PG&E renewable energy contracts tied up in bankruptcy battle 

As it begins the long process of reorganizing under bankruptcy protection, Pacific Gas and Electric Co. is locked in a related legal fight over renewable power contracts that involves some of the biggest names in the energy industry.

Led by NextEra Energy Inc., companies that sell wind and solar energy to PG&E are trying to prevent the San Francisco utility from canceling its wholesale contracts with them in an effort to strike cheaper deals in Bankruptcy Court.

NextEra also owns the Florida Power & Light Co. utility. Its recent PG&E-related efforts, which started with federal regulators, have earned support from companies including Consolidated Edison Inc., which owns a utility serving New York City, and Exelon Corp., owner of utilities in Chicago, Washington and Philadelphia, among others.

Days before PG&E Corp. and its utility subsidiary filed for bankruptcy protection – after publicly declaring their intent to do so – the Federal Energy Regulatory Commission declared it had concurrent jurisdiction, which would mean the utility could not unwind its wholesale contracts without approval from federal regulators.

But PG&E has continued to resist, asking the Bankruptcy Court in San Francisco to declare exclusive jurisdiction over the contracts. U.S. Bankruptcy Court Judge Dennis Montali will consider the matter later this month.

PG&E has agreements to purchase power from about 350 energy suppliers representing $42 billion, according to Bankruptcy Court papers. The company says it entered into most of the agreements to satisfy California’s renewable energy requirements, and the contracts typically last for 15 to 20 years or more.

Renewable energy prices have fallen significantly since the contracts were put in place, creating an opportunity for PG&E.

“It’s pretty dramatic. … You’ve seen renewables actually get much more competitive,” said Paul Patterson, a utility analyst with Glenrock Associates. “If you have a contract with a utility, you’d rather not see that go away in the current market environment. That’s kind of the underlying issue.”

The company said it has not made any decisions about whether to assume or reject any of the power purchase agreements, but it wants the freedom to consider the option without also going to federal regulators. Allowing the federal commission to retain authority in the process “could very well impede confirmation of a plan of reorganization,” PG&E told the Bankruptcy Court.

The wholesale contracts aren’t the only way renewable energy is a factor as PG&E tries to reorganize under Chapter 11 of the U.S. Bankruptcy Code. More broadly, the case threatens to limit the part PG&E can play in the state’s efforts to fight climate change, including spending on the infrastructure required to support a huge expansion of charging stations for electric cars.

PG&E “recognizes its important role” in supporting the state’s clean energy projects, and is committed to staying involved as it reorganizes, according to James Noonan, a spokesman for the company.

In an email, Noonan reiterated PG&E’s position that a Chapter 11 restructuring is crucial in allowing the company to continue safely providing gas and electricity. PG&E filed for bankruptcy protection Tuesday because of the potential liability posed by two seasons of devastating Northern California wildfires.

“It will also enable the company to work constructively and collaboratively with policy makers, regulators and relevant stakeholders to consider a range of alternatives to provide for the safe delivery of natural gas and electric service for the long term in an environment that continues to be challenged by climate change,” Noonan said of the bankruptcy.

In trying to assert its authority during PG&E’s bankruptcy reorganization, the federal energy commission is following a commonly trod path, according to Jared Ellias, a UC Hastings associate law professor. He said “lots and lots of government agencies” have tried to intervene in bankruptcy cases.

“The typical script is that the agency declares they’re not subject to the power of the Bankruptcy Court and the Bankruptcy Court issues an order saying otherwise,” Ellias said. “Generally, the Bankruptcy Court wins.”

He noted a recent case involving the bankruptcy of Ohio’s FirstEnergy Solutions Corp. The U.S. Bankruptcy Court in the Northern District of Ohio ultimately issued a preliminary injunction preventing the federal commission from requiring FirstEnergy to follow wholesale power contracts it wanted to reject in bankruptcy. An appeal is pending.

“My guess is that Judge Montali will be persuaded by this reasoning,” Ellias said.

PG&E may face pressure to raise rates during the bankruptcy, especially if it makes major payments to wildfire victims, Patterson said. Lowering the cost of its wholesale contracts could relieve some of the pressure, he said.

“If they’re supposed to compensate these guys, and if they incur a whole bunch of costs associated with that, they may look to other means to offset those costs,” Patterson said. “Ratepayers aren’t some bottomless pit of revenue.”

NextEra, meanwhile, has projected public confidence about PG&E’s bankruptcy. NextEra officials say they expect the subsidiary affected by PG&E’s bankruptcy to meet its growth targets regardless of the utility’s Chapter 11 filing.

“The good news from a market standpoint is, California was obviously the biggest market in the country 10 years ago in the renewable business,” said NextEra CEO James Robo on a recent conference call with analysts. “It isn’t anymore. It’s an important market, but it’s no longer the most important market in the country.”