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Bankruptcy court retains jurisdiction over PG&E utility supply contracts

A looming battle over Pacific Gas and Electric Co.'s assumed right to reject contracts with energy suppliers as part of its Chapter 11 reorganization will remain before the U.S. Bankruptcy Court of Northern California after a federal district court judge on March 11 denied motions from the Federal Energy Regulatory Commission and contract counterparties for the issue to be withdrawn from the bankruptcy court.

Just days before PG&E Corp. and its utility subsidiary filed for bankruptcy protection on Jan. 29 related to billions of dollars of potential wildfire liabilities, FERC asserted it has "concurrent jurisdiction to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy." NextEra Energy Inc., one of the embattled California utility's largest contract counterparties, had requested the federal regulator confirm its jurisdiction. (FERC docket EL19-35)

The actions prompted Pacific Gas and Electric, or PG&E, and its parent company to ask the bankruptcy court, through a so-called adversary proceeding versus FERC, to confirm its sole jurisdiction over their rights to reject power purchase agreements, or PPAs, and other federally regulated contracts. PG&E has listed $42 billion in commitments through 387 PPAs involving 350 counterparties and 13,668 MW of capacity. Renewable energy projects account for more than half of the capacity.

While both FERC and NextEra filed motions for the issue to be removed from bankruptcy court on grounds that it required "substantial and material consideration ... of non-bankruptcy federal law," Judge Haywood Gilliam Jr. of the U.S. District Court for the Northern District of California disagreed. In line with a recommendation from Judge Dennis Montali, who is presiding over the bankruptcy cases, Gilliam determined the most efficient use of judicial resources "is to deny the withdrawal of reference and permit the bankruptcy court to rule in the adversary proceeding," preventing any undue "delay and costs."

Montali, who in February granted motions of NextEra and other PG&E counterparties to make their cases in bankruptcy court, "intends to rule on the adversary proceeding in short order," Gilliam said in his ruling.