The bankruptcy court judge presiding over the PG&E bankruptcy case last week ruled against several renewable generation owners that had petitioned the FERC to intervene in the bankruptcy case and prevent the utility from rejecting long term power purchase agreements (PPAs) that the utilities entered into years ago. The bankruptcy judge rejected FERC’s claim of concurrent jurisdiction over the proceedings as it relates to PPAs. The developers sought FERC intervention out of concern that PG&E may elect to reject the PPAs in the bankruptcy process as many of them are at significantly above market prices.
The issue is a complex one because on the one hand, the PPAs are very expensive relative to current market prices for power and PG&E ratepayers could benefit substantially from rejecting the contracts by lowering PG&Es cost for generation by as much as $2.5 billion per year. On the other hand, if PG&E elects to reject the contracts, it will have a chilling effect on the renewable energy market in California and hinder accomplishment of the state’s renewable energy goals. For that reason, the governor and the California Public Utility Commission have urged PG&E not to reject the PPAs.
PG&E filed for bankruptcy protection earlier this year siting the potential for massive wildfire liabilities stemming from fires caused by PG&E equipment in 2017 and 2018. The most significant was the Camp Fire which destroyed the city of Paradise and was triggered by a failed PG&E transmission line. Estimates of wildfire liabilities faced by PG&E have been in excess of $30 billion, and it’s unknown at this point how those liabilities will be handled in bankruptcy.
Overall expectations are that PG&E ratepayers are going to face significantly higher rates in the coming years as a result of costs associated with wildfires, renewable energy mandates, and the loss of load to community choice aggregations. How much higher will depend a great deal on the treatment of wildfire liabilities and legacy renewable PPAs. Keep up with this and other energy market moving events on our blog.