Bankrupt Pacific Gas and Electric (PG&E) Corp. won a key legal victory as a judge ruled that federal regulators cannot prevent the giant California utility from amending or exiting up to $42bn of energy supply contracts including those for 7.7GW of renewables.
Judge Dennis Montali decided that his bankruptcy court, not the Federal Energy Regulatory Commission (FERC), which regulates interstate transmission and bulk sale of electricity and natural gas, has jurisdiction over the long-term contracts involving 350 “counterparties.”
Washington, DC-based FERC earlier said it had “concurrent,” or side-by-side, jurisdiction in such issues with the bankruptcy court.
The ruling is a blow to a slew of third-party wind, solar, geothermal and other renewables projects with supply deals owned by industry leaders such as Berkshire Hathaway Energy, Clearway Energy, Consolidated Edison, EDF, Exelon Corp., Next Era Energy and Pattern Energy.
While pleased with the ruling, PG&E said it has yet to decide which contracts it will retain or reject. Any unilateral action must first gain approval from the judge.
Wind and solar power prices are much cheaper now than PPA prices it agreed to pay five, 10 or more years ago.
The renewables contracts underpin PG&E fulfillment of a legal mandate to have 33% if its retail electric sales sourced from those resources by 2020, 44% by 2024 and 60% by 2030. California also has a goal to reach 100% renewables by 2045.
Moody’s Investors Service, which provides bond credit ratings, estimates revoking contracts with above-market prices could save the utility $1.4bn annually, according to the Wall Street Journal.
Re-working contracts would alienate investors particularly if they are forced to assume large losses, endanger California’s climate ambitions and raise potential uncertainties over electricity supplies.
PG&E has continued to deliver power and natural gas as usual during the bankruptcy process, which could stretch out for years.
California is the number one US state for solar power capacity and fourth for wind.
The utility filed for Chapter 11 protection in January amid struggles with its potential liabilities in sparking wildfires in the state with Montali presiding over the court-supervised reorganization.
PG&E, which serves the northern half of California, faces hundreds of legal actions on behalf of more than 5,000 fire victims who allege damages for the role its high-voltage transmission lines may have played in the 2018 blazes that were among the deadliest in state history.