Wildfires have ravaged California in recent years. In 2018, blazes across the state killed eighty-six people and caused more than $9 billion in property damage. The year before, in 2017, wildfires killed forty people and caused at least $10 billion in property damage. California’s inverse condemnation law holds Pacific Gas & Electric Company (PG&E), the state’s largest gas and electric utility, liable for much of the damage. Yet, California’s adverse regulatory environment makes cost recovery from customers unlikely. As a result, PG&E, along with its parent company, filed for Chapter 11 bankruptcy in January 2019 for debts anticipated to exceed $51 billion. Fire victims and shareholders, however, are not the only ones who could suffer. At the time of filing bankruptcy, PG&E had more than 380 long-term contracts with independent power producers worth $42 billion. Under Chapter 11, PG&E could “reject” any of these contracts as part of its bankruptcy, leaving its suppliers with unsecured claims. This concern is not hypothetical. In fact, some PG&E suppliers saw their credit ratings reduced to “junk status” in anticipation that their long-term contracts could be discarded during bankruptcy.
To avoid that outcome, NextEra Energy (NextEra), one of PG&E’s contract suppliers, petitioned the Federal Energy Regulatory Commission (FERC or Commission) to order PG&E to obtain Commission approval prior to rejecting any wholesale power purchase agreements. Both PG&E and the Bankruptcy Court for the Northern District of California assert that the bankruptcy court has exclusive jurisdiction over the matter. FERC, on the other hand, has argued it retains concurrent or exclusive jurisdiction over the contracts. This dispute is the focus of this article; namely, whether FERC can exercise jurisdiction over wholesale power purchase contracts when a public utility or independent power producer declares bankruptcy.
This article argues that FERC has exclusive jurisdiction over wholesale power purchase contracts because Congress intended for the Commission, pursuant to the Federal Power Act (FPA), to exercise plenary authority over interstate energy markets. Moreover, Mission Product Holdings Inc. v. Tempnology, LLC suggests the Bankruptcy Code should not be read to the exclusion of other fonts of federal law. This article also argues that to the extent federal courts fail to respect FERC’s exercise of jurisdiction, Congress should enact legislation that clearly demarcates the boundaries between the Federal Power Act and the Bankruptcy Code.
Ultimately, the preservation of FERC authority is important to ensure uniform interpretation of FPA jurisdictional contracts and, conversely, to avoid the risks associated with bankruptcy courts across the country exclusively rendering judgment without reference to the Federal Power Act. The ex post elimination of FERC jurisdiction would allow defaulting parties, with the assistance of the bankruptcy courts, to engage in unanticipated risk allocation shifting. Although the practical consequences are uncertain, the possibility of risk shifting could hinder the further decline of renewable energy prices by injecting fresh uncertainty into capital investment decision making. In turn, higher costs and greater market uncertainty presumably would disincentivize investment at a time when many states and public utilities are relying on independent power producers to help achieve renewable energy mandates.
In order to provide a framework for these arguments, this article first provides a brief overview of the Bankruptcy Code, the Federal Power Act, and wholesale energy markets. Second, this article discusses the filed rate and Mobile-Sierra doctrines that inform the scope of FERC’s jurisdiction. Third, this article reviews prior cases involving disputes between FERC and bankruptcy courts. Fourth, this article explains why FERC may exercise exclusive jurisdiction and why the Supreme Court’s holdings in NextWave and Bildisco provide little guidance for resolving jurisdictional disputes between FERC and the bankruptcy courts. Finally, this article concludes that exclusive FERC jurisdiction over wholesale power purchase contracts is warranted as both a matter of law and policy.