Monday, March 18, 2019

Judge Sends Mixed Signals on PG&E Contract Dispute

By Hudson Sangree

The federal judge overseeing Pacific Gas and Electric’s bankruptcy case suggested last week he might prohibit the utility’s electricity suppliers from seeking FERC’s help with disputed contracts and order the agency to leave the fate of the contracts to the Bankruptcy Court.

At the request of NextEra Energy and Exelon, FERC declared last month it shares authority over PG&E’s wholesale power purchase agreements with the court. (See FERC Claims Authority Over PG&E Contracts in Bankruptcy.)

PG&E’s financial collapse is being managed from its headquarters at 77 Beale St. in San Francisco.

PG&E last month moved for an injunction blocking FERC interference in its Chapter 11 reorganization, brought about by the utility’s potential liability for billions of dollars in wildfire damages. (See Bankruptcy Only ‘Viable’ Option for PG&E, Lawyer says.)

PG&E has indicated it may seek to rescind costly PPAs with solar and wind generators. The utility said it has 387 power purchase agreements with 350 companies worth about $42 billion. Some PPAs, entered into before wind and solar dropped in price, are likely far above current market rates. (See PG&E Wants to Undo Contracts, Revamp Biz in Bankruptcy.)

“The debtors respectfully request that this court issue an order …. [blocking] any entity’s attempt to enforce the FERC order, and any action by FERC, or any other entity, that would attempt to divest or otherwise nullify or impede this court’s exclusive authority to approve or deny the debtors’ requests to assume or reject executory contracts under Section 365 of the Bankruptcy Code,” PG&E’s lawyers wrote in their Jan. 29 motion.

At a hearing Thursday, lawyers for PG&E and generators including NextEra and Calpine, which have PPAs with PG&E, debated the pros and cons of an injunction before Judge Dennis Montali, of the U.S. Bankruptcy Court in San Francisco.

Judge Dennis Montali | Commercial Law League of America

To preserve their PPAs, the generators are seeking to intervene in the PG&E bankruptcy case — another issue Montali must ultimately decide. They also want Montali to deny the injunction.

FERC wants the jurisdictional dispute, involving the Bankruptcy Code and Federal Power Act, heard by a U.S. Circuit Court of Appeals. “The circuit courts have ‘exclusive’ jurisdiction to ‘affirm, modify or set aside’ FERC orders,” lawyers with the U.S. Justice Department argued in court papers filed Feb. 6.

The adversarial proceeding between PG&E and FERC is separate from the utility’s bankruptcy, but the cases are closely linked and are both being heard by Montali for now. FERC’s motion to withdraw the adversarial proceeding from Montali’s courtroom is pending a hearing in May.

At times during Thursday’s hearing, Montali questioned the need for an injunction, but at other points he seemed inclined to issue one. Toward the end of the hearing, he said he might even skip the usual step of issuing a preliminary injunction and move straight to a permanent injunction.

There are no disputed facts in the case, just questions of law, he noted. Issuing a permanent injunction would allow the generators to file a direct appeal, letting a higher court decide the matter and speeding up the case, he said.

“There’s nothing to do between preliminary and permanent” because there are no factual disputes to resolve at trial, Montali said.

In the end, the judge put off a decision, giving FERC time to file its written arguments. The next hearing in the matter is scheduled for Feb. 27.

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