Relevant Document:Petition
On Friday, NextEra Energy submitted a petition to the Federal Energy Regulatory Commission, or FERC,
seeking a declaration that if PG&E Corp. files for bankruptcy, “PG&E may not abrogate, amend or reject in bankruptcy any of the rates, terms and conditions of its wholesale power purchase agreements subject to this Commission’s jurisdiction” without first obtaining approval from FERC (emphasis added). A PG&E chapter 11 filing in the Northern District of California appears
imminent, and this morning the company announced a $5.5 billion
commitment for DIP financing.
NextEra’s petition also seeks expedited consideration from FERC and requests a ruling no later than Jan. 25 in order to “reduce the risk that PG&E may attempt to obtain a restraining order or injunction in order to disable this Commission from exercising its exclusive jurisdiction over filed rates.”
In its petition, NextEra says that if PG&E files for bankruptcy it “undoubtedly will, like [] certain utilities that have sought bankruptcy relief before it, ask the bankruptcy court to enjoin a proceeding by this Commission from exercising its [Federal Power Act] jurisdiction over such contracts or from issuing an order to stay PG&E or the bankruptcy court from interfering in the workings of the wholesale market while the Commission evaluates the effects of any such interference pursuant to the requirements of the FPA.”
In the recent FirstEnergy chapter 11 bankruptcy, the court
granted a preliminary injunction against FERC preliminarily enjoining it from taking any action or issuing any order requiring the FirstEnergy debtors to continue performing under several PPAs that the debtors were seeking to reject in the chapter 11 cases. In FirstEnergy, the bankruptcy judge found, among other things, that (i) the automatic stay under section 362 of the Bankruptcy Code likely already enjoined the actions of FERC and that the police power exception to the automatic stay did not apply and (ii) even if the automatic stay did not apply, section 105 of the Bankruptcy Code permitted the court to enjoin FERC because the FPA does not pre-empt the Bankruptcy Code and that the rejection of a contract as well as the resulting damages claim and the treatment accorded to the claim were bankruptcy matters belonging in the bankruptcy court. That decision is currently on appeal at the U.S. Court of Appeals for the Sixth Circuit. Neither the FirstEnergy bankruptcy court’s decision nor a decision of the Sixth Circuit would be binding on a Northern California bankruptcy court or other courts within the Ninth Circuit.
NextEra argues that FERC has exclusive jurisdiction under the Federal Power Act to regulate the rates, terms and conditions of PG&E’s wholesale contracts, or PPAs. Accordingly, NextEra says that a bankruptcy court exercising its jurisdiction over the rejection of contracts under section 365 of the Bankruptcy Code cannot deprive FERC of its exclusive authority under the FPA.
In its petition, NextEra cites favorable decisions from the Southern District of New York - including
NRG Energy,
Calpine and
Boston Generating - for the proposition that FERC maintains exclusive jurisdiction over PPAs and in determining the public interest and argues against the Fifth Circuit’s 2004
Mirant decision (and thereby the
FirstEnergy decision), which found that a bankruptcy court’s approval of the rejection of a PPA does not invade FERC’s exclusive jurisdiction. According to NextEra, in
Calpine, in a “thorough and well-reasoned decision, the court held that this Commission has exclusive jurisdiction to regulate the rates, terms and conditions of wholesale electricity contracts and that a bankruptcy court may not invade the Commission’s jurisdiction by rejecting wholesale contracts.” In
Boston Generating, NextEra says that while the court recognized that the bankruptcy court had the authority to approve the rejection of a contract, it also held that “‘the Debtors must also obtain a ruling from FERC that abrogation of the contract does not contravene the public interest.’”
NextEra stresses that FERC should rely on
Calpine and
Boston Generating rather than
Mirant “because those later decisions are better-reasoned and more respectful of the filed rate doctrine and the Commission’s important regulatory responsibilities under the FPA.” The decisions emanating out of the Southern District of New York - which is in the Second Circuit - or the Fifth Circuit would also not be binding on a Northern California bankruptcy court or other courts within the Ninth CIrcuit.
According to NextEra, the Ninth Circuit has “extensive precedent applying the filed rate doctrine to deny collateral attacks on the Commission’s exclusive jurisdiction to regulate wholesale power contracts - whether those contracts were separately filed with the Commission or entered into pursuant to market-based rate authority.”
In arguing against the
Mirant decision, NextEra says that the rejection of a PPA in bankruptcy is more than a simple breach of that contract but instead “terminates the contract before the agreed upon term has expired, and, therefore, effectively amends or modifies the obligation to deliver wholesale power for the term of the contract.” Further, NextEra argues that an authorized rejection in bankruptcy of a PPA also “authorizes, as the exclusive form of relief, that the counterparty bring an unsecured claim against the bankrupt estate” and that that has a “
direct effect on the rate charged under the agreement” because there is a “substantial risk (indeed, a near certainty) that the counterparty to a PG&E Wholesale Contract rejected in bankruptcy will recover a rate that is different from the FERC-approved rate in its contract.”
NextEra also argues that policy considerations warrant FERC embracing the reasoning in
Calpine and
Boston Generating and not
Mirant. According to NextEra,
rejection of PG&E’s PPAs (at least those with NextEra) “will not have a significant impact on PG&E’s estate ... because PG&E’s purchased power costs generally are passed through to its customers and, therefore, those costs do not shrink PG&E’s estate” (emphasis added). Accordingly, PG&E’s estate for distribution among creditors would not increase if those contracts are rejected, and indeed, “the rejection of PG&E’s Wholesale Contracts will significantly increase the claims against the estate and therefore proportionally reduce the level of distributions to other creditors, including victims of the California wildfires who also file claims against PG&E,” NextEra argues.