Article 5.7. Monterey Peninsula Water Supply Securitization Act of California Public Utilities Code >> Division 1. >> Part 1. >> Chapter 4. >> Article 5.7.
For purposes of this article, the following definitions shall
apply:
(a) "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 water rate relief 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.
(b) "Customer" means an individual, governmental body, trust,
business entity, or nonprofit organization that is a customer of the
qualifying water utility, has responsibility for a service address
provided water service by the utility, or consumes water that has
been transmitted or distributed by means of distribution facilities.
(c) "District" means the Monterey Peninsula Water Management
District, or its successor or assignee.
(d) "Financing costs" means the costs to issue, service, repay, or
refinance water rate relief bonds, whether incurred or paid upon
issuance of the bonds or over the life of the bonds, and approved for
recovery by the commission in a financing order. "Financing costs"
may include any of the following:
(1) Principal, interest, and redemption premiums that are payable
on water rate relief bonds.
(2) A payment required under an ancillary agreement and an amount
required to fund or replenish a reserve account or other account
established under an indenture, ancillary agreement, or other
financing document relating to the water rate relief bonds.
(3) Costs of retiring or funding an existing debt and equity
security of a qualifying water utility in connection with the
issuance of water rate relief bonds to the extent the securities were
issued for the purpose of financing water supply costs.
(4) Costs incurred by, on behalf of, or allocated to, a qualifying
water utility to obtain modifications of, or amendments to, an
indenture, financing agreement, security agreement, or similar
agreement or instrument relating to an existing secured or unsecured
obligation of a qualifying water utility or an affiliate of a
qualifying water utility, or any costs incurred by or allocated to a
qualifying water utility to obtain the consent, release, waiver, or
approval from the holder of the obligation, that are necessary to be
incurred to permit a qualifying water utility to issue or cause the
issuance of water rate relief bonds.
(5) Taxes, franchise fees, or license fees imposed on water supply
charges.
(6) Costs related to issuing and servicing water rate relief 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, capitalized
interest, rating agency fees, and any other related costs that are
approved for recovery in the financing order, including costs
incurred by a public financing entity.
(7) Other costs as specifically authorized by a financing order.
(e) "Financing entity" means either or both of the following:
(1) The qualifying water utility, or its subsidiary or affiliate,
that is authorized by the commission to issue water rate relief
bonds, or acquire water supply property, or both, pursuant to a
financing order.
(2) A public financing entity authorized to issue water rate
relief bonds pursuant to a financing order.
(f) "Financing order" means an order of the commission adopted in
accordance with this article, which shall include a procedure for
periodic true-up adjustments to water supply charges.
(g) "Qualifying water utility" means California American Water, or
any successor public utility described in Section 2701 of the Public
Utilities Code that is engaged in the delivery of water to customers
on the Monterey Peninsula.
(h) "Public financing entity" means any of the following:
(1) The district.
(2) A joint exercise of powers authority in which the district is
a member.
(3) A public agency that is authorized to issue water rate relief
bonds, or acquire water supply property, or both.
(i) "Service territory" means the geographical area within or
surrounding the Monterey Peninsula that the qualifying water utility
provides water service to in accordance with its certificate of
public convenience and necessity and within which water supply
charges may be imposed and collected as further described in the
financing order.
(j) "True-up adjustment" means a formula-based adjustment to the
water supply charges as they appear on customer bills that are
necessary to correct for any overcollection or undercollection of the
water supply charges authorized by a financing order and to
otherwise ensure the timely and complete payment and recovery of
water supply costs and financing costs over the authorized repayment
term.
(k) "Water rate relief bonds" means bonds, notes, certificates of
participation or beneficial interest, or other evidences of
indebtedness or ownership, issued pursuant to an executed indenture
or other agreement of a financing entity, the proceeds of which are
used, directly or indirectly, to provide, recover, finance, or
refinance water supply costs and financing costs, and that are
directly or indirectly secured by, or payable from, water supply
property. Water rate relief bonds may be issued simultaneously by two
financing entities, but water rate relief bonds shall not be issued
after the seventh anniversary of a financing order issued in
connection with commission proceeding A.12-04-019. Water rate relief
bonds may be issued for a term not to exceed 30 years.
(l) "Water supply activity" means an activity or activities by or
on behalf of a qualifying water utility in connection with the
acquisition and construction of infrastructure directly related to a
desalination facility and necessary equipment solely for that
facility, including the pipes necessary for conveyance and tanks
necessary for water storage, as authorized by the commission in
proceeding A.12-04-019.
(m) "Water supply charges" means those nonbypassable charges that
are authorized by the commission in a financing order to recover
water supply costs and all financing costs specified in a financing
order.
(n) "Water supply costs" means any reasonable and necessary costs,
including capitalized interest costs relating to regulatory assets
and capitalized costs associated with permitting, design, and
engineering work, approved in a financing order, incurred or expected
to be incurred by a qualifying water utility in undertaking water
supply activities. Water supply costs include preliminary expenses
and investments associated with water supply activities that are
incurred before the issuance of a financing order and that are to be
reimbursed from the proceeds of water rate relief bonds.
(o) (1) "Water supply property" means the property right created
pursuant to this article, including, without limitation, the right,
title, and interest of the qualifying water utility or its transferee
in all of the following:
(A) In and to the water supply charges established pursuant to a
financing order, including all rights to obtain adjustments to the
water supply charges in accordance with Section 849.1 and the
financing order.
(B) To be paid the amount that is determined in a financing order
to be the amount that the qualifying water utility or its transferee
is lawfully entitled to receive pursuant to the provisions of this
article and the proceeds thereof, and in and to all revenues,
collections, claims, payments, money, or proceeds of or arising from
the water supply charges that are the subject of a financing order.
(2) "Water supply property" shall constitute a current property
right notwithstanding the fact that the value of the property right
will depend on customers using water or, in those instances where
customers are customers of the qualifying water utility, the
qualifying water utility performing certain services.
(a) (1) The commission may issue financing orders in
accordance with this article to facilitate the recovery, financing,
or refinancing of water supply costs. A financing order may be
adopted only upon the application of the qualifying water utility and
shall become effective in accordance with its terms.
(2) Commencing January 1, 2015, the qualifying water utility may
apply to the commission for a determination that no more than 50
percent of the qualifying water utility's water supply costs may be
recovered through water supply charges, which would be water supply
property under this article. The commission shall not approve an
increase in a financing order that exceeds a total amount of 5
percent of the water supply costs.
(3) A public financing entity that proposes to issue water rate
relief bonds pursuant to Article 8 of Chapter 3 of Part 5 of the
Monterey Peninsula Water Management District Law, as added by Chapter
527 of the Statutes of 1977, or Section 6537 of the Government Code,
shall provide information as requested by the commission in
connection with the application and proceeding.
(4) In its application the qualifying water utility shall specify
how customers may benefit from reduced rates on a present value basis
through the issuance of water rate relief bonds as compared to the
use of traditional utility financing mechanisms. If a public
financing entity proposes to issue water rate relief bonds, it shall
provide evidence to the commission that the issuance of water rate
relief bonds by the public financing entity, due to the availability
of a federal or state income tax exemption, will provide savings to
water customers on the Monterey Peninsula.
(5) The commission shall establish procedures for the expeditious
processing of financing order applications, including the approval or
disapproval of the qualifying water utility's application, within
180 days of the application submission.
(b) The commission shall authorize the imposition and collection
of water supply charges in one or more financing orders if the
commission determines, as part of its findings in connection with the
financing order, that each imposition and collection of the water
supply charges, and the issuance of water rate relief bonds payable
from those charges, would reduce the rates on a present value basis
that customers within the qualifying water utility's service
territory would pay as compared to the use of traditional utility
financing mechanisms, which shall be calculated using the qualifying
water utility's corporate debt and equity in the ratio approved by
the commission at the time of the issuance of the financing order.
The commission's determination shall consider all customer payments
including rates, surcharges, taxes, water supply charges, and any
other payments made by customers for water supply activities.
(c) The commission shall establish in a financing order an
effective mechanism that ensures recovery of water supply costs and
financing costs through nonbypassable water supply charges. Water
supply charges shall be imposed only on existing and future customers
of the qualifying water utility's service territory, and those
customers shall be required to pay those charges until the water rate
relief bonds and all financing costs are paid in full by the
financing entity, at which time those charges shall be terminated.
Water supply charges shall be irrevocable, notwithstanding any
true-up adjustment pursuant to subdivision (g).
(d) A financing order may specify how amounts collected from a
customer shall be allocated between water supply charges and other
charges of the qualifying water utility, consistent with Section
779.2.
(e) (1) Notwithstanding Section 455.5 or 1708, or any other
provision of law, and except as otherwise provided in subdivision
(g), water supply property that has been made the basis for the
issuance of water rate relief bonds, the financing order, and the
water supply charges shall be irrevocable. The commission shall not,
either by rescinding, altering, or amending the financing order or
otherwise, revalue or revise for ratemaking purposes the water supply
costs or the financing costs, determine that the water supply
charges are unjust or unreasonable, or in any way reduce or impair
the value of water supply property either directly or indirectly by
taking water supply charges into account when setting other rates for
the qualifying water utility. The amount of revenues arising shall
not be subject to reduction, impairment, postponement, or
termination.
(2) The State of California does hereby pledge and agree with the
qualifying water utility, owners of water supply property, the
financing entities, and owners of water rate relief bonds that the
state shall neither limit nor alter, except as otherwise provided
with respect to true-up adjustment of water supply charges pursuant
to subdivision (g), the water supply charges, water supply property,
financing orders, or any rights under a financing order until the
water rate relief bonds, together with the interest on the bonds, and
all related financing costs are fully paid and discharged, or, in
the alternative, have been refinanced through an additional issue of
water rate relief bonds, provided nothing contained in this section
shall preclude the limitation or alteration if and when adequate
provision shall be made by law for the protection of the qualifying
water utility, financing entities, and owners. The financing entity
is authorized to include this pledge and undertaking for the state in
the water rate relief bonds.
(f) (1) Neither financing orders nor water rate relief bonds
issued under this article shall constitute a debt or liability of the
state or of any political subdivision of the state except a public
financing entity, 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
article and shall be consistent with Sections 1 and 18 of Article XVI
of the California Constitution. This subdivision shall not preclude
bond guarantees or enhancements pursuant to this article or pursuant
to Article 8 of Chapter 3 of Part 5 of the Monterey Peninsula Water
Management District Law, as added by Chapter 527 of the Statutes of
1977, or Section 6537 of the Government Code. A water rate relief
bond shall contain on the face of the bond a statement to the
following effect: "Neither the full faith and credit nor the taxing
power of the State of California is pledged to the payment of the
principal of, or interest on, this bond."
(2) The issuance of water rate relief bonds under this article
shall not directly, indirectly, or contingently obligate the state or
any political subdivision of the state to levy or to pledge any form
of taxation therefor or to make any appropriation for their payment.
Nothing in this paragraph shall prevent or be construed to prevent a
public financing entity from pledging water supply property, or
payments made on water rate relief bonds, together with any reserves
or overcollateralization amounts approved in a financing order, to
the payment of the water rate relief bonds.
(g) Any water supply charge authorized by a financing order shall
appear on customer bills as a stand-alone, line-item surcharge. The
commission shall, in any financing order, provide for a periodic
true-up adjustment to water supply charges, which shall be made at
least annually and may be made more frequently. The qualifying water
utility shall file an advice letter with the commission to implement
any true-up adjustment.
(h) Water supply charges are water supply property when, and to
the extent that, a financing order authorizing the water supply
charges has become effective in accordance with this article, and the
water supply property shall thereafter continuously exist as
property for all purposes with all of the rights and privileges of
this article for the period and to the extent provided in the
financing order, but in any event until the water rate relief bonds,
including all principal, premium, if any, and interest with respect
to the bonds and all other financing costs are paid in full. A
financing order may provide that the creation of water supply
property shall be simultaneous with the sale of the water supply
property to a transferee or assignee as provided in the application
and the pledge of the water supply property to secure water rate
relief bonds.
(i) Any surplus water supply charges in excess of the necessary
amounts to pay the principal premium, if any, and interest on the
water rate relief bonds and all other financing costs shall be
credited to customers through the adjustment mechanism described in
subdivision (g) or used to prepay or defease water rate relief bonds,
so long as this would not result in a recharacterization of the tax,
accounting, and other intended characteristics of the financing,
including, but not limited to, the following:
(1) Avoiding the recognition of debt on the qualifying water
utility's balance sheet for financial accounting and regulatory
purposes.
(2) Treating the water rate relief bonds as debt of the qualifying
water utility or its affiliates for federal income tax purposes.
(3) Treating the transfer of the water supply property by the
qualifying water utility as a true sale for bankruptcy purposes.
(4) Avoiding any adverse impact of the financing on the qualifying
water utility's credit rating.
(j) The commission shall, pursuant to its authority in Section
739.8, implement a program to exclude low-income water ratepayers
participating in commission-approved, low-income rate assistance
programs from the payment of any water supply charge imposed pursuant
to this section, if it determines that the exclusion from the charge
will have no significant impact on the ability of the financing
entity to finance the water supply activity. The commission may also
allow the adjustment of the amount of the charge, as necessary, to
cover any costs associated with implementation of the exclusion.
(a) A qualifying water utility for which a financing order
has been issued shall cause the proceeds of any water rate relief
bonds issued pursuant to a financing order to be placed in a separate
account. A qualifying water utility may use the proceeds of the
issuance of water rate relief bonds for paying water supply costs and
financing costs and for no other purpose.
(b) A financing order may require the qualifying utility to file
with the commission a periodic report showing the receipt and
disbursement of proceeds of water rate relief bonds. A financing
order may authorize the staff of the commission to review and audit
the books and records of the qualifying water utility relating to the
receipt and disbursement of proceeds of water rate relief bonds. The
provisions of this subdivision shall not be construed to limit the
authority of the commission to investigate the practices of the
qualifying utility or to audit the books and records of the
qualifying water utility.
(c) A qualifying water utility for which a financing order has
been issued shall annually provide to its customers a concise
explanation of the water supply charges approved in a financing
order, as modified by subsequent issuances of water rate relief bonds
authorized under a financing order, if any, and by application of
the true-up adjustment mechanism as provided in the financing order.
These explanations shall be made after the annual true-up adjustment
pursuant to subdivision (g) of Section 849.1 and prior to, or
simultaneous with, the effective date of the adjustment, and may be
made by bill inserts, Internet Web site information, or other
appropriate means. If water rate relief bonds are issued by a public
financing entity, the public financing entity, or its trustee or
representative, shall provide the information to the qualifying water
utility as reasonably requested in order to comply with its
obligations under this section.
(d) The failure of a qualifying water utility to apply the
proceeds of water rate relief bonds in a reasonable, prudent, and
appropriate manner or otherwise comply with any provision of this
section shall not invalidate, impair, or affect any financing order,
water supply property, water supply charges, or water rate relief
bonds.
(a) Financing entities may issue water rate relief bonds
upon approval by the commission in the financing order. Water rate
relief bonds shall be nonrecourse to the credit or any assets of the
qualifying water utility, other than the water supply property as
specified in the financing order.
(b) A qualifying water utility may sell and assign all or portions
of its interest in water supply property to an affiliate. A
qualifying water utility or its affiliates may sell or assign their
interests to one or more financing entities authorized under this
article that make that property the basis for issuance of water rate
relief bonds to the extent approved in the financing order. A
qualifying water utility, its affiliates, or financing entities may
pledge and assign water supply property as collateral, directly or
indirectly, to the extent approved in the financing order providing
for a security interest in the water supply property, in the manner
set forth in Section 849.4. In addition, water supply property may be
sold or assigned by either of the following:
(1) The financing entity or a trustee for the holders of water
rate relief bonds or the holder of an ancillary agreement in
connection with the exercise of remedies upon a default.
(2) A person acquiring the water supply property after a sale or
assignment made pursuant to this article.
(c) To the extent that any interest in water supply property is
sold, assigned, or pledged as collateral, the commission shall
authorize the qualifying water utility to contract with the financing
entity or entities that it will continue to operate its system to
provide service to its customers, will collect water supply charges
for the benefit and account of the financing entities and their
pledgees, and will account for and remit these amounts to or for the
account of the financing entities and their pledgees. Contracting
with a 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 security interest,
as applicable.
(d) Water supply property that is specified in a financing order
shall constitute an existing, present property right, notwithstanding
the fact that the imposition and collection of water supply charges
depend on the qualifying water utility continuing to provide water
service or continuing to perform its servicing functions relating to
the collection of water supply charges or on the level of future
water consumption. Water supply property shall exist whether or not
the water supply charges have been billed, have accrued, or have been
collected and notwithstanding the fact that the value for a security
interest in the water supply property, or amount of the water supply
property, is dependent on the future provision of service to
customers by the qualifying water utility. All water supply property
specified in a financing order shall continue to exist until the
water supply bonds issued pursuant to a financing order and all other
financing costs are paid in full.
(e) If a qualifying water utility defaults on any required payment
of water supply charge revenues, a court, upon application by an
interested party and without limiting any other remedies available to
the applying party, shall order the sequestration and payment of the
water supply charges, and the proceeds of the water supply charges,
for the benefit of bondholders, any assignee and financing entities
or their pledgees, and the counterparties to any ancillary agreement.
The order shall remain in full force and effect notwithstanding
bankruptcy, reorganization, or other insolvency proceedings with
respect to the qualifying water utility or any affiliate of the
qualifying water utility.
(f) Water supply property, water supply charges, and the interests
of an assignee, bondholder or financing entity, or any pledgee in
water supply property and water supply charges are not subject to
setoff, counterclaim, surcharge, or defense by the qualifying utility
or any other person or in connection with the bankruptcy,
reorganization, or other insolvency proceeding of the qualifying
water utility, any affiliate of the qualifying water utility, or any
other entity.
(g) Notwithstanding Section 1708 or any other provision of law,
any requirement under this article, or a financing order, that the
commission take 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 exerting
functions similar to the commission. The commission shall not have
authority to rescind, alter, or amend that requirement in a financing
order. The approval by the commission in a financing order of the
issuance by the qualifying water utility or a financing entity of
water rate relief bonds shall include the approvals, if any, required
by Article 5 (commencing with Section 816) and Section 701.5.
Section 701.5 shall not be construed to prohibit the issuance of
water rate relief bonds upon the terms and conditions approved by the
commission in a financing order. Section 851 is not applicable to
the transfer or pledge of water supply property, the issuance of
water rate relief bonds, or related transactions approved in a
financing order.
(h) A financing entity issuing water rate relief bonds shall
include in its preliminary notice and final report for the water rate
relief bonds submitted to the California Debt and Investment
Advisory Commission pursuant to Section 8855 of the Government Code,
a statement that the water rate relief bonds are being issued
pursuant to this section. A financing entity issuing water rate
relief bonds shall include in its final report for the water rate
relief bonds submitted to the California Debt and Investment Advisory
Commission pursuant to Section 8855 of the Government Code, the
savings realized by issuing the water rate relief bonds rather than
using traditional utility financing mechanisms.
(a) A security interest in water supply property is valid,
is enforceable against the pledgor and third parties, is subject to
the rights of any third party holding a security interest in the
water supply property perfected in the manner described in this
section, and attaches when all of the following occur:
(1) The commission has issued the financing order authorizing the
water supply charges included in the water supply property.
(2) Value has been given by the pledgees of the water supply
property.
(3) The pledgor has signed a security agreement that includes an
indenture or financing agreement relating to the issuance of the
water rater relief bonds covering the water supply property.
(b) A valid and enforceable security interest in water supply
property is perfected when it has attached and when a financing
statement has been filed in accordance with Chapter 5 (commencing
with Section 9501) of Division 9 of the Commercial Code, naming the
pledgor of the water supply property as "debtor" and identifying the
water supply property. Any description of the water supply property
shall be sufficient if it refers to the financing order creating the
water supply property. A copy of the financing statement shall be
filed with the commission by the qualifying water utility that is the
pledgor or transferor of the water supply property, and the
commission may require the qualifying water utility to make other
filings with respect to the security interest in accordance with
procedures it may establish, provided that the filings do not affect
the perfection of the security interest.
(c) A perfected security interest in water supply property is a
continuously perfected security interest in all revenues and proceeds
arising with respect to the water supply property, whether or not
the revenues or proceeds have accrued. Conflicting security interests
shall rank according to priority in time of perfection. Water supply
property shall constitute property for all purposes, including for
contracts securing water rate relief bonds, whether or not the
revenues and proceeds arising with respect to the water supply
property have accrued.
(d) Subject to the terms of the security agreement covering the
water supply property and the rights of any third party holding a
security interest in the water supply property perfected in the
manner described in this section, the validity and relative priority
of a security interest created under this section is not defeated or
adversely affected by the commingling of revenues arising with
respect to the water supply property with other funds of the
qualifying water utility that is the pledgor or transferor of the
water supply property, or by any security interest in a deposit
account of that qualifying water utility perfected under Division 9
(commencing with Section 9101) of the Commercial Code into which the
revenues are deposited. Subject to the terms of the security
agreement, upon compliance with the requirements of subdivision (b)
of Section 9312 of the Commercial Code, the pledgees of the water
supply property shall have a perfected security interest in all cash
and deposit accounts of the qualifying water utility in which
revenues arising with respect to the water supply property have been
commingled with other funds, but the perfected security interest
shall be limited to an amount not greater than the amount of the
revenues with respect to the water supply property received by the
qualifying water utility within 12 months before either of the
following:
(1) A default under the security agreement.
(2) The institution of insolvency proceedings by or against the
qualifying water utility, less payments from the revenues to the
pledgees during that 12-month period.
(e) If a default occurs under the security agreement covering the
water supply property, the pledgees of the water supply property,
subject to the terms of the security agreement, shall have all rights
and remedies of a secured party upon default under Division 9
(commencing with Section 9101) of the Commercial Code, and shall be
entitled to foreclose or otherwise enforce their security interest in
the water supply property, subject to the rights of any third party
holding a prior security interest in the water supply property
perfected in the manner provided in this section. In addition, the
commission may require, in the financing order creating the water
supply property, that in the event of default by the qualifying water
utility in payment of revenues arising with respect to the water
supply property, the commission and any successor to the commission,
upon the application by the pledgees or transferees, including
transferees under Section 849.5, of the water supply 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 revenues arising with
respect to the water supply property. Any order shall remain in full
force and effect notwithstanding bankruptcy, reorganization, or other
insolvency proceedings with respect to the debtor, pledgor, or
transferor of the water supply property. Any surplus in excess of
amounts necessary to pay principal, premium, if any, interest on the
water rate relief bonds, and other financing costs arising under the
security agreement, shall be remitted to the debtor or to the pledgor
or transferor.
(f) Sections 9204 and 9205 of the Commercial Code shall apply to a
pledge of water supply property by a qualifying water utility, an
affiliate of a qualifying water utility, or a financing entity, other
than a public financing entity.
(g) (1) This section sets forth the terms by which a consensual
security interest shall be created and perfected in the water supply
property. Unless otherwise ordered by the commission with respect to
any series of water rate relief bonds on or before the issuance of
the series, there shall exist a statutory lien as provided in this
subdivision.
(2) Upon the effective date of the financing order, there shall
exist a first priority lien on all water supply property then
existing or thereafter arising pursuant to the terms of the financing
order. This lien shall automatically arise pursuant to this section
without any action on the part of the qualifying water utility, any
affiliate of the qualifying water utility, the issuing entity, or any
other person. This lien shall secure all obligations, then existing
and subsequently arising, to the holders of the water rate relief
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 occurrence of any defaults specified in the
financing order, have all rights and remedies of a secured party upon
default under Chapter 1 (commencing with Section 9101) of Division 9
of the Commercial Code, and shall be entitled to foreclose or
otherwise enforce this statutory lien in the water supply property.
This lien shall attach to the water supply property regardless of who
shall own, or shall subsequently be determined to own, the water
supply property, including any qualifying water utility, affiliate of
the qualifying water utility, financing entity, or any other person.
This lien shall be valid, perfected, and enforceable against the
owner of the water supply property and all third parties upon the
effectiveness of the financing order without any further public
notice, provided, however, that any person may, but shall not be
required to, file a financing statement in accordance with
subdivision (b). These financing statements may be protective filings
and shall not be evidence of the ownership of the water supply
property.
(h) Notwithstanding any other provision of law, Section 5451 of
the Government Code shall apply to any pledge by the public financing
entity of water supply property or other security for any water rate
relief bonds issued by a public financing entity.
(a) A sale, assignment, or transfer of water supply property
by a qualifying water utility to an affiliate or to a financing
entity, or by an affiliate of a qualifying water 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 order of the water supply 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 water supply 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 water supply property, whether direct or indirect, subordinate
or otherwise.
(B) The right to recover costs associated with taxes, franchise
fees, or license fees imposed on the collection of water supply
charge revenues.
(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 water supply charge
revenues on behalf of an assignee.
(6) The treatment of the sale, assignment, or transfer for tax,
financial reporting, or other purposes.
(7) Any true-up adjustment of the water supply charges as provided
in the financing order.
(c) A sale, assignment, or transfer of water supply property shall
be deemed perfected against third persons when both of the following
occur:
(1) The commission issues the financing order authorizing the
water supply charges included in the water supply property.
(2) An assignment of the water supply 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 5 (commencing with Section 9501) of Division
9 of the Commercial Code naming the assignor of the water supply
property as debtor and identifying the water supply property has
priority. Any description of the water supply property shall be
sufficient if it refers to the financing order creating the water
supply property. A copy of the financing statement shall be filed by
the assignee with the 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.
A successor to the qualified water utility, whether pursuant
to bankruptcy, reorganization, or other insolvency proceeding, or
pursuant to merger, sale, or transfer, by operation of law, or
otherwise, shall perform and satisfy all obligations of the
qualifying water utility pursuant to this article in the same manner
and to the same extent as the qualified water utility, including, but
not limited to, collecting and paying to the holders of water rate
relief bonds or any financing entities or their pledgees revenues
arising with respect to the water supply property sold to the
applicable financing entity or pledged to secure water rate relief
bonds.