On March 11, 2019, a U.S. district court judge in California denied FERC’s motion to withdraw the reference of Pacific Gas and Electric’s (“PG&E”) adversary proceeding from the U.S. Bankruptcy Court in the ongoing jurisdictional dispute between FERC and the bankruptcy court. In his ruling, Judge Haywood Gilliam Jr. of the U.S. District Court for the Northern District of California held that removal of the case from the bankruptcy courts was neither required nor permitted because the plain language of the Bankruptcy Code is sufficient to address the questions raised in the proceeding.

On January 25 and 28, 2019, in answer to petitions filed by NextEra Energy, Inc. and NextEra Energy Partners, L.P. (collectively, “NextEra”) and Exelon Corporation, FERC issued two largely identical orders in which FERC recognized the unsettled state of the law but ultimately concluded that FERC and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of FERC-jurisdictional wholesale power contracts that could be rejected through PG&E’s bankruptcy proceedings (the “FERC Orders”) (see January 30, 2018 edition of the WER). On January 29, 2019, PG&E filed for voluntary Chapter 11 bankruptcy protection and, on the same day, filed an adversary proceeding against FERC, seeking declaratory and injunctive relief against FERC (the “Adversary Proceeding”). According to Judge Gilliam Jr., PG&E filed the Adversary Proceeding in response to FERC’s January 25 and 28 rulings because it believed those rulings conflict with PG&E’s right to reject certain wholesale power sales agreements in bankruptcy proceedings.

On January 30 and February 6, 2019, NextEra and FERC respectively filed motions to remove the Adversary Proceeding from U.S. Bankruptcy Court. The motions stated that withdrawal was mandatory because issues raised in the Adversary Proceeding required material consideration of non-bankruptcy federal laws. Summarized, the motions argued that the Adversary Proceeding requires extensive consideration of the Federal Power Act, the Bankruptcy Code, and the interaction between the two federal statutory schemes, and therefore the withdrawal of the Adversary Proceedings from the Bankruptcy Court was mandatory.

In response to these motions, Judge Gilliam Jr. cited Judge Dennis Montali—the bankruptcy judge from whom NextEra and FERC sought to withdraw the Adversary Proceeding—who stated that it was his belief that the plain language of the Bankruptcy Code on its own could sufficiently address the questions raised in the Adversary Proceeding. Judge Gilliam Jr. agreed with Judge Montali’s assessment and stated that the questions raised in the Adversary Proceeding do not mandate withdrawal. Judge Gilliam Jr. also considered whether permissive withdrawal of the Adversary Proceeding was appropriate. Due to the significant study and preparation already done by the bankruptcy court, and with the aim of efficiently using judicial resources, Judge Gilliam Jr. found that permissive withdrawal was not warranted.

The hearing on PG&E’s request for a preliminary injunction before Judge Montali is scheduled for April 10, 2019. PG&E seeks to enjoin any party from enforcing the FERC Orders so that PG&E will not have to obtain FERC’s authorization in order to effect a rejection of FERC-jurisdictional wholesale power sales agreements.

A copy of the Judge Gilliam Jr.’s order is available here.