In orders issued on January 25 and 28, 2019, FERC concluded that the Commission and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of FERC-jurisdictional contracts sought to be rejected through bankruptcy and, therefore, a party to a FERC-jurisdictional wholesale power agreement must first obtain approval from both FERC and the bankruptcy court to modify the filed rate and reject the filed wholesale power contract, respectively. FERC made its determination in response to two separate petitions (“Petitions”) filed by NextEra Energy, Inc. and NextEra Energy Partners, L.P. (collectively, “NextEra”) and Exelon Corporation (“Exelon”), individually, against Pacific Gas and Electric Company (“PG&E”). In those Petitions, NextEra and Exelon asked FERC to clarify its authority regarding the prospect of PG&E seeking to reject or amend FERC-jurisdictional wholesale power agreements in its anticipated bankruptcy proceeding. On January 29, 2019, PG&E submitted its anticipated bankruptcy filing in the U.S. Bankruptcy Court for the Northern District of California.
On January 18 and 22, 2019, NextEra and Exelon filed their respective Petitions following PG&E’s announcement that it would file, on or around January 29, 2019, for bankruptcy protection due to, among other things, potential liability arising from wildfire damage in California. In order to protect the wholesale power agreements between PG&E and their respective subsidiaries, NextEra and Exelon each requested that FERC issue an order preventing PG&E from abrogating, amending, or rejecting its FERC-jurisdictional wholesale power agreements in any bankruptcy proceedings initiated by PG&E without first obtaining approval from FERC. Both NextEra and Exelon argued that FERC has exclusive jurisdiction to regulate the wholesale power agreements. While NextEra and Exelon acknowledged that the Bankruptcy Code gives the bankruptcy court broad authority to assume or reject a contract of a bankrupt entity, both argued that such authority cannot contravene FERC’s sole authority under the Federal Power Act (“FPA”).
On January 22 and January 24, 2019, PG&E asked FERC to dismiss the Petitions. According to PG&E, a FERC order limiting PG&E’s rights prior to its bankruptcy filing would violate both the FPA and the Bankruptcy Code. PG&E argued that the FPA only gives FERC jurisdiction over the sale of power, not the purchase of power. Additionally, PG&E claimed that the bankruptcy court has jurisdiction over the issues raised, with wholesale power agreements among those obligations that cannot be discharged. Finally, PG&E argued that FERC’s exercise of jurisdiction would breach the terms of the actual power agreements.
While acknowledging the unsettled state of the law, FERC concluded that FERC and the bankruptcy courts have concurrent jurisdiction to address wholesale power contracts sought to be rejected through bankruptcy. FERC explained that the filed-rate doctrine empowers FERC, and FERC alone, to judge whether a change to the filed rate is reasonable before the modified rate may be charged. FERC found that a bankruptcy court’s rejection of a FERC-jurisdictional contract alters the essential terms of that contract, i.e., the filed rate, which triggers FERC’s jurisdiction and requires FERC’s approval. FERC also rejected PG&E’s assertion that a Commission order limiting PG&E’s rights prior to its bankruptcy filing would violate the FPA and the Bankruptcy Code. FERC found that it is appropriate for parties to raise concerns related to activities subject to FERC’s jurisdiction, such as the rates, terms, and conditions of wholesale power contracts. In its order addressing NextEra’s petition, FERC emphasized that its order is not a review of the specific wholesale contracts at issue, but rather it serves to explain FERC’s concurrent jurisdiction with the bankruptcy court concerning wholesale power contracts.
On January 29, 2019, PG&E filed for filed for voluntary Chapter 11 bankruptcy protection. As part of its filing, PG&E filed an adversary case (complaint) with the Bankruptcy Court against FERC seeking declaratory and injunctive relief against FERC. PG&E requested that the Bankruptcy Court declare that it alone has jurisdiction over rejection of executory contracts, that FERC is subject to the automatic stay and that it therefore may not enforce the orders described above. To the extent the automatic stay does not apply, PG&E requested an injunction preventing FERC from enforcing its orders regarding concurrent jurisdiction over wholesale power contracts.
A copy of FERC’s order addressing NextEra’s petition is available here.
A copy of FERC’s order addressing Exelon’s petition is available here.
A copy of PG&E’s Complaint is available here: https://restructuring.primeclerk.com/pge/Home-DownloadPDF?id1=MTI5MDgw&id2=0.
A copy of PG&E’s Motion for Preliminary Injunction is available here: https://restructuring.primeclerk.com/pge/Home-DownloadPDF?id1=MTI5MTUy&id2=0.