By Robert Mullin

FERC on Wednesday rejected Pacific Gas and Electric’s request to rehear a January ruling in which the commission asserted that it shares authority with a federal bankruptcy judge over any power purchase agreements the utility might seek to modify after filing for Chapter 11 protection.

The commission’s order also consolidated separate petitions by NextEra Energy (EL19-35) and Exelon (EL19-36) for declaratory orders preventing PG&E from reneging on high-cost contracts with renewable generators.

As part of its January Chapter 11 filing, PG&E asked the U.S. Bankruptcy Court in San Francisco to issue an injunction confirming its exclusive jurisdiction over the utility’s right to reject PPAs and other FERC-regulated agreements.

At a hearing April 10, PG&E attorney Theodore Tsekerides strenuously argued for Bankruptcy Judge Dennis Montali to impose a permanent injunction preventing FERC from interfering with the bankruptcy case. But Montali declined to make an immediate decision, instead asking lawyers to reach a compromise. (See Judge Puts off Decision in PG&E v. FERC.)

In arguing against an injunction, FERC’s lawyer told Montali that a compromise was possible but would be subject to commission approval. Wednesday’s decision suggests the commission is prepared to give little ground over the matter.

In its rehearing request, PG&E contended that FERC’s initial order failed to acknowledge Congress’ intent in enacting the bankruptcy code, specifically “to permit the successful rehabilitation of debtors” and “prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources.”

The utility further argued that debtor-in-possession status provides the flexibility to assume or reject any contracts until a reorganization plan is established, and that the law does not exempt wholesale power contracts from that process.

PG&E also asserted that the commission’s requirement that it approve contract changes could prevent the utility from abrogating contracts despite bankruptcy court approval, depriving the utility of the flexibility intended by Section 365 of the bankruptcy code.

In rejecting rehearing, FERC insisted that it holds joint authority over the fate of the PPAs.

The commission said the Supreme Court has “long recognized” that the Federal Power Act “is designed to protect consumers” and that the commission protects the public interest in evaluating the rates, terms and conditions of PPAs.

“By contrast, the purpose of the bankruptcy code, as PG&E acknowledges, is to provide a path to rehabilitate bankrupt debtors,” the commission wrote. “These are two distinct, yet vitally important, roles, and we conclude that it is necessary to give effect to both.”

FERC said wholesale power agreements are not “simple run-of-the-mill” contracts between private parties. Instead, they “implicate the public’s interest in the orderly production of plentiful supplies of electricity at just and reasonable rates and, as filed rates, carry the force of law binding sellers and purchasers alike.”

“Whether a wholesale rate is just and reasonable — and whether the abrogation or modification of a wholesale power contract is necessary to protect the public interest — is a question that the commission is statutorily obligated — and exclusively authorized — to consider,” the commission said.

The commission’s “unique role” in making such determinations regarding contracts “neither subsumes nor is subsumed by” bankruptcy law, FERC said. The seeking of bankruptcy protection “does not transform commission-jurisdictional contracts into non-jurisdictional ones … and it does not divest the commission of its statutory mandate to protect the public interest by examining the ramifications of unilateral changes to wholesale power contracts, a highly technical analysis that the bankruptcy process is not designed to consider.”

On Thursday, Justice Department lawyers filed the FERC decision with the bankruptcy court and requested Montali take judicial notice of the decision, establishing it as evidence in the case. It remains unclear when Montali might rule on PG&E’s petition for an injunction against FERC. The next hearing in PG&E’s bankruptcy is scheduled for May 8 at 9:30 a.m.

Hudson Sangree contributed to this report.