The Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order on May 1, 2019 denying rehearing of its orders asserting concurrent jurisdiction with a bankruptcy court over wholesale power contracts.
In January, prior to Pacific Gas & Electric (“PG&E”) filing for bankruptcy, NextEra Energy, Inc. and Exelon Corporation both filed complaints and petitions for declaratory orders from FERC, requesting that the Commission find that PG&E could not abrogate, amend, or reject in a bankruptcy proceeding any rates, terms, and conditions of its FERC-jurisdictional wholesale power contracts without first obtaining approval from the Commission. The Commission quickly issued a brief order holding that a party to a FERC-jurisdictional wholesale power contract must obtain approval from both the bankruptcy court and the Commission to reject a contract and modify the filed rate, respectively. PG&E then filed its petition for bankruptcy and initiated an adversarial proceeding against FERC, requesting preliminary and injunctive relief. That matter has continued to play out in the Northern District of California and there has not yet been a resolution by the bankruptcy court. Meanwhile, PG&E requested rehearing of the Commission’s decision. The Commission’s order on rehearing offers a more in-depth analysis of its jurisdiction.
The order first highlights the distinct roles that FERC and a bankruptcy court play in evaluating wholesale power contracts. While FERC’s role is to protect the public interest, the bankruptcy court’s role is to provide a path to rehabilitate debtors. The Commission held that the existence of bankruptcy proceedings does not alter its obligation, and exclusive authorization, to consider whether wholesale rates are just and reasonable.
FERC rejected PG&E’s assertion that its assertion of concurrent jurisdiction creates a conflict, reasoning that there is no inherent conflict in the Commission and bankruptcy’s court different processes and that the Bankruptcy Code specifically contemplates regulatory approvals in Section 1129(a)(6). FERC concluded that “a bankruptcy court’s authorization to reject a wholesale power contract does not relieve the debtor of its separate regulatory obligations under the FPA.”
FERC also dismissed PG&E’s argument that the rejection of a contract is no different than a breach of contract and, unlike an abrogation, does not change the contract’s terms. The Commission explained that: “rejection of a wholesale power contract amounts to more than a simple breach in the typical sense, in that rejection is a court-authorized breach that may result in the complete cessation of performance under the contract. It would eviscerate the Commission’s exclusive jurisdiction under the FPA to hold that rejection of a wholesale power contract permits the unilateral termination of a regulatory obligation by the debtor.” FERC stated that, in the absence of a contract clause permitting unilateral modification, its review of a complaint seeking to modify contract rates would center on whether the Mobile-Sierra presumption applies and, if so, whether modification would be required by the public interest. This analysis would be the same whether or not the entity was in bankruptcy.
The Commission rejected PG&E’s argument that it had alternative and less disruptive means to protect its jurisdiction than asserting concurrent jurisdiction. FERC held that asserting concurrent jurisdiction “such as to require approval from both the bankruptcy court and the Commission,” ensured that FERC would “have an opportunity to review any attempt to modify the filed rate.” FERC rejected arguments that it strayed from its precedent, explaining that the split among federal courts has given it the opportunity to reevaluate its position.
Finally, the Commission explained that while regulatory obligations under the FPA generally fall on the seller of wholesale power and the Commission would not command a purchaser to purchase power, it does have authority to enforce the filed rate and order purchasers to continue to perform under the contracts (unless the purchaser establishes that the contract harms the public interest or the Mobile-Sierra presumption otherwise does not attach to the contract).
PG&E now has the ability to appeal FERC’s order to a federal court of appeals within 60 days.