By Peg Brickley 

PG&E Corp. scored a victory in a clash with the Federal Energy Regulatory Commission over who has the right to rule on whether it can rip up $42 billion in power-purchase agreements.

Judge Dennis Montali said he was willing to issue an injunction barring the regulator from preventing the troubled Californian utility company from unwinding contracts that bind it to buy power from suppliers, including renewable energy producers. A judge of the U.S. Bankruptcy Court in San Francisco, Mr. Montali is presiding over PG&E's chapter 11 proceeding.

PG&E said it was pleased with Friday's ruling, but appreciates concern that its bankruptcy will slow progress toward promoting clean energy and power from sources such as wind and solar, as California deals with a changing climate. 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. FERC, the federal agency that regulates interstate power markets, has asserted it also has authority over PG&E's contract decisions.

According to Mr. Montali, FERC overstepped its jurisdiction in threatening to overrule his decisions if PG&E decides to rip up some of the power purchase agreements.

The federal agency said it shared authority with the bankruptcy court over the company's contract decisions. Judge Montali disagreed, dealing a blow to NextEra Energy LP and other companies, many of them producers of wind and solar energy, with contracts to sell power to PG&E. They wanted the bankruptcy judge to agree to side-by-side jurisdiction with FERC, which would have made it tougher for PG&E to walk away from the deals.

NextEra Energy couldn't immediately be reached Saturday 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.

PG&E resorted to bankruptcy to try to resolve an estimated $30 billion in damages from wildfires linked to its equipment. The ability to rework its contracts under the protection of a bankruptcy judge gives the company added financial flexibility, while threatening the business of smaller alternative energy producers.

Judge Montali's decision has no immediate impact, as PG&E has yet to move to reject any of its power contracts. However, it signals that the public interest component of any decision on PG&E's contracts will take a back seat to what is best for the company, unless the defenders of a contract can make a strong case.

Even before the ruling, uncertainty about the future of their contracts with PG&E saw some green-energy producers downgraded to junk status. FERC's authority to hold the line on contracts in a troubled industry is a major issue for companies that are weighing restructuring alternatives.

Write to Peg Brickley at peg.brickley@wsj.com

 

(END) Dow Jones Newswires

June 08, 2019 09:23 ET (13:23 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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