FERC Rebuke Won't Be Last Word In PG&E Power Deals Fight

Josh Cohen, chair of Day Pitney's Bankruptcy and Restructuring practice group was quoted extensively in an article, "FERC Rebuke Won't Be Last Word In PG&E Power Deals Fight," published by Law360. The article discusses Federal Energy Regulatory Commission's (FERC) bid to weigh in on whether Pacific Gas & Electric Co. (PG&E) can shed $42 billion worth of power purchase agreements (PPAs) in its Chapter 11 bankruptcy filing. On June 7, U.S. Bankruptcy Judge Dennis Montali sided with PG&E, saying FERC's claim of concurrent jurisdiction over any wholesale PPAs the utility seeks to reject in bankruptcy "guts and renders meaningless the bankruptcy court's responsibilities."

"The bankruptcy court is staking its ground in what's ultimately somewhat of a turf war," Cohen told Law360. "My sense is that this is headed exactly where most people thought it was, which is ultimately an issue that's going to be decided by courts sitting in appeal."

As reported in the article, the Fifth Circuit has said that wholesale power contracts can be breached without FERC approval, a New York federal court has said it lacks jurisdiction over bids to reject wholesale PPAs, and the Sixth Circuit is currently mulling FERC's appeal of an Ohio bankruptcy court's ruling that FirstEnergy Corp.'s bankrupt merchant unit could shed a PPA with an electricity co-operative. "Is this the case where it will finally go as far as it needs to go in order to resolve the conflicting decisions out there?" Cohen said. "A decision out of the bankruptcy court in California doesn't do a whole lot to resolve the current tension in the law."

Cohen said what Judge Montali's decision could do is tee up the question of whether appellate courts can create a viable scheme for both FERC and the bankruptcy courts to keep their authority. He noted that the judge raised the possibility that appellate courts might conclude that the rejection of PPAs is entitled to more scrutiny, given the public interest concerns. "The bankruptcy court, in that instance, would be mandated to consider those public-facing implications in rendering its decision whether or not to approve the rejection of the contract," Cohen said.

As noted in the article, sources say until multiple appeals courts — and perhaps ultimately the U.S. Supreme Court — clearly outline the roles of FERC and bankruptcy courts in determining the fate of PPAs, regulated utilities and their electricity suppliers won't be assuaged by the most recent ruling in the PG&E case. "Right now, what you've got are cases that are decided all over the place, on all kinds of reasoning and coming out in all different ways," Cohen said. "There is still a lot of tension, and this case doesn't necessarily help to bring it into focus."