Ninth Circuit Vacates FERC and Bankruptcy Court Orders, Avoiding Jurisdictional Dispute Over PPAs in Bankruptcy

Troutman Pepper

Troutman Pepper

On October 7, 2020, the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”) vacated, as moot, two FERC orders asserting concurrent jurisdiction to review the disposition of certain Pacific Gas & Electric Corporation (“PG&E”) power purchase agreements (“PPAs”) that PG&E sought to reject through bankruptcy.  In a brief memorandum decision, a three-judge Ninth Circuit panel explained that the orders had become moot when the bankruptcy court confirmed a reorganization plan that had PG&E assume, rather than reject, the PPAs.  In the same decision, the Ninth Circuit vacated a related bankruptcy court order in which the bankruptcy court determined that FERC does not have concurrent jurisdiction with the bankruptcy courts over the rejection of such PPAs.  In vacating the three orders, the Ninth Circuit expressed no opinion on the merits of the consolidated appeal, and left open the question of whether FERC and the bankruptcy courts have concurrent jurisdiction over wholesale power contracts in Chapter 11 bankruptcy proceedings.

The Ninth Circuit decision is the latest development in the jurisdictional dispute between FERC and the bankruptcy courts over whether the bankruptcy courts have exclusive jurisdiction over a regulated entity’s right to reject FERC-jurisdictional wholesale power contracts.  In January 2019, FERC issued two orders concluding that PG&E must obtain approval from both FERC and the bankruptcy court before it could modify its filed rate and reject filed PPAs (see March 21, 2019 edition of the WER).  However, in June 2019, Judge Dennis Montali of the U.S. Bankruptcy Court of the Northern District of California San Francisco came to the opposite conclusion, declaring that FERC did not have concurrent jurisdiction over such matters, and that the bankruptcy court would, if necessary, “enjoin FERC from perpetuating its attempt to exercise power it wholly lacks” (see June 20, 2019 edition of the WER).  The FERC orders and Judge Montali’s ruling were appealed and consolidated before the Ninth Circuit.  Meanwhile, the bankruptcy court confirmed a reorganization plan requiring PG&E to assume, rather than reject, the PPAs at issue.

In its memorandum decision, the Ninth Circuit first noted that the underlying case related to the FERC and bankruptcy orders became moot when the bankruptcy court confirmed the reorganization plan.  Therefore, the crux of Ninth Circuit’s decision was whether the orders themselves should be vacated.  The Ninth Circuit stated that all parties generally agreed that the bankruptcy court’s order should be vacated, but they disagreed on the treatment of the FERC orders.  Specifically, the Ninth Circuit explained that FERC and the intervenors to the case argued that because PG&E proposed its assumption of the PPAs in the reorganization plan, PG&E had a hand in mooting the underlying case and thus, surrendered its right to the remedy of vacatur.  The Ninth Circuit ultimately disagreed, finding that PG&E did not propose to assume the PPAs to evade the Ninth Circuit’s review of FERC’s orders, but rather, that the proposal was prompted by outside forces, including the state of California, which pressured PG&E to reorganize quickly.  The Ninth Circuit also found that vacating the FERC orders would prevent the orders from adversely impacting PG&E or another utility in the future, and that vacatur was unlikely to harm FERC, as FERC could simply re-establish its positions in a future order.

A copy of the Ninth Circuit’s decision is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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