With the May 1 order, the Commission reaffirms its view that it has concurrent jurisdiction over debtors’ efforts to reject their FERC-jurisdictional contracts in bankruptcy. Further developments in judicial proceedings in the Sixth and Ninth Circuits are expected.
On May 1, 2019, the Federal Energy Regulatory Commission (“FERC” or “the Commission”) denied Pacific Gas and Electric Company’s (“PG&E”) requests for rehearing of two Commission orders asserting concurrent jurisdiction with bankruptcy courts over the disposition of wholesale power contracts PG&E seeks to reject through bankruptcy.1
In its Rehearing Order, the Commission acknowledged a circuit split regarding the relative authorities of the Commission under the Federal Power Act (“FPA”) and the bankruptcy courts under the Bankruptcy Code as they relate to the review and disposition of FERC-jurisdictional contracts in bankruptcy proceedings. However, the Commission affirmed its prior holdings that that “the way to give effect to both the FPA and the Bankruptcy Code is for a party to a Commission-jurisdictional wholesale power contract to obtain approval from both the Commission and the bankruptcy court to modify the filed rate and reject the contract, respectively.”2
On January 29, 2019, PG&E filed for bankruptcy, primarily in connection with liabilities arising from California wildfires. In anticipation of PG&E’s filing, NextEra Energy, Inc. and NextEra Energy Partners, L.P. (collectively “NextEra”) filed a petition for declaratory order and complaint with the Commission, requesting a determination that PG&E may not, through its bankruptcy proceedings, abrogate, amend, or reject any rates, terms, and conditions of its FERC-jurisdictional wholesale power contracts without Commission approval.3 NextEra explained that several of its subsidiaries sell wind and solar renewable energy to PG&E and other utilities under power purchase agreements pursuant to market-based rate tariffs filed with and approved by the Commission. In a separate proceeding, Exelon Corporation (“Exelon”) filed a similar petition for declaratory order and complaint.4 Like NextEra, Exelon’s solar power subsidiary makes wholesale sales to PG&E at market-based rates.
In response to both petitions, the Commission acknowledged that precedent analyzing the interplay between the FPA and Bankruptcy Code is currently unsettled.5 The Commission interpreted the rejection of a contract by a bankruptcy court as altering the contract’s essential terms and conditions and the filed rate, which brings the issue within FERC’s exclusive jurisdiction. In an attempt to give effect to both statutes, the Commission concluded that parties to FERC-jurisdictional power contracts must seek approval from the Commission to modify the filed rate, as well as approval from the bankruptcy court to reject the contract.6
In response, PG&E filed a complaint for declaratory judgment and injunctive relief against the Commission, in addition to filing for bankruptcy, in the Bankruptcy Court for the Northern District of California.7 On April 10, 2019, the bankruptcy court held a hearing to consider, among other things, whether FERC has concurrent jurisdiction over the disposition of wholesale power contracts. The bankruptcy court has not yet issued a determination on this issue.
Please click here for the full client alert.