PG&E Can Pull Out of Green-Power Contracts -- 5th Update
June 09 2019 - 5:58PM
Dow Jones News
By Peg Brickley
PG&E Corp. scored a legal victory over federal regulators
that could clear the way for the financially troubled utility to
rip up billions of dollars in expensive green-power contracts as it
seeks to exit bankruptcy.
The ruling by Judge Dennis Montali, who is presiding over
PG&E's chapter 11 proceeding, may allow the company to get out
of $42 billion in power-purchase agreements, including many
pioneering wind and solar deals that are now well above current
market prices.
That could threaten scores of electricity suppliers including
units of NextEra Energy Inc., Consolidated Edison Inc. and
Berkshire Hathaway Inc., as well as complicate California's
ambitious plans to reduce carbon emissions to combat climate
change. California Gov. Gavin Newsom has urged PG&E not to shed
its clean-power contracts despite its financial difficulties.
PG&E said it was pleased with Friday's ruling, but
appreciates concern that its bankruptcy will slow progress toward
promoting clean energy. The company said it has yet to decide which
contracts it will keep and which it will reject.
Bankruptcy gives PG&E the freedom to get out of power deals
that it considers unfavorable, as long as a judge agrees. But the
Federal Energy Regulatory Commission, which regulates interstate
power markets, has asserted it also has authority over PG&E's
contract decisions.
In his ruling late Friday, Judge Montali disagreed, finding that
FERC overstepped its authority in threatening to overrule his
decisions on PG&E's power-purchase agreements. FERC had sought
to have the bankruptcy judge agree to side-by-side jurisdiction,
which would have made it tougher for PG&E to get out of
deals.
PG&E has $34.5 billion worth of renewable-energy contracts
for electricity deliveries between now and 2043, according to a
filing with FERC. Rejecting those with above-market prices could
save the company $1.4 billion annually, according to Moody's
Investors Service.
Daniel Sinaiko, a project finance attorney with Akin Gump
Strauss Hauer & Feld LLP, said that if PG&E moves to reject
some of its contracts, those power suppliers would join the line of
creditors in the bankruptcy proceeding. But he added that such a
scenario could have a chilling effect on the market for wind and
solar projects in California if those companies were forced to take
substantial losses. "It would definitely be disruptive if there
started to be concern about whether the generators would make it
out in one piece," he said.
NextEra, which had pushed FERC to intervene in the case,
declined to comment on the decision. An appeal is likely and Judge
Montali has said he would sign orders allowing speedy review of his
decision by a higher court.
While PG&E could gain added financial flexibility by
reworking contracts in bankruptcy, that would threaten the business
of alternative-energy producers. Some of the companies rely on
PG&E for the bulk of their revenue, including Topaz Solar,
owned by Berkshire Hathaway.
Clearway Energy Group, which has a substantial renewable-energy
portfolio in California, reduced its quarterly dividend in February
in response to its exposure to PG&E's bankruptcy. The company,
which reported a $47 million loss in the first quarter, has six
solar projects and one natural-gas plant that sell electricity to
PG&E. Those contracts accounted for about 23% of Clearway's
revenue last year, according to securities filings. Clearway
declined to comment on the ruling.
Even before the ruling, uncertainty about the future of their
contracts with PG&E saw some green-energy producers' debt
downgraded to speculative grade by Standard & Poor's. FERC's
authority to hold the line on contracts in a troubled industry is a
major issue for companies that are weighing restructuring
alternatives.
--Katherine Blunt contributed to this article.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
June 09, 2019 17:43 ET (21:43 GMT)
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