By Hudson Sangree

A U.S. district court judge on Monday sided with PG&E Corp. in declining to withdraw the utility’s jurisdictional dispute with FERC from bankruptcy court.

The ruling was a win for PG&E and a rebuff to FERC, which contended it had “concurrent jurisdiction” with the bankruptcy court over power purchase agreements that the company could seek to modify during its Chapter 11 reorganization.

Judge Haywood Gilliam Jr., of the U.S. District Court for the Northern District of California in San Francisco, denied motions by FERC, NextEra Energy and other PG&E contractors to withdraw the case and send it to a federal trial court. The petitioners argued the case hinged on provisions of the Federal Power Act, which the bankruptcy court could not decide. PG&E contended the case could be adequately dealt with under bankruptcy law and need not involve larger questions of federal law.

In his ruling, Gilliam cited a recommendation by Bankruptcy Judge Dennis Montali, who is overseeing PG&E’s reorganization, that the PPA issue be left for him to decide.

In his view, Montali wrote to Gilliam, “all that needs to be done is consider the plain language of Section 365 of the Bankruptcy Code. There you will find the answer to the question of whether FERC can decree that [the code section] must be construed to permit FERC to second-guess the bankruptcy court and impose its own decision on that court.”

The case — and the adversary proceeding PG&E initiated within the context of its broader bankruptcy proceeding — stemmed from two FERC orders issued in late January just prior to the utility’s bankruptcy filing (EL-1935, EL19-36). In response to petitions from NextEra and Exelon, the commission declared it shared authority with the bankruptcy court over any wholesale PPAs that PG&E might seek to modify. (See FERC Claims Authority Over PG&E Contracts in Bankruptcy.)

On the day it filed for bankruptcy, PG&E confirmed in court papers that it hoped to rescind some costly PPAs. (See PG&E Wants to Undo Contracts, Revamp Biz in Bankruptcy.) PG&E said it has 387 PPAs with 350 companies worth about $42 billion. Those PPAs represent 13,668 MW of contracted capacity, it said.

PG&E quickly sought injunctive relief from Montali to prevent generators from seeking FERC relief. Montali must still rule on the injunction, which he told Gilliam he intends to do soon.

Gilliam agreed that resolution of the PPA issue would not necessarily involve the consideration of non-bankruptcy law. Moreover, Gilliam wrote, Montali had already received PG&E’s motion for a preliminary injunction against FERC along with opposing briefs from the commission, NextEra and other generators that had intervened in the case.

The most efficient use of judicial resources would be to let Montali decide the matter, Gilliam wrote.