Sec. 1232.1071. ISSUANCE OF OBLIGATIONS FOR FINANCING STRANDED COSTS OF MUNICIPAL POWER AGENCY. (a) The authority may, either directly or by means of a trust or trusts established by it, issue obligations or other evidences of indebtedness for financing stranded costs of a municipal power agency created by concurrent resolution by its member cities on or before November 1, 1979, pursuant to Chapter 163, Utilities Code, or a predecessor statute to that chapter. The stranded costs of the municipal power agency are set forth as allocated to the member cities in the "Potentially Strandable Investment (ECOM) Report: 1998 Update" issued by the Public Utility Commission of Texas.

(b) At the request of any member city of a municipal power agency, the authority shall issue obligations or other evidences of indebtedness in the amount of the requesting member city's stranded costs, plus the sum of the costs described in Subdivision (1) and the issuance costs, and shall make a grant of the proceeds of the obligations or evidences of indebtedness to the municipal power agency. A member city's request under this subsection must include a statement of the payment terms for recovering stranded costs. A grant of the proceeds of obligations or evidences of indebtedness is subject to the following conditions:

(1) the municipal power agency shall use the grant to reduce the outstanding principal of the agency's debts allocable to stranded costs of the requesting member city for federal income tax purposes, whether by redemption, defeasance, or tender offer, together with any interest expenses, call premium, tender premium, or administrative expenses associated with the principal payment; and

(2) the municipal power agency shall reduce the amount payable by the requesting member city under its power sales contract with the agency to reflect the reduced debt service on the agency's debt as a result of the payments made under Subdivision (1).

(c) Obligations or evidences of indebtedness issued by the authority under this section must be secured by nonbypassable charges imposed by the authority on retail customers receiving transmission and distribution services provided by the requesting member city, which must be consistent with the stranded cost recovery terms stated in the member city's request unless otherwise approved by the member city. Obligations or evidences of indebtedness issued by the authority under this section are not a debt of this state, the municipal power agency, or any member of the municipal power agency.

(d) The Public Utility Commission of Texas shall provide necessary assistance to the authority to ensure the collection and enforcement of the nonbypassable charges, whether directly or by using the assistance and powers of the requesting member city.

(e) The authority and the Public Utility Commission of Texas have all powers necessary to perform the duties and responsibilities described by this section. This section shall be interpreted broadly in a manner consistent with the most cost-effective financing of stranded costs. To the extent possible, obligations or evidences of indebtedness issued by the authority under this section must be structured so that any interest on the obligations or evidences of indebtedness is excluded from gross income for federal income tax purposes. Any interest on the obligations or evidences of indebtedness is not subject to taxation by and may not be included as part of the measurement of a tax by this state or a political subdivision of this state.

Added by Acts 2001, 77th Leg., ch. 1420, Sec. 8.007(a), eff. Sept. 1, 2001.