PG&E Wins Ruling Allowing it to Pull Out of Power Contracts -- 3rd Update
09 June 2019 - 2:52AM
Dow Jones News
By Peg Brickley
PG&E Corp. scored a victory in a clash with the Federal
Energy Regulatory Commission over who has the right to rule on
whether it can rip up $42 billion in power-purchase agreements,
risking California's clean-energy mandate.
Judge Dennis Montali issued a judgment that effectively bars the
regulator from preventing the troubled Californian utility company
from unwinding contracts that bind it to buy power from suppliers,
including renewable energy producers. A judge of the U.S.
Bankruptcy Court in San Francisco, Mr. Montali is presiding over
PG&E's chapter 11 proceeding.
PG&E said it was pleased with Friday's ruling, but
appreciates concern that its bankruptcy will slow progress toward
promoting clean energy. The company said it has yet to decide which
contracts it will keep and which it will reject.
Clean energy is politically sensitive in California, a state
with ambitious goals for reducing emissions that the big utilities
have to help achieve. While it weighs its clean-energy commitments,
PG&E is courting support from state officials and lawmakers to
accomplish the central aim of its bankruptcy, which is to resolve
wildfire-damage claims that are estimated to be more than $30
billion.
California Gov. Gavin Newsom has urged PG&E not to shed its
clean-power contracts, in spite of its financial difficulties.
As an early buyer of wind and solar, PG&E is paying prices
in many contracts that are well above current prices for green
energy. That is why experts thought they might seek to get out of
the deals, while under protection of a bankruptcy judge.
Bankruptcy gives PG&E the freedom to get out of power deals
that it considers unfavorable, as long as a judge agrees. FERC, the
federal agency that regulates interstate power markets, has
asserted it also has authority over PG&E's contract decisions.
According to Mr. Montali, FERC overstepped its jurisdiction in
threatening to overrule his decisions if PG&E decides to rip up
some of the power purchase agreements.
PG&E has $34.5 billion worth of renewable-energy contracts
for electricity deliveries between now and 2043, according to a
filing with FERC. PG&E buys power produced from wind and solar
affiliates of NextEra Energy Inc.and other suppliers.
The federal agency said it shared authority with the bankruptcy
court over the company's contract decisions. Judge Montali
disagreed, dealing a blow to NextEra Energy and other companies,
many of them producers of wind and solar energy, with contracts to
sell power to PG&E. They wanted the bankruptcy judge to agree
to side-by-side jurisdiction with FERC, which would have made it
tougher for PG&E to walk away from the deals.
NextEra Energy couldn't immediately be reached Saturday to
comment on the decision. An appeal is likely and Judge Montali has
said he would sign orders allowing speedy review of his decision by
a higher court.
The ability to rework its contracts under the protection of a
bankruptcy judge gives the company added financial flexibility,
while threatening the business of smaller alternative energy
producers.
Judge Montali's decision has no immediate impact, as PG&E
has yet to move to reject any of its power contracts. However, it
signals that the public interest component of any decision on
PG&E's contracts will take a back seat to what is best for the
company, unless the defenders of a contract can make a strong
case.
Even before the ruling, uncertainty about the future of their
contracts with PG&E saw some green-energy producers downgraded
to speculative grade. FERC's authority to hold the line on
contracts in a troubled industry is a major issue for companies
that are weighing restructuring alternatives.
--Katherine Blunt contributed to this article.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
June 08, 2019 12:37 ET (16:37 GMT)
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