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TITLE 16ECONOMIC REGULATION
PART 2PUBLIC UTILITY COMMISSION OF TEXAS
CHAPTER 25SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS
SUBCHAPTER LNUCLEAR DECOMMISSIONING
RULE §25.304Nuclear Decommissioning Funding and Requirements for Power Generation Companies

    (A) The parent or supporting corporation, or PGC must have:

      (i) Tangible net worth of at least 10 times the state assurance amount, excluding the net book value of the nuclear units subject to the state assurance obligation;

      (ii) Tangible net worth of at least $500 million;

      (iii) Net working capital of at least 10 times the annual decommissioning funding amount; and

      (iv) Assets located in the United States amounting to at least 90% of the total assets or at least 10 times the state assurance amount.

    (B) The parent or supporting corporation, or PGC must be otherwise financially qualified, based upon a finding by the commission that there is reasonable assurance that the parent or supporting corporation will be able to meet its obligations under the guarantee or other agreement.

  (3) A PGC may satisfy the state assurance obligation by providing an adequate surety, insurance, or other guarantee method that meets the following minimum requirements:

    (A) A guarantee that the state assurance obligation will be paid to the PGC decommissioning trust upon any default by the PGC in satisfying its annual funding obligation.

    (B) A surety method may be in the form of a surety bond, letter of credit, or line of credit. Any surety method or insurance used to satisfy the state assurance obligation must contain the following conditions:

      (i) The surety method or insurance must be open-ended, or, if written for a specified term, such as five years, must be renewed automatically, unless 90 days or more prior to the renewal day the issuer notifies the commission and the PGC of its intention not to renew. The surety or insurance must also provide that the full face amount will be paid to the PGC decommissioning trust automatically prior to the expiration without proof of forfeiture if the PGC fails to provide a replacement acceptable to the commission within 30 days after receipt of notification of cancellation.

      (ii) The issuer must have a minimum rating of A- by Standard and Poor's Corporation, A3 by Moody's Investor's Service or the equivalent rating from A.M. Best.

      (iii) The surety or insurance must be payable to the PGC decommissioning trust.

  (4) A PGC may satisfy the state assurance obligation using any other method acceptable to the commission considering the relative risk factors and creditworthiness attributes of the applicant's financial characteristics to minimize exposure of retail electric customers to default by power generation companies.

  (5) A PGC shall notify the commission within 10 days of the date of any material change in its ability to meet its state assurance obligation and provide a plan to cure any deficiency if the material change results in a PGC's inability to meet the state assurance obligation. Upon receipt of such notice, the commission may initiate a formal proceeding to review the PGC's ability to meet the state assurance obligation, or take any other action it deems appropriate. The PGC shall provide any information required to conduct the review in accordance with the commission's procedural rules.

(l) Annual Funding Obligation. A PGC using a PGC decommissioning trust shall remit annually to the fund the most recent annual decommissioning funding amount required by the commission. A PGC shall make periodic payments according to a schedule submitted to the commission and shall notify the trustee of the decommissioning trust and the commission within 10 days of the date of any failure to make a scheduled payment. The commission shall not consider a PGC to be in default of its annual funding obligation unless it fails to remit the necessary amounts within 60 days of notice of potential default. If a PGC is in default of its annual funding obligation, it shall notify the trustee of the decommissioning trust and the commission within 10 days of the date of the default. If the PGC fails to cure its failure to make scheduled payment within 60 days of the commission notice, the commission may direct the trustee to request that any entity providing state assurance remit annually to the fund the most recent annual decommissioning funding amount required by the commission in accordance with the schedule approved by the commission, including any payments that the PGC has failed to make, until the PGC is not in default or until the assurance is depleted.

(m) Funding Shortfall and Unspent Funds.

  (1) If the PGC fails to meet its annual funding requirements and if the state assurance obligations are insufficient to meet the annual funding obligations or are otherwise not honored, the commission shall determine the manner in which any shortfall in the cost of decommissioning a nuclear generating unit shall be recovered from retail electric customers in the state. For retail electric customers of a municipally-owned utility or an electric cooperative that has an agreement to purchase power from a nuclear generating unit, the amount of the shortfall in the cost of decommissioning the nuclear generating unit that the customers are responsible for is limited to a portion of that shortfall that bears the same proportion to the total shortfall as the amount of electric power generated by the nuclear generating unit and purchased by the municipally-owned utility or electric cooperative bears to the total amount of power generated by the nuclear generating unit.

  (2) Decommissioning funds that remain unspent after decommissioning of the nuclear generating unit is complete shall be returned to the PGC and the retail electric customers based on the proportionate amount, in real terms, that the PGC and retail electric customers paid into the fund.

  (3) While the nuclear generating unit is operational, as a condition of operating the generating unit, the PGC or any new owner shall repay the costs the electric customers incurred in a manner determined by the commission. The PGC shall be responsible for accounting for the need for repayment of any decommissioning shortfall amounts paid by customers and shall report such amounts pursuant to subsection (g) of this section. The PGC shall submit a proposal to repay shortfall amounts paid by customers pursuant to subsection (h) of this section. The commission shall review this information using the procedure described in subsection (e) of this section.

(n) Administration of the PGC Decommissioning Trust Funds.

  (1) The PGC shall assure that the PGC decommissioning trust is managed so that the funds are secure and earn a reasonable return; and that the funds provided from the PGC's operating revenues, plus the amounts earned from investment of the funds, will be available at the time of decommissioning.

  (2) The PGC shall appoint an institutional trustee and may appoint one or more investment managers. Unless otherwise specified in this section, the Texas Trust Code controls the administration and management of the PGC decommissioning trusts, except that the appointed trustees need not be qualified to exercise trust powers in Texas.

  (3) The PGC shall retain the right to replace the trustee with or without cause. In appointing a trustee, the PGC shall have the following duties, which will be of a continuing nature:

    (A) A duty to determine whether the trustee's fee schedule for administering the trust is reasonable, when compared to other institutional trustees rendering similar services, and meets the requirement of this section;

    (B) A duty to investigate and determine whether the past administration of trusts by the trustee has been reasonable;

    (C) A duty to investigate and determine whether the financial stability and strength of the trustee is adequate;

    (D) A duty to investigate and determine whether the trustee has complied with the trust agreement and this section as it relates to trustees; and

    (E) A duty to investigate any other factors that may bear on whether the trustee is suitable.

  (4) The PGC shall retain the right to replace the investment manager with or without cause. In appointing an investment manager, the PGC shall have the following duties, which will be of a continuing nature:

    (A) A duty to determine whether the investment manager's fee schedule for investment management services is reasonable, when compared to other such managers, and meets the requirement of this section;

    (B) A duty to investigate and determine whether the past performance of the investment manager in managing investments has been reasonable;

    (C) A duty to investigate and determine whether the financial stability and strength of the investment manager is adequate for purposes of liability;

    (D) A duty to investigate and determine whether the investment manager has complied with the investment management agreement and this section as it relates to investments; and

    (E) A duty to investigate any other factors which may bear on whether the investment manager is suitable.

  (5) The PGC shall execute an agreement with the institutional trustee. The agreement shall be consistent with this section and may include additional restrictions on the trustee. A PGC shall not grant the trustee powers that are greater than those provided to trustees under the Texas Trust Code or that are inconsistent with the limitations of this section. The agreement shall include the restrictions set forth in this section and may include additional restrictions on the trustee.

    (A) The interest or other earnings of the trust become part of the trust corpus.

    (B) A trustee owes the same duties with regard to the interest and other earnings of the trust as are owed with regard to the corpus of the trust.

    (C) A trustee shall have a continuing duty to review the trust portfolio for compliance with investment guidelines and governing regulations.

    (D) A trustee shall not lend funds from the PGC decommissioning trust to itself, its officers, or its directors.

    (E) A trustee shall not invest or reinvest PGC decommissioning trusts in instruments issued by the trustee, except for time deposits, demand deposits, or money market accounts of the trustee. However, investments of a PGC decommissioning trust may include mutual funds that contain securities issued by the trustee if the securities of the trustee constitute no more than 5% of the fair market value of the assets of such mutual funds at the time of the investment.

    (F) The agreement shall comply with all applicable requirements of the federal Nuclear Regulatory Commission.

  (6) The PGC shall execute an agreement with the investment manager. If the trustee performs investment management functions, the contractual provisions governing those functions must be included in either the trust agreement or a separate investment management agreement. A PGC shall not grant the manager powers that are greater than those provided to trustees under the Texas Trust Code or that are inconsistent with the limitations of this section. The agreement shall include the restrictions set forth in this section and may include additional restrictions on the manager.

    (A) An investment manager shall, in investing and reinvesting the funds in the trust, comply with this section.

    (B) The interest and other earnings of the trust become part of the trust corpus.

    (C) An investment manager owes the same duties with regard to the interest and other earnings of the trust as are owed with regard to the corpus of the trust.

    (D) An investment manager shall have a continuing duty to review the trust portfolio to determine the appropriateness of the investments.

    (E) An investment manager shall not invest funds from the PGC decommissioning trust with itself, its officers, or its directors.

    (F) The agreement shall comply with all applicable requirements of the federal Nuclear Regulatory Commission.

  (7) Prior to executing an amended agreement with the institutional trustee or investment managers, the proposed amended agreement shall be filed at the commission for review along with a redlined version showing all changes made since the document was reviewed by the commission, and copies shall be provided to the commission's Legal Division and Rate Regulation Division or successor divisions.

  (8) A copy of the trust agreement, any investment management agreement, and any amendments shall be filed with the commission within 30 days after the execution or modification of the agreement, and copies shall be provided to appropriate commission staff and the Office of Public Utility Counsel.

(o) Trust investments.

  (1) The funds in a PGC decommissioning trust should be invested consistent with the following goals. The PGC may apply additional prudent investment goals to the funds so long as they are not inconsistent with the stated goals of this subsection.

    (A) The funds should be invested with a goal of earning a reasonable return commensurate with the need to preserve the value of the assets of the trusts.

    (B) In keeping with prudent investment practices, the portfolio of securities held in the PGC decommissioning trust shall be diversified to the extent reasonably feasible given the size of the trust.

Cont'd...

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