The Federal Energy Regulatory Commission (FERC) issued an Order clarifying that a bankruptcy court cannot unilaterally amend or reject a wholesale power purchase agreement (PPA) or wholesale power contract that is subject to the Commission’s jurisdiction.
After recognizing that the law in this area is unsettled, FERC found that it “shares concurrent jurisdiction with bankruptcy courts over wholesale power agreements,” such as the ubiquitous PPA. Citing this concurrent jurisdiction, FERC concluded that a party to a FERC-jurisdictional PPA that has sought bankruptcy protection (such as PG&E) must obtain approval from both FERC and the bankruptcy court to modify and reject rates and terms identified in a PPA, known as the “filed rate.” FERC reasoned that any modification to such rates implicates its jurisdiction and requires its approval because “rejection of a Commission jurisdictional contract in a bankruptcy court alters the essential terms and conditions of the contract and the filed rate.”
A Common Example of FERC Jurisdiction
Not all FERC-jurisdictional PPAs have to be filed with FERC to be subject to the filed rate doctrine. For example, filing with FERC is generally not a requirement for PPAs negotiated pursuant to market-based rate authority. This is because if an entity has market-based rate authority it will have a filed and approved market-based rate tariff that does not require the entity to file each wholesale contract with FERC. Thus, filing with FERC is not a standard practice in PPA negotiations, generation project development, or ProjectCo acquisition/dispositions or mergers.
One can determine whether a PPA is subject to FERC’s filed rate jurisdiction by consulting the terms of the PPA itself or other sources as follows: (i) search by entity in FERC’s eLibrary system or eTariff system, (ii) consult provisions in the PPA related to operations and permits, (iii) provisions in financing or acquisition documents, such as an Equity Capital Contribution Agreement (ECCA) or Membership Interest Purchase Agreement (MIPA) related to the federal regulatory status of the ProjectCo(s), or (iv) a legal opinion associated with the generator or ProjectCo will likely have an appendix that identifies all required permits, including a market-based rate order if applicable.
FERC addressed this issue in response to a Petition for Declaratory Order and Complaint filed by NextEra Energy. NextEra filed on behalf of its subsidiaries that sell solar and wind energy to PG&E pursuant to market-based rate authority and wholesale PPAs. NextEra sought a Declaratory Order from the Commission finding that PG&E cannot abrogate, amend, or reject its FERC-jurisdictional PPAs without first obtaining FERC approval. NextEra did so to protect the rates and terms included in its wholesale PPAs with PG&E. Numerous other renewable energy companies, environmental groups, and government bodies intervened in this FERC proceeding (Docket No. EL19-35).