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The Bankruptcy Protector

January 30, 2019

PG&E Bankruptcy Threatens Power Purchase Agreements

By Lee B. Hart, Dylan Trache, Steven Shparber

Pacific Gas and Electric Company and PG&E Corporation (together “PG&E”) filed for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California on January 29, 2019.

While the bankruptcy filing is framed primarily as a response to the massive wildfires in California and possible liability arising from those fires, the filing raises numerous issues for parties to power purchase agreements (“PPAs”) and other creditors of PG&E.  In particular, the possibility that PG&E may attempt to reject unfavorable PPAs in its bankruptcy case looms.  Bankruptcy courts have reached differing conclusions on whether a debtor may reject similar agreements without prior approval from the Federal Energy Regulatory Commission (“FERC”).  On January 25, 2019, FERC issued an Order on Petition for Declaratory Order and Complaint concluding that FERC and the Bankruptcy Court would have concurrent jurisdiction over PPA’s and that approval from both FERC and the Bankruptcy Court would be required to reject or modify those agreements.  However, contemporaneously with the bankruptcy filing PG&E has filed a complaint requesting that the bankruptcy court to determine that FERC has no jurisdiction over such contracts, and that they may be rejected in bankruptcy under the same procedures as any other contract.

Whether PG&E will be authorized to reject PPAs is of critical importance to the counter-party to that contract.  A rejected contract results only in a general unsecured claim for damages, making recovery uncertain.  Nelson Mullins’ bankruptcy and energy regulatory attorneys are uniquely qualified to assist parties to PPAs with PG&E.  For more information, please contact Steven Shparber, Lee Hart, or Dylan Trache.

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