March 5, 2024

IRS Updates and Modernizes Rules Governing Utility Securitizations

Holland & Knight Alert
Mary Kate Nicholson | Brad M. Seltzer


  • Revenue Procedure (Rev. Proc.) 2024-15 updates and modifies Rev. Proc. 2005-62 to reflect the evolution of securitization transactions undertaken by regulated public utilities.
  • The latest Revenue Procedure expands the eligibility of securitizations to financing entities authorized by state law to securitize public utility rights even where the financing entities are not owned directly or indirectly by a public utility.
  • Whereas Rev. Proc 2005-62 allowed debt repayments to be made quarterly or semiannually, Rev. Proc. 2024-15 allows for payments that are made at least annually.

Since the issuance of Revenue Procedure (Rev. Proc.) 2005-62, many utilities have used securitizations authorized by state law to secure collections of stranded costs upon the retirement of certain generation plants or costs attributable to major storms. The state would authorize the issuance by a public utility commission or other state agency via a financing order for the recovery of those costs, and the utility could currently receive the funds without immediate taxation – i.e., the funds were treated as debt proceeds. The debt would be repaid through non-bypassable charges paid by utility customers, and income would be recognized under the utility's normal method of accounting.

As securitization transactions have evolved, many states allowed for the use of financing entities not owned by utilities, but those entities were not eligible for debt treatment under Rev. Proc. 2005-62. Also, states wanted to allow for less-frequent repayment of the financed amount. Rev. Proc. 2024-15 addresses both issues by 1) allowing state-created agencies not owned by utilities to issue the qualified debt instruments and 2) allowing for repayments to be made at least annually.


Holland & Knight Insight

The liberalization and modification of Rev. Proc. 2005-62 to accommodate the evolving nature of securitizations should be well received.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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