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, risking California's clean-energy mandate.

Judge Dennis Montali issued a judgment that effectively bars 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. The company said it has yet to decide which contracts it will keep and which it will reject.

Clean energy is politically sensitive in California, a state with ambitious goals for reducing emissions that the big utilities have to help achieve. While it weighs its clean-energy commitments, PG&E is courting support from state officials and lawmakers to accomplish the central aim of its bankruptcy, which is to resolve wildfire-damage claims that are estimated to be more than $30 billion.

California Gov. Gavin Newsom has urged PG&E not to shed its clean-power contracts, in spite of its financial difficulties.

As an early buyer of wind and solar, PG&E is paying prices in many contracts that are well above current prices for green energy. That is why experts thought they might seek to get out of the deals, while under protection of a bankruptcy judge.

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.

PG&E has $34.5 billion worth of renewable-energy contracts for electricity deliveries between now and 2043, according to a filing with FERC. PG&E buys power produced from wind and solar affiliates of NextEra Energy Inc.and other suppliers.

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 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.

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 speculative grade. 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 08, 2019 12:37 ET (16:37 GMT)

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