On May 1, 2019, FERC denied Pacific Gas and Electric Company’s (“PG&E”) requests for rehearing of two prior orders in which FERC held that it and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy. FERC’s order comes as the PG&E bankruptcy proceedings in the United States Bankruptcy Court for the Northern District of California (“Bankruptcy Court”) remain ongoing. The May 1 order affirmed FERC’s earlier conclusions in response to petitions from NextEra Energy, Inc./NextEra Energy Partners and Exelon Corporation that a party to a FERC-jurisdictional wholesale power contract must obtain approval from both the bankruptcy court and FERC to reject a contract and to modify the filed rate, respectively (see January 30, 2019 edition of the WER). FERC clarified that rendering a determination on rejection motions was solely within the bankruptcy court’s province, but also made clear that rejection would not relieve PG&E of its separate regulatory obligations under the Federal Power Act. The order may provide comfort to the Bankruptcy Court, which expressed concern over its exclusive authority to approve a rejection at an April 10 hearing.
In affirming its concurrent jurisdiction, FERC concluded that rejection of the wholesale power contracts at issue alters their essential terms and conditions (i.e., the price, duration, and quantity) and the filed rate, implicating FERC’s exclusive jurisdiction to determine just and reasonable rates and to consider the public interest. In response to PG&E’s arguments that the exercise of FERC’s concurrent jurisdiction would create a conflict with the Bankruptcy Code, FERC held that it is statutorily obligated and exclusively authorized by the Federal Power Act to consider whether the abrogation or modification of a wholesale power contract is necessary to protect the public interest.
FERC also rejected PG&E arguments that rejection of a wholesale power contract in bankruptcy is properly considered only a breach of contract (rather than a modification of the contract terms), implicating neither the filed rate doctrine nor the Commission’s jurisdiction; that FERC jurisdiction could interfere with the bankruptcy process or frustrate a debtor’s ability to reorganize; and that FERC’s exercise of concurrent jurisdiction constituted an unexplained departure from prior FERC precedent. On the last point, FERC noted that there is a split among federal courts regarding the interaction between the Bankruptcy Code and the Federal Power Act in this context, and that its assertion of concurrent jurisdiction was based on its analysis of this precedent.
Finally, FERC rejected PG&E’s argument that the Federal Power Act applies to sellers of power, rather than purchasers, and that in asserting concurrent jurisdiction, FERC would in effect be ordering a purchaser to buy power. FERC explained that it would not command a customer to purchase power, but rather could enforce the wholesale power contract—i.e., the filed rate—including the purchaser’s obligation to perform under that contract.
PG&E has until July 1 to file a petition for review of FERC’s orders in either the United States Court of Appeals for the Ninth Circuit or the District of Columbia Circuit, and may seek relief from the automatic stay to permit it to prosecute the appeal.
In the bankruptcy proceedings, the Bankruptcy Court held a hearing on PG&E’s motion to preliminarily enjoin any FERC action to enforce its orders asserting jurisdiction on April 10 (see March 21, 2019 edition of the WER); that motion remains pending before the Court. As Judge Montali requested, the parties attempted to stipulate to an order to resolve the request for preliminary injunction and permanent declaratory relief. While the parties did not achieve such a resolution, they stipulated that the Judge could resolve the request for declaratory relief, thereby avoiding just a preliminary ruling on the injunction. In addition, the City and County of San Francisco has moved for a determination that the automatic stay of legal proceedings under the Bankruptcy Code does not apply to certain actions pending before FERC related to PG&E’s application of its Wholesale Distribution Tariff to San Francisco. A hearing on San Francisco’s motion before Judge Montali is scheduled for May 9, 2019.
FERC’s May 1 order is available here.