The 9th U.S. Circuit Court of Appeals on Wednesday vacated two FERC orders that last year threatened to force a jurisdictional standoff with the federal judge overseeing Pacific Gas and Electric’s bankruptcy. The court also vacated an order by the bankruptcy court but declined to resolve the issues at the heart of the dispute.

The conflict goes back to the onset of PG&E’s Chapter 11 proceeding, in January 2019, when FERC issued two declaratory orders saying it shared authority with the U.S. Bankruptcy Court over any of the $42 billion in power purchase agreements that PG&E might seek to modify in bankruptcy (EL19-35, EL19-36). (See FERC Claims Authority over PG&E Contracts in Bankruptcy.)

As part of its bankruptcy filing, PG&E had asked bankruptcy Judge Dennis Montali to issue an injunction confirming his court’s exclusive jurisdiction over the utility’s rights to alter or reject PPAs and other FERC-related agreements.

The issue arose after NextEra and Exelon petitioned FERC for declaratory orders against PG&E because of concern that PG&E would try to get out of high-cost contracts it had signed with owners of solar, wind and other renewable electricity sources.

FERC acknowledged that the law over conflicts between the Federal Power Act and the Bankruptcy Code was unclear. The commission staked out a compromise position asserting that the commission and courts held “concurrent jurisdiction” over PPAs in cases such as PG&E’s.

Montali initially took a cautious approach to the jurisdiction issue, asking FERC’s and PG&E’s attorneys to reconcile their differences over the matter. But once that effort failed, the judge issued a declaratory judgement stating that FERC had no authority over the contracts and that PG&E did not need commission approval to reject any of them. (See ‘FERC Must be Stopped,’ PG&E Bankruptcy Judge Says.)

The dispute became a moot point in the Chapter 11 proceeding when PG&E chose to honor all PPAs with its suppliers.

Clearing the Path

The 9th Circuit’s ruling addressed two petitions: one from PG&E to review FERC’s declaratory orders and another from FERC to review Montali’s declaratory judgement.

“The orders all involved the same question: whether a Chapter 11 debtor can cease performing under its wholesale power contracts with the approval of the bankruptcy court, or whether FERC’s consent is also needed,” the three-judge panel wrote.

“We need not — and cannot — reach the merits of this dispute, because the cases became moot when the bankruptcy court confirmed a reorganization plan requiring PG&E to assume, rather than reject, the contracts at issue,” the court found.

The one remaining question: How to treat the “unreviewed” orders?

The judges moved to vacate all three, applying the rule set forth in Munsingwear v. United States, which holds that “[w]hen a case becomes moot on appeal, the ‘established practice’ is to reverse or vacate the decision below with a direction to dismiss.” That decision “clears the path” for any future relitigating of the issues, preserving the rights of all parties involved while prejudicing none of them “by a decision which … was only preliminary.”

The judges noted that all parties involved in PG&E v. FERC agreed the court should vacate the bankruptcy court’s declaratory judgement. However, FERC and the power suppliers protested giving similar treatment to the commission’s orders, asking that they remain in place.

“FERC and the intervenors point out that PG&E proposed assuming the power contracts in the reorganization plan ultimately confirmed by the bankruptcy court. They argue that PG&E’s involvement in this process renders vacatur inappropriate,” the judges noted.

But the court disagreed, saying the circumstances justified vacatur even though PG&E had a hand in mooting its own petition in the matter.

“Importantly, the company did not intend to circumvent our review of FERC’s orders. … Rather, PG&E twice moved for expedited consideration of these cases so that we could resolve them prior to resolution of the bankruptcy proceedings,” the 9th Circuit found. “The company also urged us to hear the cases over FERC’s related ripeness arguments.”

The court went on to point out that PG&E’s actions to moot Montali’s order were in part attributable to “coercion” by the state of California, which required the utility to reach a bankruptcy plan by June 20 in order to become eligible to draw on the state’s $21 billion wildfire liability fund.

The court also found that vacating FERC’s unreviewed orders would prevent the orders from having an adverse impact on PG&E or any other utility in the future.

“At the heart of these cases lies a dispute concerning FERC’s powers over contract performance, including a question of what constitutes a rate change under the filed-rate doctrine and Federal Power Act,” the court wrote. “These issues could well arise outside of bankruptcy. While the orders are declaratory, and we cannot say with certainty how they might affect PG&E or others, we think the better course is to eliminate that concern.”

The court held that its decision did not express any opinion on the merits of the dispute and should not harm FERC, “as it can easily re-assert its position in future proceedings.”