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FERC takes a firm stand in PG&E bankruptcy filing

The California-based utility requested that a federal bankruptcy court prevent FERC from enforcing the conditions of the more than 380 power purchase agreements (PPAs) that the utility may want to exit under its Chapter 11 bankruptcy filing.
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FERC takes a firm stand in PG&E bankruptcy filing
The US Federal Energy Regulatory Commission (FERC) reaffirmed its jurisdiction over the power contracts held by PG&E in its latest legal tussle with the utility.

Philip Gordon, Contributor

The California-based utility requested that a federal bankruptcy court prevent FERC from enforcing the conditions of the more than 380 power purchase agreements (PPAs) that the utility may want to exit under its Chapter 11 bankruptcy filing.

FERC responded, arguing that bankruptcy court cannot unilaterally invalidate commission rulings and that approval must be gained from the commission before terms may be altered.

The move follows a recent application for protections of PPA agreements between the utility, Exelon and NextEra.

According to court documents, PG&E hold PPA’s with over 350 companies, with agreements totaling approximately $42 billion. The utility’s PPA partners fear that the utility will look to exit some of its older more expensive renewables contracts in an effort to cut back on liability during its Chapter 11 proceedings.

FERC recently asserted its concurrent jurisdiction with bankruptcy courts in the state.

“These agreements are still subject to the Commission’s jurisdiction and the Commission maintains discretion to exercise its authority,” the agency wrote in its response to Exelon and NextEra.

Following this, PG&E requested an injunction against FERC’s claim, it will “comprehensively assess how each PPA fits within the [its] energy portfolio,” according to a statement from the utility.

“Simply put, Congress has not given FERC a part to play when allowing a debtor to reject contracts in its considered business judgment,” the utility wrote.

PG&E has not given any indication of exiting any of its current agreements.

The commission’s reassertion of its jurisdiction meets the statement head-on, with FERC arguing that even if the court allows the utility to exit some of its agreements, such a ruling would not affect its authority over electricity rates stated in existing contracts.

“If (PG&E officials) decide to reject PPAs under bankruptcy law, they are released only from their contractual obligations, not their regulatory obligations to continue to purchase electricity at the filed rates,” wrote legal representatives for the commission.

Should the utility wish to be released from the rates stipulated in its agreements, it will be required to convince both the bankruptcy court, and “separately seek a modification of the filed rate before FERC.”

“Once approved by FERC, the duty to comply with contractual terms ‘springs from the Commission’s authority, not from the law of private contracts,'” FERC lawyers wrote, quoting a 1952 Supreme Court case. “Thus, a party’s obligation to comply with the filed rate under the (Federal Power Act) stands separate and apart from its contractual duties with its counterparty.”

Both the dispute and the bankruptcy case are currently being heard by the U.S. Bankruptcy Court in San Francisco.

This article was originally published on Smart Energy International and was reprinted with permission.