FERC Clarifies Its Concurrent Jurisdiction with Regard to Bankruptcy Filings That Seek to Reject Power Purchase Agreements

On January 25, 2019, the US Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an order clarifying its position with regard to bankruptcy filings that seek to reject Commission-jurisdictional wholesale power purchase agreements. In response to a petition for a declaratory order and complaint filed by NextEra Energy, Inc. and NextEra Energy Partners, L.P. (NextEra) against Pacific Gas and Electric Company (PG&E) in anticipation of PG&E’s bankruptcy filing, FERC concluded that it has concurrent jurisdiction with the bankruptcy court to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy. FERC ruled that, to give effect to both its jurisdiction under the Federal Power Act (FPA) and the bankruptcy court’s jurisdiction under the Bankruptcy Code, a party to a Commission-jurisdictional wholesale power purchase agreement must obtain approval from both the Commission and the bankruptcy court to reject the contract.

FERC acknowledged that the law in this area is unsettled. In the Matter of Mirant Corp., 378 F.3d 511 (5th Cir. 2004) (Mirant), the US Court of Appeals for the Fifth Circuit (5th Circuit) found that the FPA does not preempt the Bankruptcy Code because the rejection of a wholesale power purchase agreement would only have an indirect on the “filed rate” approved by FERC. In contrast, In re Calpine Corp., 337 B.R. 27 (S.D.N.Y. 2006), the US District Court for the Southern District of New York found that it lacked subject matter jurisdiction to authorize the rejection of the energy contracts at issue and concluded that FERC has exclusive jurisdiction over their disposition. The same jurisdictional issues are currently before the US Court of Appeals for the Sixth Circuit on appeal of the US District Court for the Northern District of Ohio’s decision in FirstEnergy Solution Corp. v. FERC, 2018 WL 2315916 (Bankr. N.D. Ohio May 18, 2018), which issued a preliminary injunction enjoining FERC from requiring FirstEnergy Solutions Corporation (FirstEnergy) to continue performing under certain wholesale power contracts that FirstEnergy sought to reject through bankruptcy.

In finding that it has concurrent jurisdiction with the bankruptcy court, FERC noted the broad scope of the Commission’s statutory jurisdiction under the FPA over rates, terms and conditions of wholesale electricity sales. Contrary to the 5th Circuit’s holding in Mirant, the Commission found that a rejection of an FERC-jurisdictional contract by a bankruptcy court would alter the essential terms and conditions of the contract, and, thus, FERC’s approval was required. FERC also indicated that it was not reviewing the specific contracts at issue between NextEra and PG&E but rather explaining the Commission’s concurrent jurisdiction with respect to wholesale power agreements generally.