In a case involving California investor-owned utility Pacific Gas & Electric, which is poised to file for bankruptcy protection, the Federal Energy Regulatory Commission on Jan. 25 clarified that it has concurrent jurisdiction with bankruptcy courts to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy.
Earlier this month, NextEra Energy, Inc. and NextEra Energy Partners L.P. filed a petition for declaratory order and complaint against PG&E (Docket No. EL19-35). The petition asked FERC to find that, if PG&E files for bankruptcy, PG&E may not abrogate, amend, or reject in a bankruptcy proceeding any rates, terms and conditions of its wholesale power purchase agreements subject to the Commission’s jurisdiction without first obtaining approval from the Commission under Federal Power Act sections 205 and 206.
Facing at least $30 billion in wildfire-related liabilities, PG&E Corp. is preparing to file for bankruptcy, a move the company says will allow its electric and natural gas utility to keep operating. The company on Jan. 14 said that it provided the 15-day advance notice required by a recently enacted California law that it and its wholly owned subsidiary PG&E currently intend to file petitions to reorganize under Chapter 11 of the U.S. Bankruptcy Code on or about Jan. 29.
Details on NextEra petition
Several of NextEra’s subsidiaries sell wind and solar energy to PG&E, pursuant to market-based rate authority, under various wholesale power purchase agreements.
In order to protect its wholesale power purchase agreements, NextEra asked 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.
NextEra argued that FERC has exclusive jurisdiction to regulate the rates, terms, and conditions of PG&E’s wholesale power purchase agreements. NextEra asserted that, when enacting the FPA, Congress created a comprehensive regulatory framework for protecting the public interest and entrusted the Commission with the sole 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.
In response, PG&E said that the Commission should deny NextEra’s petition. According to PG&E, a Commission order limiting PG&E’s rights prior to its bankruptcy filing would violate the FPA and the Bankruptcy Code and would also contravene the terms of the agreements between NextEra and PG&E.
PG&E offered three reasons in support of its position. First, the utility argued 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 claimed 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 stated that the Commission is not authorized to order a buyer to continue to purchase power. According to PG&E, such Commission action, as well as the Commission’s potential involvement in the bankruptcy of any company involved in purchasing power, would represent a significant expansion of the Commission’s authority.
Second, PG&E argued that the bankruptcy court will have jurisdiction over the issues raised in the petition and that the Bankruptcy Code does not list wholesale power purchase agreements among the specific obligations that cannot be discharged in bankruptcy.
Third, PG&E asserted that FERC should disclaim jurisdiction in this proceeding in light of the specific contracts at issue.
FERC says it has concurrent jurisdiction with bankruptcy courts
In its order, FERC provided clarification on the Commission’s position with respect to the issues raised in the petition. “In so doing, we acknowledge that the law in this area is unsettled.” FERC noted that several courts have read the relevant provisions of the FPA and the Bankruptcy Code and reached different conclusions as to how the statutes should apply when a utility seeks to reject FERC-jurisdictional wholesale power contracts in a bankruptcy proceeding
FERC said that it 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 determined 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.”
FERC said that courts have repeatedly acknowledged the broad scope of the Commission’s statutory jurisdiction over rates, terms, and conditions of wholesale electricity sales. The Commission’s exclusive authority to determine the reasonableness of wholesale electricity rates also extends to the rates, terms, and conditions of wholesale power agreements, as well as changes to those agreements, it said.
“The Commission’s broad and plenary authority over wholesale electricity rates led to the development of the filed-rate doctrine, which holds a party ‘can claim no rate as a legal right that is other than the filed rate, whether fixed or merely accepted by the Commission, and not even a court can authorize commerce in the commodity on other terms,’” FERC said.
Under the FPA, the Commission determines the filed rate, and except for review of the Commission’s orders, the courts can assume no right to a different one, FERC said. “We find that a rejection of a Commission-jurisdictional contract in a bankruptcy court alters the essential terms and conditions of the contract and the filed rate; thus, this Commission’s jurisdiction is implicated, and our approval is required.”
FERC said it disagreed with PG&E’s assertion that a Commission order addressing NextEra’s petition prior to PG&E’s bankruptcy filing would violate the FPA and the Bankruptcy Code. “We are similarly unpersuaded by the argument that NextEra’s petition is without merit because it was filed in advance of PG&E’s anticipated bankruptcy. Given that the law is unsettled, under the circumstances here, we find it appropriate for parties to raise concerns related to activities covered by the provisions of the FPA, including the rates, terms, and conditions of wholesale power agreements.”