| (E) A duty to investigate any other factors which may
bear on whether the investment manager is suitable.
(5) The PGC shall execute an agreement with the institutional
trustee. The agreement shall be consistent with this section and may
include additional restrictions on the trustee. A PGC shall not grant
the trustee powers that are greater than those provided to trustees
under the Texas Trust Code or that are inconsistent with the limitations
of this section. The agreement shall include the restrictions set
forth in this section and may include additional restrictions on the
trustee.
(A) The interest or other earnings of the trust become
part of the trust corpus.
(B) A trustee owes the same duties with regard to the
interest and other earnings of the trust as are owed with regard to
the corpus of the trust.
(C) A trustee shall have a continuing duty to review
the trust portfolio for compliance with investment guidelines and
governing regulations.
(D) A trustee shall not lend funds from the PGC decommissioning
trust to itself, its officers, or its directors.
(E) A trustee shall not invest or reinvest PGC decommissioning
trusts in instruments issued by the trustee, except for time deposits,
demand deposits, or money market accounts of the trustee. However,
investments of a PGC decommissioning trust may include mutual funds
that contain securities issued by the trustee if the securities of
the trustee constitute no more than 5% of the fair market value of
the assets of such mutual funds at the time of the investment.
(F) The agreement shall comply with all applicable
requirements of the federal Nuclear Regulatory Commission.
(6) The PGC shall execute an agreement with the investment
manager. If the trustee performs investment management functions,
the contractual provisions governing those functions must be included
in either the trust agreement or a separate investment management
agreement. A PGC shall not grant the manager powers that are greater
than those provided to trustees under the Texas Trust Code or that
are inconsistent with the limitations of this section. The agreement
shall include the restrictions set forth in this section and may include
additional restrictions on the manager.
(A) An investment manager shall, in investing and reinvesting
the funds in the trust, comply with this section.
(B) The interest and other earnings of the trust become
part of the trust corpus.
(C) An investment manager owes the same duties with
regard to the interest and other earnings of the trust as are owed
with regard to the corpus of the trust.
(D) An investment manager shall have a continuing duty
to review the trust portfolio to determine the appropriateness of
the investments.
(E) An investment manager shall not invest funds from
the PGC decommissioning trust with itself, its officers, or its directors.
(F) The agreement shall comply with all applicable
requirements of the federal Nuclear Regulatory Commission.
(7) Prior to executing an amended agreement with the
institutional trustee or investment managers, the proposed amended
agreement shall be filed at the commission for review along with a
redlined version showing all changes made since the document was reviewed
by the commission, and copies shall be provided to the commission's
Legal Division and Rate Regulation Division or successor divisions.
(8) A copy of the trust agreement, any investment management
agreement, and any amendments shall be filed with the commission within
30 days after the execution or modification of the agreement, and
copies shall be provided to appropriate commission staff and the Office
of Public Utility Counsel.
(o) Trust investments.
(1) The funds in a PGC decommissioning trust should
be invested consistent with the following goals. The PGC may apply
additional prudent investment goals to the funds so long as they are
not inconsistent with the stated goals of this subsection.
(A) The funds should be invested with a goal of earning
a reasonable return commensurate with the need to preserve the value
of the assets of the trusts.
(B) In keeping with prudent investment practices, the
portfolio of securities held in the PGC decommissioning trust shall
be diversified to the extent reasonably feasible given the size of
the trust.
(C) Asset allocation and the acceptable risk level
of the portfolio should take into account market conditions, the time
horizon remaining before the commencement and completion of decommissioning,
and the funding status of the trust. While maintaining an acceptable
risk level consistent with the goal in this section, the investment
emphasis when the remaining life of the liability exceeds five years
should be to maximize net long-term earnings. The investment emphasis
in the remaining investment period of the trust should be on current
income and the preservation of the fund's assets.
(D) In selecting investments, the impact of the investment
on the portfolio's volatility and expected return net of fees, commissions,
expenses and taxes should be considered.
(2) The following requirements shall apply to all PGC
decommissioning trusts under this section. Where a PGC has multiple
trusts for a single generating unit, the restrictions contained in
this subsection apply to all trusts in the aggregate for that generating
unit. For purposes of this section, a commingled fund is defined as
a professionally managed investment fund of fixed-income or equity
securities established by an investment company regulated by the Securities
Exchange Commission or a bank regulated by the Office of the Comptroller
of the Currency.
(A) The total trustee and investment manager fees paid
on an annual basis by the PGC for the entire portfolio including commingled
funds shall not exceed 0.7% of the entire portfolio's average annual
balance.
(B) For the purpose of this subsection, a commingled
or mutual fund is not considered a security; rather, the diversification
standard applies to all securities, including the individual securities
held in commingled or mutual funds. Once the portfolio of securities
(including commingled funds) held in the PGC decommissioning trusts
contains securities with an aggregate value in excess of $20 million,
it shall be diversified such that:
(i) no more than 5.0% of the securities held may be
issued by one entity, with the exception of the federal government,
its agencies and instrumentalities, and
(ii) the portfolio shall contain at least 20 different
issues of securities. Municipal securities and real estate investments
shall be diversified as to geographic region.
(C) The PGC may invest the decommissioning funds by
means of qualified or unqualified PGC decommissioning trusts; however,
the PGC shall, to the extent permitted by the Internal Revenue Service,
invest its decommissioning funds in "qualified" PGC decommissioning
trusts, in accordance with the Internal Revenue Service Code §468A.
The PGC shall avoid, whenever possible, the investment of taxable
decommissioning funds in "unqualified" PGC decommissioning trusts.
(D) The use of derivative securities in the trust is
limited to those whose purpose is to enhance returns of the trust
without a corresponding increase in risk or to reduce risk of the
portfolio. Derivatives may not be used to increase the value of the
portfolio by any amount greater than the value of the underlying securities.
Prohibited derivative securities include, but are not limited to,
mortgage strips; inverse floating rate securities; leveraged investments
or internally leveraged securities; residual and support tranches
of Collateralized Mortgage Obligations; tiered index bonds or other
structured notes whose return characteristics are tied to non-market
events; uncovered call/put options; large counter-party risk through
over-the-counter options, forwards and swaps; and instruments with
similar high-risk characteristics.
(E) The use of leverage (borrowing) to purchase securities
or the purchase of securities on margin for the trust is prohibited.
(F) The following investment limits shall apply to
the percentage of the aggregate market value of all non-fixed income
investments relative to the total portfolio market value.
(i) Except as noted in clause (ii) of this subparagraph,
when the weighted average remaining life of the liability exceeds
five years, the equity cap is 60%;
(ii) When the weighted average remaining life of the
liability ranges between five years and 2.5 years, the equity cap
shall be 30%;
(iii) When the weighted average remaining life of the
liability is less than 2.5 years, the equity cap shall be 0%. Additionally,
during all years in which expenditures for decommissioning the nuclear
units occur, the equity cap shall also be 0%;
Cont'd... |
