The PG E bankruptcy Case 1 Whether the Bankruptcy Court or FERC should have jurisdiction over PG E's decision to assume or reject its solar power purchase agreements 2 Who does Governor Newsom want in charge Bankruptcy court or FERC 1 Why does this matter to him 2 What are the arguments he has reference (For the question's support) On 1 29 19, PG E filed voluntary chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the Northern District of California PG E faced over $70 billion in debt PG E needed protection from its impending liabilities Wildfire damage claims Power Purchase Agreements ( PPAs ) Other commitments such as labor agreements and standards purchase and lease agreements PG E had approximately $30 billion in potential liabilities due to the 2017 and 2018 California wildfires Destruction of property including most of the town of Paradise Several deaths and injuries The wildfire liabilities made this a high profile case in California PG E had approximately $42 billion in PPAs These were all executory contracts Largest PPA Counterparties were Con Edison and NextEra Approximately three times PG E's 2017 gross revenues 387 individual PPAs with 350 counterparties Most, in fact 298, of the PPAs were for renewable power The contracts were entered into pursuant to California's policies promoting renewable energy United States Bankruptcy Court, Northern District of California, San Francisco Division, Case 19 03003, PG E's January 29, 2019 Complaint for Declaratory Judgement and Preliminary and Permanent Injunctive Relief, pp 4 5 Chapter 11 enabled PG E to secure $5 5 billion of debtor in possession financing United States Bankruptcy Court, Northern District of California, San Francisco Division, Case 19 03003, PG E's January 29, 2019 Complaint for Declaratory Judgement and Preliminary and Permanent Injunctive Relief, pp 3 4 Bankruptcy courts have original and exclusive jurisdiction of all Chapter 11 cases As part of the development of a corporate reorganization plan under Chapter 11, the debtor needs to decide whether to assume or reject executory contracts Contracts that have not yet been completed Contracts must be assumed or rejected in whole Cannot keep only the favorable parts of a contract If a creditor agrees, the contracts can be renegotiated The Different Legal Standards For Contract Review Bankruptcy Court Business Judgement Rule More beneficial to PG E FERC Public Interest Standard More beneficial to PPA counterparties No Clear Precedent for the PG E Case The Supreme Court has not addressed this issue There have been very few decisions Outcomes have differed Facts of prior cases can be distinguished from the PG E case Two separate proceedings before the bankruptcy court Northern District of California Chapter 11 reorganization Supervised the development of a proposed reorganization plan Conducted hearings regarding the plan Bankruptcy reorganization issues including supervision of any proposed plan Adversary proceeding (PG E v FERC) After a hearing found that it had exclusive jurisdiction over PG E's decisions to assume or reject PPAs Weighed in on the jurisdiction issue Appeals of bankruptcy court decisions go to federal district court who can then send them directly to the U S Court of Appeals In this case the Ninth Circuit FERC In response to a complaint filed by NextEra against PG E, FERC found that it had concurrent jurisdiction with the bankruptcy courts over a decision by PG E to assume or reject a PPA Con Edison filed a pleading in support of NextEra's complaint Because NextEra filed its complaint and FERC issued its decision prior to PG E filing for bankruptcy, FERC's decision was not subject to the automatic bankruptcy stay Appeals of FERC decisions go directly to the U S Court of Appeals In this case the Ninth Circuit Section 365 of the Bankruptcy Code, 11 U S C 365(a) The trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor In the Matter of Mirant, 378 F 3d 511 (5 th Cir 2004) The court found that a bankruptcy court's approval of a contract rejection does not interfere with FERC's jurisdiction In re FirstEnergy Solutions Corp , 945 F 3d 431 (6 th Cir 2019) The court found that the Sixth Circuit held that a debtor can reject a power agreement subject to proper bankruptcy court approval and FERC cannot independently prevent it The Sixth Circuit rebuffed the notion that the filed rate doctrine prevents such agreements from being treated as ordinary contracts for Section 365 purposes, emphasizing the public necessity of functional bankruptcy relief The Federal Power Act gives FERC exclusive jurisdiction over the rates, terms, and conditions of PG E's wholesale contracts 16 U S C Section 824(b) Pennsylvania Water Power Co v Federal Power Commission ( Penn Water ) , 343 U S 414, 423 (1952) Unlike typical executory contracts, wholesale power contracts give rise to distinct regulatory obligations under the Federal Power Act ( FPA ) that only FERC can modify These obligations spring from FERC's authority, not from the private law of contracts Mission Product Holding, Inc v Tempnology, LLC , 139 S Ct 1652 (2019) Rejection of a contract in bankruptcy does not allow a debtor to achieve a better result in bankruptcy than it could outside of bankruptcy Section 365 does not exempt a debtor from the burdens of generally applicable law In re Calpine Corp , 337 B R 27 (S D N Y 2006) The court found that it lacks jurisdiction to authorize the rejections of the power purchase agreements because doing so would directly interfere with FERC's jurisdiction NextEra v PG E , 166 FERC 61,049 (January 25, 2019) FERC found that the Commission and the bankruptcy courts have concurrent jurisdiction Contract rejection alters the rate for wholesale energy therefore, it alters the filed rate PG E needs the approval of both FERC and the Bankruptcy Code to reject a PPA In Re Boston Generating , 2010 WL 4616243 (S D N Y Nov 12, 2010) The court found that a debtor needs the approval of both FERC and the bankruptcy court to reject a contract From a client point of view there were two main issues First, and most importantly, the approval of a plan that assumed our client's PPAs Second, the jurisdictional issue FERC and the PPA counterparties, including Con Edison, NextEra, and Calpine, filed an appeal of the bankruptcy court's decision finding that FERC lacked jurisdiction PG E intervened in the appeal PG E filed an appeal of FERC's orders finding that the Commission and the bankruptcy court had concurrent jurisdiction The PPA counterparties intervene in support of FERC The cases were consolidated briefing was completed Oral argument was delayed due to COVID19 On July 1, 2020, PG E emerged from Chapter 11, after its Plan of Reorganization was confirmed by the United States Bankruptcy Court on June 20, 2020 Wildfire victims received approximately $25 5 billion PG E able to access California's newly created wildfire fund New PG E Board of Directors California has option to take over PG E if it files for bankruptcy again Ultimately, the PG E plan assumed all of the renewable PPAs Since the reorganization plan was approved after the briefing was completed but prior to oral argument the court asked for a second round of briefs as to whether the decisions of the bankruptcy court and FERC should be vacated All parties agreed that the bankruptcy court decision should be vacated FERC and the PPA counterparties wanted the FERC decision to remain We wanted the precedent to remain in place for future cases The Ninth Circuit vacated both sets of decisions Subsequently, FERC has issued the same jurisdictional decision in a series of gas pipeline bankruptcy cases Thus, the precedent is back The Supreme Court has yet to opine on this issue

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 13, 2024

The PG&E bankruptcy Case 1. Whether the Bankruptcy Court or FERC should have jurisdiction over PG&E's decision to assume or reject its solar power purchase

The PG&E bankruptcy Case

1. Whether the Bankruptcy Court or FERC should have jurisdiction over PG&E's decision to assume or reject its solar power purchase agreements?

2. Who does Governor Newsom want in charge Bankruptcy court or FERC?

1. Why does this matter to him?

2. What are the arguments he has?

reference (For the question's support)

On 1/29/19, PG&E filed voluntary chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the Northern District of California
PG&E faced over $70 billion in debt
PG&E needed protection from its impending liabilities
- Wildfire damage claims
- Power Purchase Agreements ("PPAs")
- Other commitments such as labor agreements and standards purchase and lease agreements
PG&E had approximately $30 billion in potential liabilities due to the 2017 and 2018 California wildfires
- Destruction of property including most of the town of Paradise
- Several deaths and injuries
The wildfire liabilities made this a high-profile case in California

PG&E had approximately $42 billion in PPAs
- These were all executory contracts
- Largest PPA Counterparties were Con Edison and NextEra
- Approximately three times PG&E's 2017 gross revenues
- 387 individual PPAs with 350 counterparties
- Most, in fact 298, of the PPAs were for renewable power
- The contracts were entered into pursuant to California's policies promoting renewable energy
  - United States Bankruptcy Court, Northern District of California, San Francisco Division, Case 19-03003, PG&E's January 29, 2019 Complaint for Declaratory Judgement and Preliminary and Permanent Injunctive Relief, pp. 4-5.
Chapter 11 enabled PG&E to secure $5.5 billion of debtor in possession financing
- United States Bankruptcy Court, Northern District of California, San Francisco Division, Case 19-03003, PG&E's January 29, 2019 Complaint for Declaratory Judgement and Preliminary and Permanent Injunctive Relief, pp. 3-4.
Bankruptcy courts have original and exclusive jurisdiction of all Chapter 11 cases
As part of the development of a corporate reorganization plan under Chapter 11, the debtor needs to decide whether to assume or reject executory contracts
- Contracts that have not yet been completed
- Contracts must be assumed or rejected in whole
  - Cannot keep only the favorable parts of a contract
- If a creditor agrees, the contracts can be renegotiated
The Different Legal Standards For Contract Review
- Bankruptcy Court - Business Judgement Rule
  - More beneficial to PG&E
- FERC - Public Interest Standard
  - More beneficial to PPA counterparties
No Clear Precedent for the PG&E Case
- The Supreme Court has not addressed this issue
- There have been very few decisions
  - Outcomes have differed
  - Facts of prior cases can be distinguished from the PG&E case
Two separate proceedings before the bankruptcy court
- Northern District of California
Chapter 11 reorganization
- Supervised the development of a proposed reorganization plan
- Conducted hearings regarding the plan
- Bankruptcy reorganization issues including supervision of any proposed plan
Adversary proceeding (PG&E v FERC)
- After a hearing found that it had exclusive jurisdiction over PG&E's decisions to assume or reject PPAs
- Weighed in on the jurisdiction issue
Appeals of bankruptcy court decisions go to federal district court who can then send them directly to the U.S. Court of Appeals
- In this case the Ninth Circuit
FERC
- In response to a complaint filed by NextEra against PG&E, FERC found that it had concurrent jurisdiction with the bankruptcy courts over a decision by PG&E to assume or reject a PPA
- Con Edison filed a pleading in support of NextEra's complaint
- Because NextEra filed its complaint and FERC issued its decision prior to PG&E filing for bankruptcy, FERC's decision was not subject to the automatic bankruptcy stay
Appeals of FERC decisions go directly to the U.S. Court of Appeals
- In this case the Ninth Circuit
Section 365 of the Bankruptcy Code, 11 U.S.C. 365(a)
- The trustee, "subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor"
In the Matter of Mirant,378 F.3d 511 (5^th Cir. 2004)
- The court found that a bankruptcy court's approval of a contract rejection does not interfere with FERC's jurisdiction
In re FirstEnergy Solutions Corp., 945 F.3d 431 (6^th Cir. 2019)
- The court found that the Sixth Circuit held that a debtor can reject a power agreement subject to proper bankruptcy court approval and FERC cannot independently prevent it
- The Sixth Circuit rebuffed the notion that the filed-rate doctrine prevents such agreements from being treated as ordinary contracts for Section 365 purposes, emphasizing the public necessity of functional bankruptcy relief
The Federal Power Act gives FERC exclusive jurisdiction over the rates, terms, and conditions of PG&E's wholesale contracts
- 16 U.S.C. Section 824(b)
Pennsylvania Water & Power Co. v. Federal Power Commission ("Penn Water"), 343 U.S. 414, 423 (1952)
- Unlike typical executory contracts, wholesale power contracts give rise to distinct regulatory obligations under the Federal Power Act ("FPA") that only FERC can modify
- These obligations spring from [FERC's] authority, not from the private law of contracts
Mission Product Holding, Inc. v. Tempnology, LLC, 139 S.Ct. 1652 (2019)
- Rejection of a contract in bankruptcy does not allow a debtor to achieve a better result in bankruptcy than it could outside of bankruptcy
- Section 365 does not exempt a debtor from the burdens of generally applicable law
In re Calpine Corp., 337 B.R. 27 (S.D.N.Y. 2006)
- The court found that it lacks jurisdiction to authorize the rejections of the power purchase agreements because doing so would directly interfere with FERC's jurisdiction
NextEra v. PG&E, 166 FERC 61,049 (January 25, 2019)
- FERC found that the Commission and the bankruptcy courts have concurrent jurisdiction
- Contract rejection alters the rate for wholesale energy; therefore, it alters the filed rate
- PG&E needs the approval of both FERC and the Bankruptcy Code to reject a PPA
In Re Boston Generating, 2010 WL 4616243 (S.D.N.Y. Nov. 12, 2010)
- The court found that a debtor needs the approval of both FERC and the bankruptcy court to reject a contract
From a client point of view there were two main issues:
- First, and most importantly, the approval of a plan that assumed our client's PPAs
- Second, the jurisdictional issue
FERC and the PPA counterparties, including Con Edison, NextEra, and Calpine, filed an appeal of the bankruptcy court's decision finding that FERC lacked jurisdiction
- PG&E intervened in the appeal
PG&E filed an appeal of FERC's orders finding that the Commission and the bankruptcy court had concurrent jurisdiction
- The PPA counterparties intervene in support of FERC
The cases were consolidated; briefing was completed
Oral argument was delayed due to COVID19
On July 1, 2020, PG&E emerged from Chapter 11, after its Plan of Reorganization was confirmed by the United States Bankruptcy Court on June 20, 2020
Wildfire victims received approximately $25.5 billion
PG&E able to access California's newly created wildfire fund
New PG&E Board of Directors
California has option to take over PG&E if it files for bankruptcy again
Ultimately, the PG&E plan assumed all of the renewable PPAs
Since the reorganization plan was approved after the briefing was completed but prior to oral argument the court asked for a second round of briefs as to whether the decisions of the bankruptcy court and FERC should be vacated
All parties agreed that the bankruptcy court decision should be vacated
FERC and the PPA counterparties wanted the FERC decision to remain
- We wanted the precedent to remain in place for future cases
The Ninth Circuit vacated both sets of decisions
Subsequently, FERC has issued the same jurisdictional decision in a series of gas pipeline bankruptcy cases
- Thus, the precedent is back
The Supreme Court has yet to opine on this issue