                                ATTORNEY GENERAL                       OF    TEXAS
                                              GREG        ABBOTT



                                                  October 12,2004



Mr. Paul Hudson, Chairman                                    Opinion No. GA-0257
Public Utility Commission of Texas
Post Office Box 13326                                        Re: Whether the Public Funds Investment Act
Austin, Texas 78711                                          would govern a municipal utility’s authority to
                                                             invest certain nuclear decommissioning      trust
Ms. Julie Parsley, Commissioner                              funds (RQ-0212-GA)
Public Utility Commission of Texas
Post Office Box 13326
Austin, Texas 78711

Dear Chairman Hudson and Commissioner                 Parsley:

        Your questions arise because a municipal utility is considering acquiring an interest in a
nuclear generating plant.’ You explain that Federal Nuclear Regulatory Commission (“NRC”) rules
require the safe decommissioning    of nuclear facilities after they cease operating and permit a utility
to fund a facility’s decommissioning    costs over the life of the asset through an external trust. See
Request Letter, supva note 1, at 2; see also 10 C.F.R. 5 50.75 (2004) (decommissioning        planning)
(Nuclear Regulatory Commission)?       The trust consists of amounts collected from utility customers
and investment earnings. See Request Letter, supra note 1, at 2; see also 16 TEX. ADMIN. CODE 9
25.231 (2004) (Pub. Util. Comm’n of Tex.) (electric utility’s authority to include nuclear
decommissioning      expense as a service cost).        Because the Public Utility Commission (the
“Commission”) is drafting rules regarding decommissioning           trusts, you ask whether the Public
Funds Investment Act, Government Code chapter 2256 (the “Public Funds Investment Act” or the
“Act”), would govern a municipal utility’s authority to invest certain decommissioning      trust funds.
See Request Letter, supru note 1, at 1.3

       State law provides the Commission with regulatory authority overrates for “costs associated
with nuclear decommissioning     obligations,” which “shall be included” as a charge to retail


          ‘SeeLetter fromPaul Hudson, Chairman,and Julie Parsley,Commissioner,PublicUtility CommissionofTexas,
to Honorable Greg Abbott, Texas Attorney General (Apr. 15, 2004) (on tile with Opinion Committee, also available
af http//www.oag.state.tx.us) [hereinafter Request Letter].

         zSeealso 10 C.F.R. 5 50.2 (2004) (“Decommissionmeans to remove a facility or site safely from service and
reduce residual radioactivityto a level that permits - (1) Release of the property for unrestricted use and termination of
the license; or (2) Release of the property under restricted conditions and termination of the license.“).

         ‘After submitting this request, the Commission formally proposed a new rule “relating to Nuclear
Decommissioning following the Transfer ofNuclear Generating Plant Assets.” See 29 Tex. Reg. 4632 (2004) (to be
codified at 16 TEX. ADMIN.CODE 5 25.303) (proposed May 14,2004) (Pub. Util. Comm’n of Tex.).
Mr. Paul Hudson       - Page 2                  (GA-0257)
Ms. Julie Parsley


customers.     TEX. UTIL. CODE ANN. § 39.205 (Vernon Supp. 2004-05). You explain that if the
municipal utility acquires an interest in the nuclear facility, decommissioning     costs would continue
to be collected from the selling utility’s customers; your query is limited to the purchasing municipal
utility’s authority to invest funds from that source. See Request Letter, supra note 1, at l-2.

          The Commission is drafting a rule “to prescribe the [selling] utility’s responsibility for
charging rates for the collection of funds for a nuclear decommissioning trust” after the transaction
and to “establish standards for the administration ofthe trust by the buyer ofthe nuclear plant asset.”
Id. at l.4 In regulating privately owned utilities, the Commission’s “rules and ratemaking decisions
concerning the appropriate level of the decommissioning charge” are based on the assumption that
the trust will be invested in both equity and debt securities. Id. at 3. Ifthe Public Funds Investment
Act governs a municipal utility’s authority to invest these decommissioning       trust funds, however,
the municipal utility “would be limited to investments in debt securities, which likely would mean
a lower overall [investment] return” and thus “require a significantly higher non-bypassable charge
to customers of the selling utility.” Id.

         Originally enacted in 1987, the Public Funds Investment Act was intended to “broaden”
certain governmental entities’ “investment opportunities.“s Section 2256.003 provides that “[e]ach
governing body of the following entities may purchase, sell, and invest its funds and funds under its
control in investments authorized under this subchapter in compliance with investment policies
approved by the governing body and according to the standard of care prescribed by Section
2256.006.” TEX. GOV’T CODE ANN. 5 2256.003(a) (Vernon 2000). The entities subject to the Act
include “(1) a local government; (2) a state agency; (3) a nonprofit corporation acting on behalf of
a local government or a state agency; or (4) an investment pool acting on behalf of two or more local
governments, state agencies, or a combination ofthose entities.” Id. Other sections in chapter 2256,
subchapter A list various authorized investments. See id. $5 2256.009-.0201 (Vernon 2000 & Supp.
2004-05).

         Your question involves a municipal utility owned by the City of San Antonio, a local
government subject to the Act. See id. 5 2256.003(a)(l) (V emon 2000); see also id. 3 2256.0201
(authorizing a municipalitythat owns amunicipal electric utility to enter into certain hedge contracts
related to energy prices); Request Letter, supra note 1, at 2 n.3; Letter from N. Beth Emery, Senior
Vice President & General Counsel, City Public Service of San Antonio, to Honorable Greg Abbott,
Texas Attorney General at 1 (Apr. 22,2004) (on file with Opinion Committee). Section 2256.004(b)
of the Government Code provides that the Act does not apply to “an investment donated to an
investing entity for a particular purpose or under terms of use specified by the donor.” TEX. GOV’T
CODEANN. 5 2256.004(b) (Vernon 2000). Yourrequest letter focuses on whether decommissioning
trust timds derived from charges paid by the selling utility’s customers fall within the section
2256.004(b) exception. See Request Letter, supra note 1. Specifically, you ask the following
question:



       ‘See alsoid.

         5SeeTex.Att’yGen. Op.No. DM-489(1998)at 1 (citingFISCALNOTE,Tex.
                                                                       Comm. SubstituteH.B. 1488,7Oth
Leg., R.S. (1987)).
Mr. Paul Hudson     - Page 3                   (GA-0257)
Ms. Julie Parsley


               If funds are held in a separate trust account pursuant to the
               requirements of an order or rule of the Commission, would [the
               section 2256.004(b) exception] apply to (i) funds for investment in a
               nuclear decommissioning          trust that are collected pursuant to
               regulation from the customers of an entity that has transferred its
               interest in a nuclear generating plant to a local government entity (a
               municipally-owned      utility) whose investments are otherwise subject
               to the restrictions ofthe Act; and (ii) the decommissioning trust funds
               accumulated by the transferee entity prior to the transfer which are
               acquired by the local government entity in connection with its
               acquisition of the transferred interest in the nuclear generating plant?

Id. at 1

         The Act does not define any of the terms in section 2256.004(b), and we construe the phrase
“investment donated to an investing entity,” as it is commonly understood, to refer to an investment
given to the entity as a gift. See TEX. GOV’T CODE ANN. 3 3 11 ,011 (Vernon 1998) (words that have
not acquired a technical or particular definition shall be construed according to their common usage);
WEBSTER’SNINTH NEW COLLEGIATEDICTIONARY 375 (9th ed. 1983) (defining “donate” to mean
“to make a gift of,” “to make a donation”). Section 2256.004@) excepts from the Act an investment
given to the investing entity as a gift, thus permitting the entity to continue to hold the donated
investment even ifit is not an investment the Act permits. However, neither trust funds derived from
charges paid by the selling utility’s customers in exchange for utility services nor trust funds
transferred to a purchasing municipal utility by the selling utility in connection with the transfer of
an interest in a nuclear facility may be characterized as a donation or gift to the municipal utility.

         Although your question focuses on section 2256.004(b), your concern is whether the Public
Funds Investment Act would govern the municipal utility’s authority to invest the trust funds. To
fully respond to your query, we must consider whether the trust fund moneys are “public funds”
within the Act’s scope. The Act permits a subject entity to “purchase, sell, and invest” in the listed
investments “itsfunds andfunds under its control.” TEX. GOV’T CODE ANN. 5 2256.003 (Vernon
2000) (emphasis added). Section 2256.002(3) defines the term “tinds” to mean “publicfunds in the
custody of a state agency or local government that: (A) are not required by law to be deposited in
the state treasmy; and (B) the investing entity has authority to invest.” Id. 5 2256.002(3) (emphasis
added). In Attorney General Opinion DM-489, this office concluded that the term “public funds”
in section 2256.002(3) denotes funds that belong to the investing entity “collected by virtue of some
general law, and that are designated to a public purpose.” Tex. Att’y Gen. Op. No. DM-489 (1998)
at 2. Moreover, “[flunds a state agency possesses merely as a custodian, for the benefit of
contributors, are not public funds.” Id, at 3.

        Applying this standard, Attorney General Opinion DM-489 concluded that the Public Funds
Investment Act did not govern the Department of Banking’s authority to invest certain funds, such
as t?mds of a liquidated, uninsured bank or a trust company in conservatorship, because they were
not “public funds.” See id. at 4-8 (addressing whether certain funds administered by the Department
of Banking are public funds subject to the Act). The funds were not public funds because they did
not belong to the state, because the Department held them as a mere custodian, and because they
would not be used to discharge a general public purpose. See id.
Mr. Paul Hudson      - Page 4                       (GA-0257)
Ms. Julie Parsley


         Here, we address whether the Public Funds Investment Act applies to a municipal utility’s
authority to invest decommissioning   trust funds, the corpus of which derives from charges paid
by the selling utility’s customers, and which are dedicated to paying a nuclear facility’s
decommissioning     costs. See Request Letter, supru note 1, at 3. As you note, the funds at issue
would be “governed by a trust agreement, NRC rules, and Commission rules.” Id. at 3-4. Pursuant
to a Commission rule,

                          Each electric utility collecting        funds for a nuclear
                 decommissioning      trust shall place the funds in an external,
                 irrevocable trust fund. The utility shall appoint an institutional trustee
                 and may appoint an investment manager(s).              Unless otherwise
                 specified in subsection (b) of this section, the Texas Trust Code
                 controls the administration        and management       of the nuclear
                 decommissioning trusts, except that the appointed trustee(s) need not
                 be qualified to exercise trust powers in Texas.

 16 TEX. ADMIN. CODE 9 25.301(a)(2) (2004) (Pub. Util. Comm’n of Tex.); see also 10 C.F.R.
F, 50.75(e)(ii) (2004) (“An external sinking fund is a fund established and maintained by setting
funds aside periodically in an account segregated from licensee assets and outside the administrative
control of the licensee and its subsidiaries or affiliates in which the total amount of funds would be
sufficient to pay decommissioning costs at the time permanent termination ofoperations is expected.
An external sinking fund may be in the form of a trust          .“). The Commission rule also governs
trust agreements and decommissioning trust investments. See 16 TEX. ADMIN. CODE 4 25.301 (b)-(c)
(2004) (Pub. Util. Comm’n of Tex.). In addition, you inform us that Commission orders and rules
“are expected to specify that funds in excess of actual decommissioning costs are to be refunded to
the customers of the seller of the nuclear asset.” Request Letter, supra note 1, at 4.6 Based on this
regulatory framework, the municipal utility at issue observes that it would hold these
decommissioning trust funds not on its own behalfbut as a custodian pursuant to a trust established
to provide for the selling utility customers’ share ofdecommissioning     costs. See Letter from N. Beth
Emery, Senior Vice President & General Counsel, City Public Service of San Antonio, to Nancy S.
Fuller, Chair, Opinion Committee, Office of the Attorney General at 2 (July 1, 2004) (on file with
Opinion Committee).

         Assuming that the decommissioning trust funds at issue here will not belong to the municipal
utility but rather will be held by the municipal utility as a custodian to pay for decommissioning costs
and that any excess funds will be returned to the selling utility’s customers, they are not “public
funds” within the meaning of the Public Funds Investment Act, and the Act does not govern the
municipal utility’s authority to invest them.




         6Therule formally proposed by the Commission after submittingthis request would provide that “[a]nyfunds
remaining in the trust after the completion of decommissioning shall be refUndedto customers in a manner determined
by the commission.” 29 Tex. Reg. 4632,4636 (2004)(to be codified at 16TEX. ADMLV.    CODE 9 25.303(f)(5))(proposed
May 14,2004) (Pub. Util. Comm’n ofTa.).
Mr. Paul Hudson - Page 5                      (GA-0257)
Ms. Julie Parsley


                                       SUMMARY

                         The Public Funds Investment Act applies to “public funds”
               and generally does not govern funds that a governmental entity holds
               as a mere custodian for the benefit of contributors.    In the event a
               municipal utility acquires an interest in a nuclear facility, the Act
               would not govern the municipal utility’s authority to invest nuclear
               decommissioning trust funds derived from charges paid by the selling
               utility’s customers if the municipality holds the funds as a custodian
               to pay for decommissioning        costs and any excess funds will be
               returned to the selling utility’s customers.




BARRY R. MCBEE
First Assistant Attorney General

DON R. WILLETT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General, Opinion Committee
