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)

Copyright (c) 2019 Dow Jones & Company, Inc.
PG&E (NYSE:PCG)
Historical Stock Chart
Von Feb 2024 bis Mär 2024 Click Here for more PG&E Charts.
PG&E (NYSE:PCG)
Historical Stock Chart
Von Mär 2023 bis Mär 2024 Click Here for more PG&E Charts.