On January 25 and 28, 2019, FERC concluded that it has concurrent jurisdiction to review and address the disposition of wholesale power purchase agreements (“PPAs”) up for rejection in a bankruptcy proceeding and, therefore, a party to a FERC-jurisdictional wholesale PPA must first obtain approval from both FERC and the bankruptcy court to modify the filed rate and reject the filed PPA, 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 PPAs in its anticipated bankruptcy proceeding. On January 28, 2019, PG&E proceeded with 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 each filed their respective Petitions following PG&E’s recent announcement that it will 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 PPAs between NextEra’s subsidiaries and PG&E, NextEra requested that FERC issue an order preventing PG&E from abrogating, amending, or rejecting its FERC-jurisdictional wholesale PPAs with NextEra in any bankruptcy proceedings initiated by PG&E without first obtaining approval from FERC. Exelon made a similar request in its Petition. Both NextEra and Exelon argued that FERC has exclusive jurisdiction to regulate the wholesale PPAs. 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 PPAs among those obligations that cannot be discharged. Finally, PG&E argued that FERC’s exercise of jurisdiction would breach the terms of the actual PPAs.
While acknowledging the unsettled state of the law, FERC concluded that the Commission and the bankruptcy courts have concurrent jurisdiction to address wholesale PPAs 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 wholesale PPA 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 PPAs. In its order addressing NextEra’s petition, FERC emphasized that its order is not a review of the specific wholesale PPAs at issue but rather it serves to explain FERC’s concurrent jurisdiction with the bankruptcy court concerning wholesale PPAs.
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.