By Hudson Sangree

Generators worried that Pacific Gas and Electric will try to reject billions of dollars in power purchase agreements during its bankruptcy proceeding said they will appeal a federal judge’s recent order telling FERC it has no authority over the agreements.

NextEra Energy, Calpine and Consolidated Edison Development filed notices of appeal with the U.S. Bankruptcy Court in San Francisco on Thursday. They want FERC to have concurrent jurisdiction with the court over the PPAs.

The generators’ filing came the day after Judge Dennis Montali certified the matter for direct appeal to the 9th U.S. Circuit Court of Appeals, saying it “is very much a matter of public importance,” involving what is likely the largest utility bankruptcy in U.S. history, and ought to be decided quickly.

“Also of great importance, though not directly related to the rejection issue, are billions of dollars in claims arising from the tragic wildfires that occurred principally in 2017 and 2018 in Northern California for which [PG&E bears] substantial liability,” Montali wrote in a memorandum for the appeals court.

The fires include the fatal wine country fires of October 2017 in Napa and Sonoma counties and the Camp Fire, the deadliest in state history, which killed at least 85 people in November 2018 and destroyed the town of Paradise.

“In some cases [PG&E’s] liability is a result of [its] direct actions and in others because of … strict liability under California’s inverse condemnation laws,” the judge said. “These wildfires are the principal publicly stated reasons why the debtors filed for bankruptcy.” (See PG&E Wants to Undo Contracts, Revamp Biz in Bankruptcy.)

Power Play

On June 7, Montali had issued another memorandum saying “FERC must be stopped” from undermining the bankruptcy court’s oversight of contracts PG&E might seek to reject during Chapter 11 reorganization.

Montali said FERC has no authority over the $42 billion in PPAs signed by the utility or its parent company PG&E Corp., despite the commission’s assertion that it shares jurisdiction in the matter with the court. (See ‘FERC must be Stopped,’ PG&E Bankruptcy Judge Says.)

The FERC decisions “discussed here were not the actions of a power regulator carrying out its statutory duties to police rates, terms and conditions of power contracts, and enforcing the filed-rate doctrine,” Montali wrote. “To be blunt, they were unauthorized acts of the power regulator executing a power play (to use a hockey term) to curtail the role of the court acting within its authorized and exclusive role in these bankruptcy cases. Those decisions cannot be applied or honored here.”

Montali emphasized that FERC does not have concurrent jurisdiction — “or any jurisdiction” — over the authorization of any rejections of PPAs. “Debtors do not need approval from [FERC] to reject any of their power purchase contracts,” he said.

In response to petitions by NextEra and Exelon, FERC declared in January that it shares authority over PG&E’s wholesale PPAs with the bankruptcy court. (See FERC Claims Authority Over PG&E Contracts in Bankruptcy.) In May, it rejected a rehearing request by PG&E, saying the wholesale PPAs “implicate the public’s interest in the orderly production of plentiful supplies of electricity at just and reasonable rates” and so fall under FERC jurisdiction. (See FERC Denies PG&E Rehearing Over Contracts Dispute.)

PG&E asked Montali to tell FERC not to meddle in its bankruptcy proceedings, which he did, and requested an injunction against FERC, which he said was unwarranted.

“There is no need to enjoin anyone or any action now,” he wrote in June.

Montali has said all along that he thinks the 9th Circuit needs to decide the competing viewpoints of federal authorities and that he wanted to expedite that process.

“The central issue of whether a bankruptcy court alone may grant or deny a motion to reject a PPA as an executory contract, or whether FERC has a say in the question by virtue of its claimed ‘exclusive jurisdiction’ [over wholesale PPAs], has not been addressed by any reported 9th Circuit decision or by the United States Supreme Court,” Montali wrote.

The case involves up to 400 contracts for power, the rejection of which “will give rise to substantial damage claims because rejection constitutes a breach under current bankruptcy law,” the judge said. “How those damage claims will be treated under any Chapter 11 reorganization plan will inevitably be interrelated with how the wildfire-related claims will be treated.

“If FERC has a say in the rejection decision because its authority is upheld as ‘concurrent’ with this court’s, an extremely complicated situation will be rendered all the more complicated and time-consuming, possibly delaying further the ultimate resolution, settlement and payment of those wildfire and contractual claims,” Montali said.