudent practices that may be determined by public utilities commission standards adopted by decision or rule. The electric utility shall design the risk-based wildfire protection plan to protect public safety, reduce risk to utility customers, and promote resilience of the Hawaii electric system to wildfire damage. Each electric utility's plan shall, at a minimum:

(1) Account for responsibilities of persons responsible for executing the plan;

(2) Describe the objectives of the plan;

(3) Identify areas that are subject to a heightened risk of wildfire and are:

(A) Within the right of way or legal control or ownership of the electric utility; and

(B) Outside the right of way or legal control or ownership of the electric utility but within a reasonable distance, as determined by the public utilities commission, of the electric utility's generation or transmission assets;

(4) Identify a means for mitigating wildfire risk that reflects a reasonable balancing of mitigation costs with the resulting reduction of wildfire risk;

(5) Identify preventive actions and programs that the electric utility shall carry out to minimize the risk of utility facilities causing wildfire;

(6) Identify the metrics the electric utility plans to use to evaluate the plan's performance and the assumptions that underlie the use of those metrics;

(7) Describe how the application of previously identified metrics to previous plan performances has informed the plan;

(8) After seeking information from state and local entities, identify a protocol for the deenergizing of power lines and adjusting of power system operations to mitigate wildfires, promote the safety of the public and first responders, and preserve health and communication infrastructure;

(9) Describe appropriate and feasible procedures for notifying a customer who may be impacted by the deenergizing of electrical lines. The procedures shall consider the need to notify, as a priority, critical first responders, health care facilities, operators of wastewater and water delivery infrastructure and operators of telecommunications infrastructure;

(10) Describe the procedures, standards, and time frames that the electric utility shall use to inspect utility infrastructure in areas that the electric utility identifies under paragraph (1), including whether those procedures, standards, and time frames are already set forth in the electric utility's existing plans or protocols and in coordination with any relevant entities;

(11) Describe the procedures, standards, and time frames that the electric utility shall use to carry out vegetation management in areas that the electric utility identifies under paragraph (1), including whether those procedures, standards, and time frames are already set forth in the electric utility's existing plans or protocols and in coordination with any relevant entities;

(12) Include a list that identifies, describes, and prioritizes all wildfire risks, and drivers for those risks, throughout the electric utility's service territory. The list shall include but not be limited to:

(A) Risks and risk drivers associated with design, construction, operation, and maintenance of the electric utility's equipment and facilities; and

(B) Particular risks and risk drivers associated with topographic and climatological risk factors throughout the different parts of the electric utility's service territory;

(13) Describe how the plan accounts for the wildfire risk identified in the electric utility's risk assessment;

(14) Describe the actions the electric utility will take to ensure its system achieves the highest level of safety, reliability, and resiliency, and to ensure that its system is prepared for a wildfire, including hardening and modernizing its infrastructure with improved engineering, system design, standards, equipment, and facilities, including but not limited to undergrounding lines, insulation of distribution wires, and pole replacement;

(15) Demonstrate that the electric utility has an adequately sized and trained workforce to promptly restore service after a wildfire, taking into account employees of other utilities pursuant to mutual aid agreements and employees of entities that have entered into contracts with the electric utility;

(16) Identify the estimated development, implementation, and administration costs for the risk-based wildfire protection plan;

(17) Identify the timelines, as applicable, for development, implementation, and administration of any aspects of the risk- based wildfire protection plan;

(18) Describe how the plan is consistent with the electric utility's other hazard mitigation and grid hardening plans, including plans to prepare for and to restore service after a wildfire including workforce mobilization and prepositioning equipment and employees;

(19) Identify community outreach and public awareness efforts that the electric utility shall use before, during, and after a wildfire;

(20) Describe the processes and procedures the electric utility shall use to do all of the following:

(A) Monitor and audit the implementation of the plan;

(B) Identify any deficiencies in the plan or the plan's implementation and correct those deficiencies; and

(C) Monitor and audit the effectiveness of electrical line and equipment inspections, including inspections performed by contractors, carried out under the plan and other applicable statutes and commission rules;

(21) Demonstrate elements of data governance, including enterprise systems; and

(22) Any modifications to the above, or other information as required by the commission.

(b) Each electric utility shall regularly submit updates to its risk-based wildfire protection plan for approval on a schedule determined by the public utilities commission.

(c) To develop the risk-based wildfire protection plan, the electric utility may consult with and consider information from federal, state, local, and other expert entities.

(d) The public utilities commission shall evaluate each electric utility's risk-based wildfire protection plan and plan updates according to the public utilities commission's rules of practice and procedure in chapter 16-601, Hawaii Administrative Rules. The public utilities commission shall authorize the department of land and natural resources and local emergency services agencies to participate in proceedings evaluating risk-based wildfire protection plans.

(e) Not more than ninety days after the last party filing, and not more than a total of one hundred eighty days after the initial application for approval of the submitted wildfire protection plan or update in the docketed proceeding, the public utilities commission shall approve, approve with conditions, or reject the plan or update based on whether the public utilities commission finds that the plan or update is based on reasonable and prudent practices and designed to meet all applicable rules and standards adopted by the public utilities commission. The public utilities commission may, in approving the plan or update with conditions, direct the electric utility to make modifications to the plan or updates that the public utilities commission believes represent a reasonable balancing of mitigation costs with the resulting reduction of wildfire risk based on the evidentiary record in the proceeding. The public utilities commission shall issue a decision explaining its determinations, including findings of fact and conclusions of law, in accordance with chapter 91.

(f) The electric utility shall track the costs that it actually incurs to develop, implement, and administer the risk-based wildfire protection plan. In the electric utility's risk-based wildfire protection plan update, the electric utility shall report on the costs as actually incurred for the most recent past period for which the information is available.

If the actual costs are less than the amounts that the public utilities commission determined were reasonable in its decision under subsection (e), the public utilities commission shall direct the electric utility to refund or credit the costs to ratepayers.

If the actual costs are equal to or greater than the amounts that the public utilities commission determined were reasonable in its decision under subsection (e), the commission shall not direct the electric utility to refund to ratepayers the amount the commission previously determined was reasonable but may disallow the recovery from ratepayers of any additional costs the commission finds unreasonable.

(g) The public utilities commission's approval of a risk-based wildfire protection plan does not by itself establish a defense to any enforcement action for violation of a public utilities commission decision, order, or rule.

(h) The public utilities commission shall, as appropriate, adopt rules or issue orders for the implementation of this section. The rules or orders may include but need not be limited to procedures and standards regarding data governance, risk-based decision-making, vegetation management, public power safety shutoffs and restorations, pole materials, circuitry, and monitoring systems.

(i) In its decision pursuant to section 269-C(e), the public utilities commission shall determine the reasonable costs to develop, implement, and administer the plan and shall authorize the electric utility to recover the costs in rates. The commission shall establish a method to authorize timely and prompt recovery of the wildfire protection costs. The commission shall establish rules for the electric utility to track actual wildfire protection costs and for the commission to authorize, as applicable, refunds or credits to ratepayers where actual wildfire protection costs are ultimately less than those the commission determined reasonable and authorized for rate recovery. To the degree actual wildfire protection costs exceed those the commission determined were reasonable and authorized for rate recovery, the commission shall authorize cost recovery in the event that it determines those additional wildfire protection costs are just and reasonable. The method established hereunder may include the issuance of bonds under section 269-D.

(j) No electric utility shall be civilly liable for the death of or injury to persons, or property damage, as a result of:

(1) Any act taken in accordance with a plan or updated plan approved by the public utilities commission under this chapter; or

(2) Any failure to take an action proposed by an electric utility in a plan or updated plan and thereafter removed from the plan by modification of the public utilities commission.

(k) There shall be no liability on the part of, and no cause of action of any nature shall arise against, the public utilities commission or its agents and employees, the State, the public utilities commission commissioners, or the commissioners' representatives for the death of or injury to persons, or property damage, for any action taken by such in the performance of their powers and duties under this chapter.

(l) Any determination by the public utilities commission that the electric utility materially failed to comply with an approved plan or part of an approved plan, and any imposition of a civil penalty, shall be inadmissible in any lawsuit or other action against the electric utility seeking compensation for the alleged death of or injury to persons, or property damage. In any action seeking to hold an electric utility civilly liable for the death of or injury to persons, or property damage, no inference of liability may be drawn solely based on a failure by the electric utility to adhere to the requirements of an approved plan.

§269-D Applications to issue bonds and authorize wildfire protection fees. (a) An electric utility or department may apply to the public utilities commission for one or more financing orders to issue bonds to recover any wildfire protection costs, each of which authorizes the following:

(1) The imposition, charging, and collection of a wildfire protection fee, to become effective upon the issuance of the bonds, and an adjustment of any wildfire protection fee in accordance with an adjustment mechanism under this part in amounts sufficient to pay the principal of and interest on bonds and all related financing costs on a timely basis; and

(2) The creation of wildfire protection property under the financing order.

(b) The application shall include all of the following:

(1) The principal amount of the bonds proposed to be issued;

(2) An estimate of the date each series of bonds is expected to be issued;

(3) The expected term, not to exceed thirty years, during which term the wildfire protection fee associated with the issuance of each series of bonds is expected to be imposed and collected;

(4) An estimate of the financing costs associated with the issuance of each series of bonds;

(5) An estimate of the amount of the wildfire protection fee revenues necessary to pay principal and interest on the bonds and related financing costs as set forth in the application and the calculation for that estimate;

(6) A proposed methodology for allocating the wildfire protection fee among customer classes within the financing entity;

(7) A description of a proposed formulaic adjustment mechanism for the adjustment of the wildfire protection fee to correct for any overcollection or undercollection of the wildfire protection fee, and to otherwise ensure the timely payment of principal and interest on the bonds and related financing costs; and

(8) Any other information required by the public utilities commission.

(c) The public utilities commission shall issue an approval or denial of any application for a financing order filed pursuant to this section within ninety days of the last filing in the applicable docket.

(d) In exercising its duties under this section, the public utilities commission shall consider:

(1) Whether the wildfire protection costs to be financed by any bonds to be issued are just and reasonable;

(2) Whether the costs are consistent with the public interest;

(3) Whether the terms and conditions of any bonds to be issued are just and reasonable;

(4) Whether the immediate ratepayer bill impact of any financing order is minimized to the furthest extent practicable; and

(5) Any other factors that the public utilities commission deems reasonable and in the public interest.

§269-E Wildfire protection plan financing order. (a) A financing order shall remain in effect until the bonds issued under the financing order and all financing costs related to the bonds have been paid in full or defeased by their terms. A financing order shall remain in effect and unabated notwithstanding the bankruptcy, reorganization, or insolvency of the electric utility or the commencement of any judicial or nonjudicial proceeding on the financing order.

(b) Once a financing order has become final as provided by law, the financing order shall become irrevocable. The public utilities commission may not directly or indirectly, except as provided in the adjustment mechanism approved in the financing order, reduce, impair, postpone, rescind, alter, or terminate the wildfire protection plan fee authorized in the financing order or impair the wildfire protection property or the collection of the wildfire protection plan fee so long as any bonds are outstanding or any financing costs remain unpaid.

(c) Under a final financing order, the electric utility shall retain sole discretion to cause bonds to be issued, including the right to defer or postpone the issuance, assignment, sale, or transfer.

(d) The public utility may sell and assign all or portions of its interest in wildfire protection property to one or more financing entities that make that wildfire protection property the basis for issuance of bonds, to the extent approved in a financing order. The public utility or financing entity may pledge wildfire protection property as collateral, directly or indirectly, for bonds to the extent approved in the pertinent financing orders providing for a security interest in the wildfire protection property, in the manner set forth in section 269-G. In addition, wildfire protection property may be sold or assigned by either of the following:

(1) The financing entity or a trustee for the holders of bonds or the holders of an ancillary agreement in connection with the exercise of remedies upon a default; or

(2) Any person acquiring the wildfire protection property after a sale or assignment pursuant to this chapter.

§269-F Wildfire protection fee. (a) The public utilities commission may create, pursuant to a financing order approved pursuant to section 269-E, a nonbypassable surcharge for a financing entity, referred to as a wildfire protection fee that shall be applied to the repayment of bonds and related financing costs as described in this part. The wildfire protection fee may be a usage-based surcharge, a flat user fee, or a charge based upon customer revenues as determined by the public utilities commission for each customer class in any financing order.

(b) As long as any bonds are outstanding and any financing costs have not been paid in full, any wildfire protection fee authorized under a financing order shall be nonbypassable. Subject to any exceptions provided in a financing order, a wildfire protection fee shall be paid by all existing and future customers of a financing entity or any successors.

(c) The wildfire protection plan fee shall be collected by a financing entity or its successors, in accordance with section 269-F(a), in full through a surcharge, fee, or charge that is separate and apart from the financing entity's rates.

(d) A financing entity may exercise the same rights and remedies under its tariff and applicable law and regulation based on a customer's nonpayment of the wildfire protection plan fee as it could for a customer's failure to pay any other charge payable to that public utility.

(e) Absent a financing order, the public utilities commission may create, pursuant to an application from an electric utility, a nonbypassable surcharge referred to as a wildfire protection fee, which shall be applied to recover financing costs and wildfire protection costs. The wildfire protection fee shall be a dedicated, discrete tariff rider. The costs shall be reconciled and adjusted on a yearly basis via a yearly informational filing with the public utilities commission and shall go into effect thirty days after the yearly filing.

§269-G Security interests in wildfire protection property; financing statements. (a) A security interest in wildfire protection property is valid and enforceable against the pledgor and third parties, subject to the rights of any third parties holding security interests in the wildfire protection property perfected in the manner described in this section, and attaches when all of the following have taken place:

(1) The public utilities commission has issued a financing order authorizing the wildfire protection fee included in the wildfire protection property;

(2) Value has been given by the pledgees of the wildfire protection property; and

(3) The pledgor has signed a security agreement covering the wildfire protection property.

(b) A valid and enforceable security interest in wildfire protection property is perfected when it has attached and when a financing statement has been filed naming the pledgor of the wildfire protection property as "debtor" and identifying the wildfire protection property.

Any description of the wildfire protection property shall be sufficient if it refers to the financing order creating the wildfire protection property. A copy of the financing statement shall be filed with the public utilities commission by the public utility that is the pledgor or transferor of the wildfire protection property, and the public utilities commission may require the public utility to make other filings with respect to the security interest in accordance with procedures that the commission may establish; provided that the filings shall not affect the perfection of the security interest.

(c) A perfected security interest in wildfire protection property shall be a continuously perfected security interest in all wildfire protection property revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting security interests shall rank according to priority in time of perfection. Wildfire protection property shall constitute property for all purposes, including for contracts securing bonds, whether or not the wildfire protection property revenues and proceeds have accrued.

(d) Subject to the terms of the security agreement covering the wildfire protection property and the rights of any third parties holding security interests in the wildfire protection property perfected in the manner described in this section, the validity and relative priority of a security interest created under this section shall not be defeated or adversely affected by the commingling of revenues arising with respect to the wildfire protection property with other funds of the public utility that is the pledgor or transferor of the wildfire protection property, or by any security interest in a deposit account of that public utility perfected under article 490:9, into which the revenues are deposited.

Subject to the terms of the security agreement, upon compliance with the requirements of section 490:9-312(b)(1), the pledgees of the wildfire protection property shall have a perfected security interest in all cash and deposit accounts of the electrical corporation in which wildfire protection property revenues have been commingled with other funds; provided that the perfected security interest shall be limited to an amount not greater than the amount of the wildfire protection property revenues received by the public utility within twelve months before:

(1) Any default under the security agreement; or

(2) The institution of insolvency proceedings by or against the public utility, less payments from the revenues to the pledgees during that twelve-month period.

(e) If default occurs under the security agreement covering the wildfire protection property, the pledgees of the wildfire protection property, subject to the terms of the security agreement, shall have all rights and remedies of a secured party upon default under chapter 490, article 9, and shall be entitled to foreclose or otherwise enforce their security interest in the wildfire protection property, subject to the rights of any third parties holding prior security interests in the wildfire protection property perfected in the manner provided in this section. In addition, the public utilities commission may require in the financing order creating the wildfire protection property that, in the event of default by the electrical corporation in payment of wildfire protection property revenues, the commission and any successor thereto, upon the application by the pledgees or transferees, including transferees of the wildfire protection property, under section 269-H, and without limiting any other remedies available to the pledgees or transferees by reason of the default, shall order the sequestration and payment to the pledgees or transferees of wildfire protection property revenues. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, or transferor of the wildfire protection property. Any surplus in excess of amounts necessary to pay principal, premiums, if any, interest, costs, and arrearages on the bonds, and associated financing costs arising under the security agreement, shall be remitted to the debtor or to the pledgor or transferor.

(f) Sections 490:9-204 and 490:9-205 shall apply to a pledge of wildfire protection property by the public utility, an affiliate of the public utility, or a financing entity.

(g) This section sets forth the terms by which a consensual security interest shall be created and perfected in the wildfire protection property. Unless otherwise ordered by the public utilities commission with respect to any series of bonds on or before the issuance of the series, there shall exist a statutory lien as provided in this subsection. Upon the effective date of the financing order, there shall exist a first priority lien on all wildfire protection property then existing or thereafter arising pursuant to the terms of the financing order. This lien shall arise by operation of this section automatically without any action on the part of the public utility, any affiliate thereof, the financing entity, or any other person. This lien shall secure all obligations, then existing or subsequently arising, to the holders of the bonds issued pursuant to the financing order, the trustee or representative for the holders, and any other entity specified in the financing order. The persons for whose benefit this lien is established shall, upon the occurrence of any defaults specified in the financing order, have all rights and remedies of a secured party upon default under chapter 409, article 9, and are entitled to foreclose or otherwise enforce this statutory lien in the wildfire protection property. This lien shall attach to the wildfire protection property regardless of who owns, or is subsequently determined to own, the wildfire protection property, including the public utility, any affiliate thereof, the financing entity, or any other person. This lien shall be valid, perfected, and enforceable against the owner of the wildfire protection property and all third parties upon the effectiveness of the financing order without any further public notice; provided that any person may file a financing statement in accordance with this section. Financing statements filed may be "protective filings" and shall not be evidence of the ownership of the wildfire protection property.

A perfected statutory lien in wildfire protection property is a continuously perfected lien in all wildfire protection property revenues and proceeds, whether or not the revenues or proceeds have accrued.

Conflicting liens shall rank according to priority in time of perfection. Wildfire protection property shall constitute property for all purposes, including for contracts securing bonds, whether or not the wildfire protection property revenues and proceeds have accrued.

In addition, the public utilities commission may require, in the financing order creating the wildfire protection property, that, in the event of default by the public utility in the payment of wildfire protection property revenues, the commission and any successor thereto, upon the application by the beneficiaries of the statutory lien, and without limiting any other remedies available to the beneficiaries by reason of the default, shall order the sequestration and payment to the beneficiaries of wildfire protection property revenues. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor. Any surplus in excess of amounts necessary to pay principal, premiums, if any, interest, costs, and arrearages on the bonds, and other costs arising in connection with the documents governing the bonds, shall be remitted to the debtor.

§269-H Transfers of wildfire protection property. (a) A transfer of wildfire protection property by the public utility to an affiliate or to a financing entity, or by an affiliate of the public utility or a financing entity to another financing entity, which the parties in the governing documentation have expressly stated to be a sale or other absolute transfer, in a transaction approved in a financing order, shall be treated as an absolute transfer of all of the transferor's right, title, and interest, as in a true sale, and not as a pledge or other financing, of the wildfire protection property, other than for federal and state income and franchise tax purposes.

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

(1) Commingling of wildfire protection fee revenues with other amounts;

(2) The retention by the seller of either of the following:

(A) A partial or residual interest, including an equity interest, in the financing entity or the wildfire protection property, whether direct or indirect, subordinate or otherwise; or

(B) The right to recover costs associated with taxes, franchise fees, or license fees imposed on the collection of wildfire protection fee;

(3) Any recourse that the purchaser may have against the seller;

(4) Any indemnification rights, obligations, or repurchase rights made or provided by the seller;

(5) The obligation of the seller to collect wildfire protection fee on behalf of an assignee;

(6) The treatment of the sale, assignment, or transfer for tax, financial reporting, or other purpose; or

(7) Any true-up adjustment of the wildfire protection fee as provided in the financing order.

(c) A transfer of wildfire protection property shall be deemed perfected against third persons when both of the following occur:

(1) The public utilities commission issues the financing order authorizing the wildfire protection fee included in the wildfire protection property; and

(2) An assignment of the wildfire protection property in writing has been executed and delivered to the transferee.

(d) As between bona fide assignees of the same right for value without notice, the assignee first filing a financing statement in accordance with chapter 409, article 9, part 5, naming the assignor of the wildfire protection property as debtor and identifying the wildfire protection property shall have priority. Any description of the wildfire protection property shall be sufficient if it refers to the financing order creating the wildfire protection property. A copy of the financing statement shall be filed by the assignee with the public utilities commission, and the commission may require the assignor or the assignee to make other filings with respect to the transfer in accordance with procedures that the commission may establish, but these filings shall not affect the perfection of the transfer.

§269-I Financing entity successor requirements; default of financing entity. (a) Any successor to an electric utility subject to a financing order shall be bound by the requirements of this part. The successor of the electric utility shall perform and satisfy all obligations of the electric utility under the financing order, in the same manner and to the same extent as the electric utility, including the obligation to collect and pay the wildfire protection plan fee to any financing party as required by a financing order.

(b) The public utilities commission may require in a financing order that, if a default by the electric utility in remittance of the wildfire protection plan fee collected arising with respect to wildfire protection property occurs, the public utilities commission, without limiting any other remedies available to any financing party by reason of the default, shall order the sequestration and payment to the beneficiaries of the wildfire protection plan fee collected arising with respect to the wildfire protection plan property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the electric utility.

§269-J Treatment of bonds, fees, and property. (a) Neither financing orders nor bonds issued under this part shall constitute a debt or liability of the State or of any political subdivision thereof, nor shall they constitute a pledge of the full faith and credit of the State or any of its political subdivisions, but are payable solely from the funds provided therefor under this part. All bonds shall contain on the face thereof a statement to the following effect: "Neither the full faith and credit nor the taxing power of the State of Hawaii is pledged to the payment of the principal of, or interest on, this bond."

(b) The issuance of bonds under this part shall not directly, indirectly, or contingently obligate the State or any political subdivision thereof to levy or pledge any form of taxation or to make any appropriation for their payment.

§269-K Recovery bonds; issuance; recovery property interests. (a) The financing entity may issue recovery bonds upon approval by the public utilities commission in a financing order. Recovery bonds shall be nonrecourse to the credit or any assets of the public utility, other than the recovery property as specified in that financing order.

(b) The public utility may sell and assign all or portions of its interest in recovery property to one or more financing entities that make that recovery property the basis for issuance of recovery bonds, to the extent approved in a financing order. The public utility or financing entity may pledge recovery property as collateral, directly or indirectly, for recovery bonds to the extent approved in the pertinent financing orders providing for a security interest in the recovery property, in the manner set forth in section 269-L. In addition, recovery property may be sold or assigned by either of the following:

(1) The financing entity or a trustee for the holders of recovery bonds or the holders of an ancillary agreement in connection with the exercise of remedies upon a default; or

(2) Any person acquiring the recovery property after a sale or assignment pursuant to this chapter.

(c) To the extent that any interest in recovery property is sold, assigned, or is pledged as collateral pursuant to subsection (b), the public utilities commission shall authorize the public utility to contract with the financing entity that it shall continue to operate its system to provide service to consumers within its service territory, shall collect amounts in respect of the fixed recovery charges for the benefit and account of the financing entity, and shall account for and remit these amounts to or for the account of the financing entity. Contracting with the financing entity in accordance with that authorization shall not impair or negate the characterization of the sale, assignment, or pledge as an absolute transfer, a true sale, or a security interest, as applicable. To the extent that billing, collection, and other related services with respect to the provision of the public utility's services are provided to a consumer by any person or entity other than the public utility in whose service territory the consumer is located, that person or entity shall collect the fixed recovery charges and any associated fixed recovery tax amounts from the consumer for the benefit and account of the public utility or financing entity with the associated revenues remitted solely for the benefit and repayment of the recovery bonds and associated financing costs as a condition to the provision of electric service to that consumer. Each financing order shall impose terms and conditions, consistent with the purposes and objectives of this chapter, on any person or entity responsible for billing, collection, and other related services, including without limitation collection of the fixed recovery charges and any associated fixed recovery tax amounts, that are the subject of the financing order.

(d) Recovery property that is specified in a financing order shall constitute an existing, present property right, notwithstanding the fact that the imposition and collection of fixed recovery charges depend on the public utility continuing to provide services or continuing to perform its servicing functions relating to the collection of fixed recovery charges or on the level of future service consumption, e.g., electricity consumption. Recovery property shall exist whether or not the fixed recovery charges have been billed, have accrued, or have been collected and notwithstanding the fact that the value for a security interest in the recovery property, or amount of the recovery property, is dependent on the future provision of service to consumers. All recovery property specified in a financing order shall continue to exist until the recovery bonds issued pursuant to a financing order and all associated financing costs are paid in full.

(e) Recovery property, fixed recovery charges, and the interests of an assignee, bondholder or financing entity, or any pledgee in recovery property and fixed recovery charges shall not be subject to setoff, counterclaim, surcharge, recoupment, or defense by the public utility or any other person or in connection with the bankruptcy, reorganization, or other insolvency proceeding of the public utility, any affiliate of the public utility, or any other entity.

(f) Notwithstanding any other law to the contrary, any requirement under this chapter or a financing order that the public utilities commission takes action with respect to the subject matter of a financing order shall be binding upon the commission, as it may be constituted from time to time, and any successor agency exercising functions similar to the commission, and the commission shall have no authority to rescind, alter, or amend that requirement in a financing order.

§269-L Security interests in recovery property; financing statements. (a) A security interest in recovery property is valid, enforceable against the pledgor and third parties, subject to the rights of any third parties holding security interests in the recovery property perfected in the manner described in this section, and attaches when all of the following have taken place:

(1) The public utilities commission has issued a financing order authorizing the fixed recovery charges included in the recovery property;

(2) Value has been given by the pledgees of the recovery property; and

(3) The pledgor has signed a security agreement covering the recovery property.

(b) A valid and enforceable security interest in recovery property is perfected when it has attached and when a financing statement has been filed naming the pledgor of the recovery property as "debtor" and identifying the recovery property. Any description of the recovery property shall be sufficient if it refers to the financing order creating the recovery property. A copy of the financing statement shall be filed with the public utilities commission by the public utility that is the pledgor or transferor of the recovery property, and the public utilities commission may require the public utility to make other filings with respect to the security interest in accordance with procedures it may establish; provided that the filings shall not affect the perfection of the security interest.

(c) A perfected security interest in recovery property shall be a continuously perfected security interest in all recovery property revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting security interests shall rank according to priority in time of perfection. Recovery property shall constitute property for all purposes, including for contracts securing recovery bonds, whether or not the recovery property revenues and proceeds have accrued.

(d) Subject to the terms of the security agreement covering the recovery property and the rights of any third parties holding security interests in the recovery property perfected in the manner described in this section, the validity and relative priority of a security interest created under this section shall not be defeated or adversely affected by the commingling of revenues arising with respect to the recovery property with other funds of the public utility that is the pledgor or transferor of the recovery property, or by any security interest in a deposit account of that public utility perfected under article 9 of chapter 490, into which the revenues are deposited. Subject to the terms of the security agreement, upon compliance with the requirements of section 490:9-312(b)(1), the pledgees of the recovery property shall have a perfected security interest in all cash and deposit accounts of the electrical corporation in which recovery property revenues have been commingled with other funds; provided that the perfected security interest shall be limited to an amount not greater than the amount of the recovery property revenues received by the public utility within twelve months before (1) any default under the security agreement, or (2) the institution of insolvency proceedings by or against the public utility, less payments from the revenues to the pledgees during that twelve-month period.

(e) If default occurs under the security agreement covering the recovery property, the pledgees of the recovery property, subject to the terms of the security agreement, shall have all rights and remedies of a secured party upon default under article 9 of chapter 490, and shall be entitled to foreclose or otherwise enforce their security interest in the recovery property, subject to the rights of any third parties holding prior security interests in the recovery property perfected in the manner provided in this section. In addition, the public utilities commission may require in the financing order creating the recovery property that, in the event of default by the electrical corporation in payment of recovery property revenues, the public utilities commission and any successor thereto, upon the application by the pledgees or transferees, including transferees under section 269-M of the recovery property, and without limiting any other remedies available to the pledgees or transferees by reason of the default, shall order the sequestration and payment to the pledgees or transferees of recovery property revenues. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, or transferor of the recovery property. Any surplus in excess of amounts necessary to pay principal, premiums, if any, interest, costs, and arrearages on the recovery bonds, and associated financing costs arising under the security agreement, shall be remitted to the debtor or to the pledgor or transferor.

(f) Sections 490:9-204 and 490:9-205 shall apply to a pledge of recovery property by the public utility, an affiliate of the public utility, or a financing entity.

(g) This section sets forth the terms by which a consensual security interest shall be created and perfected in the recovery property. Unless otherwise ordered by the public utilities commission with respect to any series of recovery bonds on or prior to the issuance of the series, there shall exist a statutory lien as provided in this subsection. Upon the effective date of the financing order, there shall exist a first priority lien on all recovery property then existing or thereafter arising pursuant to the terms of the financing order. This lien shall arise by operation of this section automatically without any action on the part of the public utility, any affiliate thereof, the financing entity, or any other person. This lien shall secure all obligations, then existing or subsequently arising, to the holders of the recovery bonds issued pursuant to the financing order, the trustee or representative for the holders, and any other entity specified in the financing order. The persons for whose benefit this lien is established shall, upon the occurrence of any defaults specified in the financing order, have all rights and remedies of a secured party upon default under article 9 of chapter 490, and are entitled to foreclose or otherwise enforce this statutory lien in the recovery property. This lien shall attach to the recovery property regardless of who owns, or is subsequently determined to own, the recovery property, including the public utility, any affiliate thereof, the financing entity, or any other person. This lien shall be valid, perfected, and enforceable against the owner of the recovery property and all third parties upon the effectiveness of the financing order without any further public notice; provided that any person may file a financing statement in accordance with this section. Financing statements so filed may be "protective filings" and shall not be evidence of the ownership of the recovery property.

A perfected statutory lien in recovery property is a continuously perfected lien in all recovery property revenues and proceeds, whether or not the revenues or proceeds have accrued.

Conflicting liens shall rank according to priority in time of perfection. Recovery property shall constitute property for all purposes, including for contracts securing recovery bonds, whether or not the recovery property revenues and proceeds have accrued.

In addition, the public utilities commission may require, in the financing order creating the recovery property, that, in the event of default by the public utility in the payment of recovery property revenues, the public utilities commission and any successor thereto, upon the application by the beneficiaries of the statutory lien, and without limiting any other remedies available to the beneficiaries by reason of the default, shall order the sequestration and payment to the beneficiaries of recovery property revenues. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor. Any surplus in excess of amounts necessary to pay principal, premiums, if any, interest, costs, and arrearages on the recovery bonds, and other costs arising in connection with the documents governing the recovery bonds, shall be remitted to the debtor.

§269-M Transfers of recovery property. (a) A transfer of recovery property by the public utility to an affiliate or to a financing entity, or by an affiliate of the public utility or a financing entity to another financing entity, which the parties in the governing documentation have expressly stated to be a sale or other absolute transfer, in a transaction approved in a financing order, shall be treated as an absolute transfer of all of the transferor's right, title, and interest, as in a true sale, and not as a pledge or other financing, of the recovery property, other than for federal and state income and franchise tax purposes.

(1) Commingling of fixed recovery charge revenues with other amounts;

(2) The retention by the seller of either of the following:

(A) A partial or residual interest, including an equity interest, in the financing entity or the recovery property, whether direct or indirect, subordinate or otherwise; or

(B) The right to recover costs associated with taxes, franchise fees, or license fees imposed on the collection of fixed recovery charges;

(3) Any recourse that the purchaser may have against the seller;

(4) Any indemnification rights, obligations, or repurchase rights made or provided by the seller;

(5) The obligation of the seller to collect fixed recovery charges on behalf of an assignee;

(6) The treatment of the sale, assignment, or transfer for tax, financial reporting, or other purpose; or

(7) Any true-up adjustment of the fixed recovery charges as provided in the financing order.

(1) The public utilities commission issues the financing order authorizing the fixed recovery charges included in the recovery property; and

(2) An assignment of the recovery property in writing has been executed and delivered to the transferee.

(d) As between bona fide assignees of the same right for value without notice, the assignee first filing a financing statement in accordance with part 5 of article 9 of chapter 490, naming the assignor of the recovery property as debtor and identifying the recovery property shall have priority. Any description of the recovery property shall be sufficient if it refers to the financing order creating the recovery property. A copy of the financing statement shall be filed by the assignee with the public utilities commission, and the commission may require the assignor or the assignee to make other filings with respect to the transfer in accordance with procedures it may establish, but these filings shall not affect the perfection of the transfer.

§269-N Severability. If any provision of this part is held to be invalid or is superseded, replaced, repealed, or expires for any reason:

(1) That occurrence shall not affect any action allowed under this part that is taken before that occurrence by the public utilities commission, a financing entity, a bondholder, or any financing party, and any the action shall remain in full force and effect; and

(2) The validity and enforceability of the rest of this part shall remain unaffected."

SECTION 3. Chapter 269-17, Hawaii Revised Statutes, is amended to read as follows:

"§269-17 Issuance of securities. A public utility corporation may, on securing the prior approval of the public utilities commission, and not otherwise, except as provided in section 269-D, issue stocks and stock certificates, bonds, notes, and other evidences of indebtedness, payable at periods of more than twelve months after the date thereof, for the following purposes and no other, namely: for the acquisition of property or for the construction, completion, extension, or improvement of or addition to its facilities or service, or for the discharge or lawful refunding of its obligations or for the reimbursement of moneys actually expended from income or from any other moneys in its treasury not secured by or obtained from the issue of its stocks or stock certificates, [or] bonds, notes, or other evidences of indebtedness, for any of the aforesaid purposes except maintenance of service, replacements, and substitutions not constituting capital expenditure in cases where the corporation has kept its accounts for [~~such~~] expenditures in [~~such~~] a manner as to enable the commission to ascertain the amount of moneys so expended and the purposes for [~~which~~] that the expenditures were made, and the sources of the funds in its treasury applied to the expenditures. As used herein, "property" and "facilities", mean property and facilities used in all operations of a public utility corporation whether or not included in its public utility operations or rate base. A public utility corporation may not issue securities to acquire property or to construct, complete, extend, [or] improve, or add to its facilities or service if the commission determines that the proposed purpose [~~will~~] shall have a material adverse effect on its public utility operations.

All stock and every stock certificate, and every bond, note, or other evidence of indebtedness of a public utility corporation not payable within twelve months, issued without an order of the commission authorizing the same, then in effect, shall be void."

SECTION 4. Each electric utility shall file its first risk-based wildfire protection plan with the public utilities commission required under section 269-B, Hawaii Revised Statutes, established by section 2 of this Act, no later than December 31, 2024.

SECTION 5. Notwithstanding the provisions of Act 262, Session Laws of Hawaii 2023, the legislature authorizes the issuance of special purpose revenue bonds for wildfire risk migration purposes that requires an allocation of the annual state ceiling under section 39B-2, Hawaii Revised Statutes, for the period July 1, 2024, through December 31, 2028.

SECTION 6. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 7. In codifying the new part added to chapter 269, Hawaii Revised Statutes, by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating and referring to the new sections in this Act.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect upon its approval.

Report Title:

Wildfires; Mitigation; Protection; Public Utilities Commission; Electric Utilities; Securitization; Risk Protection Plans

Description:

Creates a process for electric utilities to develop and submit wildfire protection plans to the Public Utilities Commission for approval and allow the recovery of related costs and expenses through securitization, while avoiding a disproportionate impact on a specific ratepayer or county. (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.