Thursday, February 21, 2019

FERC Claims Authority over PG&E Contracts in Bankruptcy

By Hudson Sangree

FERC said it shares authority with the federal bankruptcy court over any power purchase agreements Pacific Gas and Electric seeks to modify after filing for bankruptcy, as the utility did on Tuesday.

The commission ruled Friday in a petition by NextEra Energy (EL19-35) and on Monday in response to one by Exelon (EL19-36).

As part of its bankruptcy filing, PG&E asked the U.S. Bankruptcy Court on Tuesday to issue an injunction confirming its exclusive jurisdiction over the debtors’ rights to reject PPAs and other FERC-regulated agreements. (See related story, PG&E Files for Bankruptcy.)

The issue arose after NextEra and Exelon petitioned FERC for declaratory orders against PG&E because it was concerned, as many generators have been, that the utility would try to get out of high-cost contracts it had signed with owners of solar, wind and other renewable electricity sources.

NextEra’s and Exelon’s subsidiaries sell wind and solar energy to PG&E.

In its petition, NextEra asserted that the Federal Power Act created “a comprehensive regulatory framework for protecting the public interest” and entrusted the commission with “the authority to implement that framework.”

“According to NextEra, the core of the commission’s regulatory responsibilities under the FPA is the exclusive authority to regulate the rates, terms and conditions for interstate transmission and wholesale sales of electric energy under FPA Sections 205 and 206.8,” FERC wrote.

NextEra is concerned about its solar and wind power purchase agreements with PG&E if the utility enters bankruptcy. | NextEra

The commission explained that to protect its wholesale PPAs, “NextEra requests that the commission issue an order finding PG&E may not abrogate, amend or reject its commission-jurisdictional wholesale power purchase agreements with NextEra in any bankruptcy proceedings that may be initiated by PG&E without first obtaining approval from the commission under FPA Sections 205 or 206.6.”

NextEra cited the filed-rate doctrine to argue that rates filed and approved by FERC have the authority of federal regulations and cannot be undone except with FERC approval.

Dozens of generators and other entities filed motions to intervene and comments in support of NextEra’s petition. They include the 550-MW Topaz Solar Farms, in central California, one of the nation’s largest solar installations. Topaz, owned by Berkshire Hathaway Energy, saw its credit rating cut to junk status this month because it had an exclusive 25-year PPA with PG&E. (See PG&E Credit Woes Spread, Worrying CAISO Members.)

PG&E argued that a FERC order limiting its rights prior to its bankruptcy filing would violate the FPA and the U.S. Bankruptcy Code.

PG&E also contended that “NextEra’s petition is speculative and hypothetical because PG&E’s bankruptcy has not yet occurred and no action has been taken with regard to any particular contract. Additionally, PG&E claims that the commission’s jurisdiction under the FPA applies to the sale, but not the purchase, of power, and by extension, to sellers, but not buyers, of power. Accordingly, PG&E states that the commission is not authorized to order a buyer to continue to purchase power.”

FERC acknowledged that the law was unsettled when it came to contested authority between the FPA and Bankruptcy Code and between FERC and the courts. It took a middle road, saying the commission and courts share authority in cases like PG&E’s.

“Against this background, and given the unsettled state of the law, we have reviewed the FPA and Bankruptcy Code in light of the arguments raised in the petition and conclude that this commission and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy,” FERC wrote.

“We find that to give effect to both the FPA and the Bankruptcy Code, a party to a commission-jurisdictional wholesale power purchase agreement must obtain approval from both the commission and the bankruptcy court to modify the filed rate and reject the contract, respectively.”

In a research note issued to its clients Saturday, ClearView Energy Partners said FERC’s order did not bar PG&E from seeking to reject its PPAs before obtaining the commission’s approval.

“Instead, we read last night’s order as FERC asserting that as a generic matter such contract abrogation in the bankruptcy context would eventually require its approval,” the research firm said.

ClearView said the commission was taking the position established in the Boston Generating bankruptcy proceeding, where the litigating parties agreed that FERC and the U.S. district court had concurrent jurisdiction over changes to PPAs.

It concluded that “we continue to expect that PG&E may not have a free hand to reject the PPAs it currently holds,” specifically those signed with renewable resources needed to meet California’s public policy objectives.

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