Does Texas sales and use tax apply to the described storm-recovery transition-property financing under Order 52302?

Plain-English summary

The Comptroller considered an electric utility’s proposed securitization of system-restoration costs from May 2024 derecho and related storms under Public Utility Commission Financing Order 52302. It applied the Public Utility Regulatory Act tax exemption for transactions involving transfer and ownership of transition property and receipt of transition charges to this restoration-cost financing. For the issuer and utility, the listed transfers, ownership, charges, and related remittances were exempt from Texas state and local taxes, including sales and use tax. Collections earnings received by the indenture trustee were exempt. Other earnings on investments or collections received by the issuer or trustee, and servicer fees or other earnings or distributions received by the utility, were exempt only to the extent they involved the transfer and ownership of transition property and receipt of transition charges. STAR cross-lists the same underlying ruling, PLR20250821165319, under 202607003L, 202607004L, and 202607005L.

What this means for you

The exemption follows the transition-property and transition-charge transaction described in Financing Order 52302. The letter does not establish that every ordinary servicing fee or investment return is tax-free; its connection to the covered property or charges matters.

Common questions

Q: Were the listed transition-property transfers and transition charges exempt?
A: Yes. The Comptroller applied the statutory exemption to the described financing under Order 52302.

Q: Are all servicer fees and investment earnings automatically exempt?
A: No. The ruling exempts collections earnings received by the indenture trustee without that condition. Other investment or collection earnings and servicer fees qualify only to the extent stated in the ruling.

Q: Does this STAR accession represent a separate PLR from its cross-listing?
A: No. The document identifies one underlying ruling, PLR20250821165319, cross-listed as 202607003L, 202607004L, and 202607005L.

Citations and references

• Tex. Util. Code § 39.311 — the letter quotes the exemption for “[t]ransactions involving the transfer and ownership of transition property and the receipt of transition charges”.
• Tex. Util. Code § 36.403 — cited for applying Subchapter G securitization standards to restoration-cost financing under Subchapter I.
• Public Utility Commission Financing Order, Dkt. No. 52302 — identified in the letter as authorizing the described recovery.

Source

• Official Texas STAR letter
• Texas STAR letters search

Original ruling text

Note: This document is also Franchise Tax document 202607004L and a Gross Receipts Tax document 202607005L.

July 9, 2026

RE: Private Letter Ruling No. PLR20250821165319

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated July 30, 2025. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the applicability of the tax-exemption provision contained within Public Utility Regulatory Act (PURA) Chapter 39 (Restructuring of Electric Utility Industry), Subchapter G (Securitization), to securitization transactions authorized under PURA Chapter 36 (Rates), Subchapter I (Securitization for Recovery of System Restoration Costs). In particular, the applicability of the tax-exemption provision to certain transactions associated with Financing Order, Dkt. No. 52302, which authorized the recovery of system restoration costs incurred due to the CITY Derecho and associated storms in May 2024.

Facts Presented

The securitization transaction authorized by PURA Chapter 36, Subchapter I, is accomplished through a Financing Order issued by the Public Utility Commission (the Commission) granting the electric utility the right to impose and collect Transition Charges from electric ratepayers, and allowing the electric utility to securitize the Transition Charges authorized in the Financing Order and the rights granted thereunder by assigning or pledging the same in connection with the issuance of bonds, notes, or other types of indebtedness (Transition Bonds).

Please refer to PURA Chapter 36, Subchapter I, and PURA Chapter 39, Subchapter G, for definitions of any capitalized terms which are not defined herein. Additionally, the Financing Order included in the request refers to the Transition Bonds as "system restoration bonds" and the Transition Charges as "system restoration charges" consistent with the language of PURA, Chapter 36, Subchapter I. For consistency, we will continue to use the terms "Transition Bonds" and "Transition Charges."

** (Taxpayer) is an electric utility organized under Texas law and subject to regulation by the Commission under PURA. On January 24, 2025, Taxpayer filed an application with the Commission for a Financing Order under Chapter 36, Subchapter I, to recover system restoration costs incurred due to the CITY Derecho and associated storms in May 2024. The Financing Order would authorize the issuance of Transition Bonds by one or more newly formed special purpose entities which would each be direct, wholly owned subsidiaries of Taxpayer as well as each being limited liability companies formed under Delaware law (Issuer). The Commission issued the requested Financing Order on June 5, 2025. Taxpayer will transfer all of its rights and interests under the Financing Order to the Issuer prior to the issuance of the Transition Bonds. The rights and interests under the Financing Order will thus become Transition Property pursuant to PURA Section 39.304.

Under the terms of the Financing Order, the Issuer may:

purchase and own the Transition Property and the other Transition Bond collateral;

issue and register one or more series of Transition Bonds;

pledge its interest in the Transition Property and the other Transition Bond collateral to the trustee pursuant to the terms of the indenture under which the Transition Bonds will be issued to secure the Transition Bonds;

make payments on Transition Bonds; and

distribute amounts released to it.

Under the terms of the Financing Order and in connection with Issuer's securitization of Transition Property and issuance of Transition Bonds, Taxpayer may:

contribute cash to Issuer to the extent specified in the Transition Bond Indenture or other agreements or covenants requiring credit enhancement;

act as servicer of the Transition Property for and on behalf of Issuer and receive a fee;

in its capacity as servicer, remit within two business days of receipt all collected Transition Charges to the trustee under the Transition Bond Indenture for deposit in a collection account maintained by the Trustee on behalf of Issuer;

invest Transition Charge collections prior to remittance of Transition Charges to the Trustee;

apply for one or more new financing orders, as necessary; and

take all necessary steps to ensure that the Commission has sufficient and timely information to allow it to fully participate in and exercise its decision-making authority over the proposed securitization.

Taxpayer, as servicer, will be required to file with the Commission for a true-up adjustment at least annually to correct any undercollection or overcollection of Transition Charges and to provide for the billing of Transition Charges necessary to generate the collection of amounts sufficient to timely provide all scheduled payments of principal and interest due in connection with the Transition Bonds. True-up adjustments may also be made more frequently than annually.

Issuer will terminate its operations and dissolve when the Transition Bonds are retired.

Questions, Rulings, and Analysis

Your questions are shown below, followed by our responses and analysis.

Question One: Will the Issuer be subject to or otherwise required to pay any Texas state or local sales or use taxes; franchise, margin, or income taxes; or gross-receipts, capital, or other taxes, fees, charges, levies, or other governmental assessments on any of the following:

sale, contribution, or other transfer of Transition Property or invested capital from Taxpayer to the Issuer, or from the Issuer to one or more third parties;

ownership of Transition Property by the Issuer or Taxpayer;

Transition Charges or any interest or penalties thereon or related thereto received by the Issuer or the indenture trustee as remittances from Taxpayer as servicer;

collections earnings received by the indenture trustee;

earnings on investments or collections received by the Issuer or the indenture trustee; or

any other transactions involving transfer or ownership of Transition Property or Transition Charges?

Question Two: Will Taxpayer be subject to or otherwise required to pay any Texas state or local sales or use taxes; franchise, margin, or income taxes; or gross-receipts, capital, or other taxes, fees, charges, levies, or other governmental assessments on any of the following:

Taxpayer’s receipt of and approved Financing Order;

sale, contribution, or other transfer of Transition Property or invested capital from Taxpayer to the Issuer, or from the Issuer to one or more third parties;

ownership of Transition Property by Taxpayer or the Issuer;

Transition Charges or any interest or penalties thereon or related thereto received by Taxpayer as servicer of the Transition Property;

servicer fees or other earnings or distributions received by Taxpayer; or

any other transactions involving transfer or ownership of Transition Property or Transition Charges?

Ruling One: No. The Issuer will not be subject to or otherwise required to pay any Texas state or local sales or use taxes; franchise, margin, or income taxes; or gross-receipts, capital, or other taxes, fees, charges, levies, or other governmental assessments on the following transactions:

sale, contribution, or other transfer of Transition Property or invested capital from Taxpayer to the Issuer, or from the Issuer to one or more third parties;

ownership of Transition Property by the Issuer or Taxpayer;

Transition Charges or any interest or penalties thereon or related thereto received by the Issuer or the indenture trustee as remittances from Taxpayer as servicer;

collections earnings received by the indenture trustee.

The Issuer will not be subject or otherwise required to pay any Texas state or local sales or use taxes; franchise, margin, or income taxes; or gross-receipts, capital, or other taxes, fees, charges, levies, or other governmental assessments on the following transactions to the extent such transactions involve the transfer and ownership of Transition Property and the receipt of Transition Charges:

earnings on investments or collections received by the Issuer or the indenture trustee; or

any other transactions involving transfer or ownership of Transition Property or Transaction Charges.

Ruling Two: No. Taxpayer will not be subject to or otherwise required to pay any Texas state or local sales or use taxes; franchise, margin, or income taxes; or gross-receipts, capital, or other taxes, fees, charges, levies, or other governmental assessments on any of the following transactions:

Taxpayer’s receipt of and approved Financing Order;

sale, contribution, or other transfer of Transition Property or invested capital from Taxpayer to the Issuer, or from the Issuer to one or more third parties;

ownership of Transition Property by Taxpayer or the Issuer;

Transition Charges or any interest or penalties thereon or related thereto received by Taxpayer as servicer of the Transition Property.

Taxpayer will not be subject to or otherwise required to pay any Texas state or local sales or use taxes; franchise, margin, or income taxes; or gross-receipts, capital, or other taxes, fees, charges, levies, or other governmental assessments on the following transactions to the extent such transactions involve the transfer and ownership of Transition Property and the receipt of Transition Charges:

servicer fees or other earnings or distributions received by Taxpayer; or

any other transactions involving transfer or ownership of Transition Property or Transition Charges.

Analysis: PURA Chapter 39, Subchapter G, was codified in 1999 to provide electric utility providers with securitization financing as a cost-effective mechanism for recovery stranded costs incurred in the deregulation of the electricity generation market. Senate Bill 7, 76th R.S., 1999 - Bill Analysis. Subchapter G allows for the recovery and securitization of Transition Charges, defined as “amounts to be charged for the use or availability of electric services” and used to recover qualified costs. PURA Section 39.302(7) (Definitions). To ensure that both the carrying costs of securitization financing under Subchapter G are less than those incurred using conventional utility financing methods and the securitization provides tangible and quantifiable benefits to ratepayers, the Texas Legislature included certain standards and procedures. PURA Section 39.301 (Purpose).

Among these standards are a pledge by the State of Texas to not “take or permit any action that would impair the value of transition property, or … reduce, alter, or impair the transition charges.” PURA Section 39.310 (Pledge of State). Subchapter G also provides a broad tax exemption from state and local income, sales, franchise, gross receipts, and other taxes or similar charges for “[t]ransactions involving the transfer and ownership of transition property and the receipt of transition charges. PURA Section 39.311 (Tax Exemption). This broad exemption is consistent with the stated purpose of lowering carrying costs.

In 2009, the Texas Legislature extended the use of securitization financing to electric utility providers seeking to recover costs related to the restoration of service and infrastructure damaged in natural disasters and weather-related events, adding Subchapter I to PURA Chapter 36. Senate Bill 769, 81st R.S., 2009 - Bill Analysis. The stated purpose includes almost verbatim language regarding the reduction in carrying costs and the provision of greater tangible and quantifiable benefits to ratepayers than would have been achieved under conventional financing methods. PURA Section 36.401 (Purpose). However, rather than reproduce in Subchapter I the same standards and procedures included in Subchapter G, the Texas Legislature opted to incorporate these standards and procedures by direct reference to Subchapter G. See PURA Section 36.401(b)(1) (“securitization of system restoration costs will be accomplished using the same procedures, standards, and protections for securitization authorized under Subchapter G, Chapter 39”). Having identified the broad tax exemption contained in PURA Section 36.311 as a “protection” against increased carrying costs and reduced benefits to ratepayers, it is clear that the language in PURA Section 36.401(b)(1) intends the same broad tax exemption to apply to securitization financing governed by Subchapter I.

In addition to similar direct references to the “standards, procedures, and tests contained in … Subchapter G,” PURA Section 36.403(a)-(f) also affirms the general applicability of Subchapter G to securitization financing under Subchapter I by expanding the relevant terms and definitions of Subchapter G (“transition bonds” and “transition charges”) to include bonds and charges related to system restoration costs. In this way, the broad tax exemption in PURA Section 36.311 for “[t]ransactions involving the transfer and ownership of transition property and the receipt of transition charges” includes Transition Bonds issued in association with the recovery of system restoration costs and Transition Charges to recover system restoration costs.

Finally, the applicability of Subchapter G’s “procedures, standards, and protections,” including the broad tax exemption in PURA Section 36.311, is confirmed by the structure of Subchapter I itself. None of the sections within Subchapter G that relate to setoff, bypass, true-ups, assignment, default, pledges of the state, or tax-exemption are recreated in Subchapter I. Had only some of these “procedures, standards, and protections” been directly codified in Subchapter I, it would raise questions about the applicability of those that were omitted. Instead, the omission of all such sections, in conjunction with the repeated references to Subchapter G, is consistent with the Texas Legislature’s intent to economically incorporate all of Subchapter G’s “procedures, standards, and protections” into Subchapter I.

In light of this analysis, we agree with the Taxpayer’s position that the broad tax exemption found in PURA Section 36.311 applies to transactions involving the transfer and ownership of Transition Property and the receipt of Transition Charges, including Transition Property and system restoration charges authorized under Subchapter I.

Certain transactions identified by the Taxpayer, including “the sale, contribution, or other transfer of Transition Property or invested capital from Taxpayer to the Issuer,” explicitly refer to the transfer and ownership of Transition Property or the receipt of Transition Charges. These transactions and others like it are exempt from any Texas state or local sales or use taxes; franchise, margin, or income taxes; or gross-receipts, capital, or other taxes, fees, charges, levies, or other governmental assessments.

Other transactions, including Taxpayer’s receipt of “servicer fees or other earnings or distributions,” are more general in nature and may or may not involve the transfer and ownership of Transition Property or the receipt of Transition Charges. We cannot confirm the applicability of the broad tax exemption to each instance of such transactions. Instead, we conclude that these transactions are exempt from any Texas state or local sales or use taxes; franchise, margin, or income taxes; or gross-receipts, capital, or other taxes, fees, charges, levies, or other governmental assessments provided that they involve the transfer and ownership of Transition Property or the receipt of Transition Charges, including Transition Property and system restoration charges authorized under Subchapter I.

The Texas Tax Code and Texas Administrative Code are accessible at:

www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. PLR20250821165319.

Sincerely,

Tax Policy Division – Direct and Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTES

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1 Unless otherwise indicated, all references to “Section” are to the Texas Utilities Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.